Watchhttp://finance.yahoo.com/news/fed-pulls-trigger-buy-mortgages-163638925.html
Oh dear.
The Fed said it will buy $40 billion of mortgages per month in an attempt to foster a nascent recovery in the real estate market. The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve.
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They told us it was green shoots. Now its clear they were feeding us the green shits. Bernanke just confiormed the depression. Everything they have said till now has been blatant lies.
The sad thing is that todays action won't help the unemployed, just as prior action didn't. However it is fucking the 100 million of us who still have jobs. We just got a massive pay cut today. Our wages will remain flat while everything we buy doubles again. Outright terrorism....
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Outsourcing, balance of trade, etc. etc. -nope. We tried QE1 and QE2-didn't work. let's try QE3.
Shudder-I guess obama is going to do more of the same for the next four years. perhaps the dollar will become so weak, that China and India will outsource their work to us?
If it ever comes to that, they will simply erect protectionist barriers.
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The Fed knows who it works for. It's not the 99.9%.
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QE is pre-emptive TARP. The Fed inflates a credit bubble to drive down interest rates, pays top dollar for mortgage-backed securities that no rational person would buy at anywhere near that price, then when the borrowers default it's the public who are left holding the toxic assets. Meanwhile, the FIRE industry, who make their $ off high housing prices, get paid. It's lemon socialism and crony capitalism. The big banks control 5/12 of the Fed directly, and the rest of it indirectly, and of course the Treasury (hello Timmy!). The result is debt, more debt, debt for everyone. Chase offers a credit card (really a debt card) called "Freedom." It's an Orwellian name for a debt instrument. Patrick is right, debt is slavery.
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Not sure how powerful the bazooka is time time, 40 bill. is not that much, but this may prove Roberto right for a while longer. Buy a house now!! Never mind that man behind the curtain ;)
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Well it is 40 billion a month and open ended. Of course it didn't work the last two times, so not really sure what they are trying to achieve?
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lostand confused says
Oh I didn't read that part - ok well then 40 bill. a month - buy all you can!!! ;)
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lostand confused says
I think the effects are weakening the dollar, cheap exports and boosting nominal GDP. The Fed's hope is that this will spur more spending, generate more hiring and therefore unemployment rate will go down.
Even though the Fed has not explicitly stated an NGDP target, it seems more willing to that idea now..
Here's a link that talks about it: http://www.nationalreview.com/articles/263476/how-narrow-fed%E2%80%99s-mandate-david-beckworth
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Cheeseus Sonofdog says
...or, there's a turd in the proverbial 'punch bowl.'
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The thing I don't understand is what exactly the direct relationship is between MBS purchases and boosting employment? How does Ben Bernanke propose to reduce unemployment by buying up mortgage securities? Unless we're talking about unemployed brokers or MBS traders, I am not seeing how this is a boon. Enlighten me...
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Ben Berneke as a kid:
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Want a new drug.
http://www.youtube.com/watch?feature=player_embedded&v=pTUi5qB9LKE#!
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Cheeseus Sonofdog says
How does QE3 contribute to a depression?
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iwog says
One way is by keeping housing prices elevated, which is the express purpose, so the 1/3 of the population who rent keep overpaying for existing housing instead of buying and going to home improvement stores to build real wealth. Another way is by suppressing interest rates, so retirees who live on interest have little to spend. (Your prior comments indicate some sympathy for "working people" but none for retirees, apparently they aren't "real Americans" from your avian POV.) A third way is by perpetuating the sense of insecurity and uncertainty that accompanies running the "printing press" (as Bubbles Ben calls it, even though it's all electronic now), so confidence and genuine investment are depressed while debt-driven consumption is "stimulated." A fourth way is by propping up bankers who wrecked the institutions they had been entrusted to run, and indeed the entire financial system, when a truly free market would replace them with people who actually know how to run a bank. (Unlike some, I respect fractional reserve lending, as Jimmy Stewart explained in "It's a Wonderful Life." But, it only works as long as you lend to people who are likely to repay, and limit the loans to the actual value of the collateral.) Corruption corrodes, crony capitalism discourages true free market prosperity, and lemon socialism only enriches the 0.1% at the expense of the 99.9%. You wrote earlier that $ like energy is neither created nor destroyed; that isn't entirely true of $, but to the extent the comment has any validity at all, QE is like "trickle down" and the W tax shift: it enriches a few while impoverishing the many, promoting the FIRE sector while depressing the real economy; Wall Street booms while the remaining 99.9% of the country is increasingly depressed. (But, if you don't like the status quo, your "choice" of the other major party is to vote for the astonishingly worse side of Obamney, brought to you by the other side of Wall Street. Ron Paul, who outpolled the President nationally, stood no chance precisely because he advocated sound money and challenged Wall Street's puppet Bubbles Ben.)
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JodyChunder says
That's a great question. Getting to the heart of the law of unintended consequences .
