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Fed Clarifies QE Policy - Sort Of
I was involved with a blog debate a month ago. The broad topic was the
Fed’s quantitative easing policy (QE). More specifically there was a
question of what types of Fed actions should be included in the QE
definition. At the time I made some assertions and a number of folks
took issue with me. I was left wondering who was right. So I wrote to
the Fed. My note to them and their response:
From:BK
Can you please help resolve a misunderstanding?
On 8/12/09 the Fed put out the following report.
This
report described the POMO purchases that have/will be made. It included
$1.25 t of Agency MBS, $300b of Treasury obligations and $200b of
Agency Bonds.
Should all of this be included in the definition
of Quantitative Easing? I have put forward an argument that the $200b
of Agency debt should be excluded from the total of QE purchases.
Can you clarify this for me please?
Thank you,
Bruce Krasting
From Fed:
Thank you for your inquiry.
Regarding
your question if the New York Fed's operations create reserves, the
Federal Reserve is the owners/definers of "reserves". That said, the
Federal Reserve has developed several programs in response to current
economic conditions. Information on these programs is available on our
website at this link.
Information is also available from the Board of Governors website at:
From
this information you may choose which programs embody your own
definition of quantitative easing. I hope this information is useful to
you.
Regards,
Kimberly Hooks
Media Relations and Public Affairs
Federal Reserve Bank of New York
While
I am thankful to Ms. Hooks for her response I must confess that I am
still confused. I did look through the information in the links
provided and they do contain some clarifying information. But I felt it
also opened the door for even more questions about the QE policy.
I was struck by the response: ”you may choose which programs embody your own definitions of quantitative easing”.
I get to choose? I have no vote in this matter. Maybe 20-30 people in
the whole country have a voice in this that counts. My view on what is
and isn’t QE is irrelevant. I just wanted the facts. A Yes or No was
what I was hoping for.
The following chart can also be found here. It is from this list of Fed activities I am to choose from. Possibly Ms. Hooks provides a clue in this with her words, “If the New York Fed's operations create reserves, the Federal Reserve is the owners/definers of "reserves".
I take this to mean that if the action creates Reserves then it should
be considered as part of the QE program. When she says: “the Federal Reserve has developed several programs in response to current economic conditions”,
I assume that to be a ‘hint’ that the programs that have been created
in direct response to the current economic crisis should be the ones
included in the definition of QE. Of course this could be completely
wrong. I am still left guessing on this. This is as clear as mud. In my
simplistic view the Reserves are borrowed, not owned and I am not sure
what a “definer” is. The chart:
The first category on this list, OMO (Open Market Operations), does create reserves and it does
include agencies. I think this answers the question of a month ago. The
Fed's purchases of direct agency debt securities (different from Agency
MBS) should be included in the definition of QE.
But if you
define QE as an action that creates Reserves and it is new, then there
are nine additional categories that can be included as part of the QE
effort. My conclusion on this is that if the market believes that the
Fed is limited to purchases of Treasury coupons, agency direct debt
obligations or Agency MBS to achieve their QE policy objectives they
are wrong. There are no bounds on this policy.
By any
definition the QE policy launched by the Fed to address the economic
crisis is the largest single financial choice that has ever been made.
It is having a dramatic effect on our economy today. Its impact both
positive and negative will be felt for the next decade. And I can’t get
a straight answer on how to define it or how big it is.
»
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http://lexicon.ft.com/term.asp?t=Quantitative-easing
Printfaster: Where did you get that about the Fed buying agencies and it does not impact the debt ceiling? I like that. They are buying 1.25T of this swill. I did not know that this was excluded from the calculation of the debt limit. A little help here. Point me to this.
bk
Quantitative Easing is generally the targeted production of specific excess quantities of fiat money, as opposed to the targeting of a specific benchmark interbank lending rate (Target Fed Funds Rate). The targeting of rate would be accomplished by whatever indeterminate (beforehand) quantitative operation on the money supply (either adding or subtracting). For your purpose here, think of it as excess money created once fed funds are at or close to zero. It doesn't matter what the Fed buys to inject this money into the system. Could be treasuries, agency MBS, equities, houses, gold, whatever.
Our central bank switched from targeting the quantity of the money supply to targeting the interbank interest rate a ways back. However, in the presence of a zero interest rate bound, and the necessity to 'stimulate' economic activity (or enhance speculation, depending on your view), quantitative easing is the alternative for the central bank.
The Fed means to obfuscate. More so than usual. Generally, monetary policy (that is, the policy of inflating the money supply), is 'ineffective' if properly anticipated by the market. Compound this with the fact that in this case, the wholesale printing of money is necessary to fill the hole in excess of $1 trillion in the collective balance sheet of the core primary dealer system. It is very important to the Fed that the majority of market participants not understand this situation or its implications. Otherwise, there might be panic. Or worse, anger. You know the drill. In addition, the Fed has a long standing philosophy, in keeping with the principle of obfuscation, that it is better to waste more money on a bailout on the condition that the beneficiaries are not directly and unambiguously identified, than to spend less money on a direct bailout, if it is obvious. In other words, plausible deniability is important. A Fed governor actually gave a speech to this effect once!
