Implications of recently announced QE4?


By bmwman91   Follow   Mon, 3 Dec 2012, 8:30pm   1,037 views   18 comments
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So the Bernanke announces that the Fed will buy $40B of t-bonds per month, on top of the $45B in MBSs per month. That equates to them monetizing 90% of the treasury's debt issuance. What does this mean for us? It seems like the Fed is flailing madly in an attempt to just keep things the way they are. That gives me somewhat of an uneasy feeling. They reeeeeally want people piling into equities and RE.

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  1. Mark D


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    1   8:34pm Mon 3 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    it means buy hard access (like a house) because massive inflation is coming.

  2. Goran_K


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    2   8:48pm Mon 3 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    Won't end well. But what are the alternatives? Move to Mexico?

  3. Bellingham Bill


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    3   8:55pm Mon 3 Dec 2012   Share   Quote   Permalink   Like (3)   Dislike  

    Mark D says

    it means buy hard access (like a house) because massive inflation is coming.

    Not if this money doesn't make it into the middle class's hands.

    No wage inflation, no inflation.

  4. Goran_K


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    4   8:58pm Mon 3 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    Exactly, very little of the liquidity from the bailouts made it into middle class hands (even though much of it was meant to spur loan creation). This is more bank welfare and handouts as all the previous QE actions have been.

  5. Bellingham Bill


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    5   8:58pm Mon 3 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    "It seems like the Fed is flailing madly in an attempt to just keep things the way they are"

    better that than the way we were going, 2008-2009.

    The key thing is that the Bush Economy threw a rod in 2007, since it was based entirely on us selling houses to each other and/or liberating the equity out of them so that we could support our consumerism.

    http://research.stlouisfed.org/fred2/series/CMDEBT

    Once we hit the wall in 4Q07, that was all she wrote on that.

    We need to close our $500B/yr trade deficit:

    http://research.stlouisfed.org/fred2/series/NETEXP

    get it back to $100B/yr like it was in the 1990s.

    To do that, we need a weaker dollar, which I think requires massive printing.

    So here we are.

    Enjoy the ride.

  6. lostand confused


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    6   9:03pm Mon 3 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Bellingham Bill says

    Not if this money doesn't make it into the middle class's hands.
    No wage inflation, no inflation

    Yup look at Japan. They have been under perpetual QE. They have massive debt, more than any industrialized nation-well nobody knows how much debt China has and it is not a developed nation- but the yen is at lifetime highs or close to the dollar and they only have deflation to show for so much QE.

  7. bmwman91


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    7   9:17pm Mon 3 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    SFace, so in short, the Fed is taking another step to make debt cheaper in an attempt to nullify the decrease in real income that will result from the fiscal cliff? Is this a recipe for major asset price inflation as some suggest, or just a way to prevent them from falling? Asset prices already are inflated by most traditional metrics.

  8. lostand confused


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    8   9:20pm Mon 3 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike  

    SFace says

    The guys sitting in the federal reserve board knows less than the Frog?

    I would think so. They never saw the housing bubble and bust coming-or so they claim. Greenspan was asking the public to take on adjustable rate mortgages at the height of the bubble. Helicopter Ben and his merry band of bankers has one answer to every problem-More QE.

  9. Hysteresis


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    9   9:46pm Mon 3 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    bmwman91 says

    SFace, so in short, the Fed is taking another step to make debt cheaper in an attempt to nullify the decrease in real income that will result from the fiscal cliff?

    Is this a recipe for major asset price inflation as some suggest, or just a way to prevent them from falling? Asset prices already are inflated by most traditional metrics.

    http://www.federalreserve.gov/faqs/money_12848.htm

    The Congress established the statutory objectives for monetary policy--maximum employment, stable prices, and moderate long-term interest rates--in the Federal Reserve Act.

    the fed's mandates are:
    1) maximum employment
    2) stable prices
    3) moderate long-term interest rates

    they are not trying to inflate prices but keep them from falling (stabilizing them). i suppose the latest rounds of QE are to stabilize real estate prices; the side effect is equity prices get inflated.

    from 2007 to today, the 30 year fixed mortgage rate has dropped from 6.7% (2007 july) to 3.35% (2012 nov). a 50% drop in rates; manufactured almost solely by the fed reserve. this has prevented housing prices from crashing more than they already have.