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iwog says
Because there are unintended consequences to QE.
http://dallasfed.org/assets/documents/institute/wpapers/2012/0126.pdf
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curious2 says
Housing has never ever been more affordable.
curious2 says
The long term effect of QE is higher interest rates. Everyone believes this so strongly, that gold rallied when it was announced and the dollar dropped.
curious2 says
I don't agree with any of this. The fear of running the printing press would cause people to invest and spend money, not hoard it and save it. It's exactly the opposite of what you believe.
curious2 says
I don't see any direct connection between this and a depression. Banks suck, but how do they contribute to an economic contraction NOW? (2008 was only after the banks caused a boom)
I'm sorry but I reject all of your reasons.
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uomo_senza_nome says
I skimmed over this and will have to read it in more detail, but it appears that there are two main points being proposed here:
1. inflation
2. misallocation
I reject the inflation argument, not because it isn't possible, but because it hasn't contributed to our current recession. Inflation remains at historic lows.
The misalloction of resources argument is a LOT more complex and the bulk of the paper is devoted to examinations of money going to the wrong place. I'd have to spend hours just absorbing the information to render an informed opinion on it. I guess it's plausible, but I doubt it has anything to do with our current mess.
What's happening now is not related to lack of capital and the bond market is all about capital. It's a demand side depression.
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The problem is giving money to money center banks to shore them up isn't pump priming. The money is not getting down to the bottom rungs.
If this was real helicopter stuff, it might actually work. Like grants to entrepreneurs dispensed directly by the SBA to people with less than $200k/year incomes or better yet, small lines of credit to help small businesses with cash flow administered directly by the SBA or via Credit Unions and local banks. Banks are not pushing the money out, they are actually reducing consumer and business credit despite getting bombarded with low interest rate cash from the Fed.
Or, we can get the interest rates up in general, which will force those with cash to make an opportunity cost decision between keeping the money in Gold or low interest rate bonds vs. putting it out for interest bearing purposes. It will also set the stage for baby boomer retirement, but the equities market wouldn't like it. Who cares? The stock market is overvalued. Let's get it over with already and stop trying to stabilize prices, let it crash already FFS so we can shake out the bad investments.
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I found a better one:
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What can we expect ? The most powerful monetary man in the world is obligated to save the banks. Quasi Government my ass. It's ideology will devour itself.
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TMAC54 says
QE3 has nothing to do with the banks and in fact will hurt bank profits in the long run.
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iwog says
rotflol
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freak80 says
I almost thought it was Duckhead that said it. Almost.
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iwog says
what the hell?
The fed announces what it is going to buy, when it is going to buy. The banks are the primary dealers. they can front-run the Fed and give the worst possible price.
iwog - i thought you were a smart cookie ;)
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The Fed is a private bank that can legally counterfeit money.
No need for conspiracy theories.
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uomo_senza_nome says
Okay let me explain how this works. The fed will replace everyone as the source for new money to lend. This will result in:
1. The return of non-bank lending institutions like during the bubble run up who can once again lend with a bare minimum of funds.
2. Greatly depressed interest rates, which will cause a huge surge of refinancing. Example: A Wells Fargo portfolio of 5% mortgages will be slashed to 3%.
3. Greater competition across the board with both banks and non-banks competing to sell mortgages to the fed.
I said it will hurt bank profits in the long run and I stand by that. How can anyone doubt this after the RE bubble almost slaughtered the banks wholesale? Even banks that didn't participate in sub-prime or fraudulent mortgage bonds?
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iwog says
If Fed policy ignites hyperinflation it will hurt almost everyone in the long run. But, the way they see it, "In the long run, we're all dead." Meanwhile, although conceivably even non-bank lenders can now profit from QE3, only the banks can use Fed ZIRP lending, and I think the Federal Home Loan Banks are in practice limited to bank lenders too. So, QE3 is like opening up a buffet in the bank lobby, where the banks generally control who can get in; a few gatecrashers might sneak in, but it will be mainly the bankers who feast, until even they start to keel over from morbid obesity.
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um, because without continued assistance from the fourth branch of the governemt, wells fargo and co. that hold all these mortgages are bankrupt! You don't believe me, ask the banks how much they'd enjoy having to mark their assets to market and the fed reneging on yet another attempt to keep the banks solvent
in the long run, the banks are all D-E-A-D DEAD. It is only thru massive intervention and gimmicktry that they are still roaming in their present zombie state
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iwog says
Whoa whoa whoa wait...
Are you suggesting that corporate America cares about the long run?
What matters is next quarter's profits. If future profits must be sacrificed, so be it.
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errc says
Yep. The same thing happened in Japan after their massive asset bubble. I think that's where the term "Zombie Bank" originated.
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errc says
The only assistance banks need to stay solvent is a 0% rate for short term money, which they have had since 2008. QE3 has nothing to do with this. Mortgage bonds are an open bid market, and by entering that market the federal reserve will drive the price of these bonds higher and therefore the interest rate will go lower.
At first banks will be able to skim profits from higher prices, but this will quickly attract competition and eventually they will profit less......Not more.