  10. Bellingham Bill


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    10   10:12pm Mon 3 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    Hysteresis says

    manufactured almost solely by the fed reserve

    Kinda. There's also the general macro flight-to-quality going on:

    http://research.stlouisfed.org/fred2/series/WGS30YR

    the fed is buying treasuries but so is everyone else.

    I think what really happened is that we overextended ourselves 1995-2000 and then again 2002-2007.

    The inflation has already happened. What we're doing now is trying to keep the rubber side down, because if there's actual dislocation in the economy, That Would Be Bad for everyone's assets.

    Looking down the road, what do we have ahead of us other than much higher taxes?

    How can we avoid that fate? WHY are we trying to avoid that fate?

    Did we think we could have $3T in wars and not pay for them?

    Are we really THAT stupid?

  11. CaptainShuddup


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    11   5:47am Tue 4 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    I thought QE3 was going to be an open door policy, in Bernanke's office.

    Hence negating having to name any future QEs, essentially creating a never ending QE.

  12. JohnLaw


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    12   5:52am Tue 4 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    SFace says

    The T-Bill purchase was meant to lower business borrowing rates

    T-Bill purchases are meant to keep the government solvent. The USG can't afford interest rates to rise even 100 basis points. There are not enough buyers for the $1T+ in issuance coming online. How else can ZIRP be maintained?

  13. dodgerfanjohn


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    13   7:56am Tue 4 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    Hysteresis says

    the fed's mandates are:
    1) maximum employment
    2) stable prices
    3) moderate long-term interest rates
    they are not trying to inflate prices but keep them from falling (stabilizing them). i suppose the latest rounds of QE are to stabilize real estate prices; the side effect is equity prices get inflated.
    from 2007 to today, the 30 year fixed mortgage rate has dropped from 6.7% (2007 july) to 3.35% (2012 nov). a 50% drop in rates; manufactured almost solely by the fed reserve. this has prevented housing prices from crashing more than they already have.

    Didn't any of these guys watch the Road Runner & Wile E. Coyote cartoons when they were growning up?

    How does this all not end in an absolutely horrible mess?

  14. taxee


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    14   8:28am Tue 4 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    The idea is to get all the goodies away from the last generation and into the 'right hands' but skirting the pesky political process. Then start handing out those plums to the younger generation as the 'right hands' deem fit. Forget that 'invisible hand' crap. We actually know their names now.

  15. errc


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    15   8:35am Tue 4 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    From those, according to their political disprivilege and inability to avoid being taxed, to those, according to their political privilege, and willingness to "if you can't beat them, join them" and use the usfedgov system of systems as a weapn against their fellow man

  16. errc


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    16   8:41am Tue 4 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    Id like to see a graph with three sets of data

    First, 10yr treasury
    Second, 30 yr mort rates
    Third, quantum easings and other fedgov/fed reserve methods of "keeping rates low"

    It just seems like every time the government does something, the result is the opposite of their stated goal. For instance, rates on the 10yrT seemed poised to dip below 1.0, just before QE3 was introduced. But I guess the fedreserve is not a government entity,,,,,,

  17. yup1


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    17   8:50am Tue 4 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    There is to much debt in our economy which can't be serviced without rates being incredibly low. We have loaded up our seniors with debt, our young adults with debt, our businesses with debt, our government with debt. The only institution with the capacity to take on more debt is the fed. Without debt constantly growing our economy doesn't grow. It will not end well. Without wage growth inflation can't stick. Demand destruction will continue and deflation will take hold. I wonder why we continue to use an economic system that completely breaks without constant growth. You would think one of those smart kids at Harvard would have asked that question.

  18. dodgerfanjohn


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    18   8:53am Tue 4 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    robertoaribas says

    dodgerfanjohn says

    Didn't any of these guys watch the Road Runner & Wile E. Coyote cartoons when they were growning up?

    How does this all not end in an absolutely horrible mess?

    the same thing was said over and over during the great depression... that it would all end in sudden inflation, and the end of the dollar. read some history!!!!

    ?

    It did end in years of inflation. Fortunately this allowed us to pay off our war debts quite quickly.

    I don't see how it compares to the current situation.

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