QE is anything that shortens the yield curve of debt not owned by the Fed.
Eg., buying 30 year freddie/fannies in exchange for 5 year Ts. POMOs. TOMOs where they buy long stuff, anything longer than the average outstanding maturity.
By the way, does anyone have the average maturity of all treasury debt? It would be interesting to plot that over time. Course have to exclude anything held by the Fed.
Oh yes another oddity. When the Fed buys agencies, the total federal debt ceiling does not need to be raised. Hmmm.
"When the Fed buys agencies, the total federal debt ceiling does not need to be raised. "
Exactly. One should take a moment to ponder the implications of this, it helps remove congress from the loop and avoid public scrutiny of the valuation process.
"Oh yes another oddity. When the Fed buys agencies, the total federal debt ceiling does not need to be raised. Hmmm."
Bingo, we have a winner!
Oh, this is pure gold:
http://www.zerohedge.net/
Haven't laughed so hard in weeks.
You all talking bout this Quality Embracement of future taxpayers obligations known as debt that was just recently quantitated easily into existence through wash trades that “create money” and is now referred to as capital and then being levered up to the sky to try and fetch enough of that top quality doo doo flying up there into the BS where all debts are assets and all assets liabilities and there are these names and acronyms and stuff so complicated that you forgot was produced previously by this (scheme)operator s owners on his funding terms and under its super vision so that now finally you will place your bet from thus wise devaluated sideline?
Or, as Mises put it: There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
To QE, or not to QE: that is the question:
Whether 'tis nobler in the markets to suffer
The slings and arrows of outrageous fortune,
Or to halt QE against a sea of troubles,
And by opposing end the rally?
To short: to buy;
No more; and by buy to say we end
The heart-burn of the thousand little trades
That this office is heir to, 'tis a consummation
Devoutly to be wish'd.
”you may choose which programs embody your own definitions of quantitative easing”
or you can take the Federales blue pill and the story ends, you wake up in your Nancy Capitalist bed and find that the downside has been socialized and the upside has been piratized. D'ahr.
$100 is the new $10
Why "Audit" the Fed?
It seems like such a naive direction to go in.
Let us outright kill the fucker, and then ask questions about whether it was the right thing.
Honestly, lets blow it up, and put all the pieces together afterwards.
I am sure all the insiders will be much more willing to talk once their dreams of a few years in the public sector followed by extremely profitable years in the private sector blow up!
Kill the Fed! Get the GS gang out of our Central Banks (yes, we have a GS shill as head of the Bank of Canada!)
According to the Fed Chairman, the Fed policy is Credit Easing, not Quantitative Easing; see http://www.federalreserve.gov/newsevents/speech/bernanke20090113a.htm
To the extent that they amount to the same thing, you may want to rephrase the question in terms of Credit Easing, and see what kind of answer you get (this time they should be specific, since this is the type of "easing" they actually do).
"So you think that money is the root of all evil?" said Francisco d'Anconia. "Have you ever asked what is the root of money? Money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?
"When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears not all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor--your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money, Is this what you consider evil?" -- Franciso D'Anconia Atlas Shrugged 1957
QE is that yoke upon your neck. QE is the fools guarantee that when he reaches for his loaf of bread in the future and offers his parchment (script) in return the shopkeeper shall roll back upon his heels and roll in the aisles with incessant bellowing laughter. We're all paid in script. It's one big massive coal camp the whole world over. Only very very soon you'll get more warmth burning it in the fires that offering it to pay for the firewood!
and more health & wealth making your own bread than buying it from the shopkeeper.
"Bair Says FDIC Is Considering ‘All Options’ on Insurance Fund"
www.bloomberg.com
haha, like she has other options........
Fed always breaks everything and has an "option" to fix it already sorted out. It does whatever it takes to make sure the option "it" want's is the only option on the table.
She's almost pushed me to the brink. I'm si pissed I'm cross-eyed and I need to spit. Can we get back to calling it "queasing" it's the most accurate description.
If the Fed is creating money on paper and then using that money to buy stocks, and that is why the stock market has risen since March, then is it possible for the Fed, in this manner, to buy controlling interests in whatever stocks it feels are needed to dominate the country? Say, the stocks of media corporations, military-contractor corporations and prison-operation corporations, food and water producing or distributing corporations, even "think tank" and "political action" corporations? Could the Fed in this manner end up, in a very practical sense, imprisoning the American people in their own country, like some sort of feudal lord?
It has already accomplished that goal, that's why it's called a Federal Reserve Note.
Used everywhere, except as asswipe, well, maybe Soros uses the dollar for asswipe, who knows.
Now who's talkin' about our Feudal Lord? Praise be the Fuedal Lord!
How much could the Federal Reserve control if gold and silver were the only currency?
The purpose of the Federal Reserve Note is to control all commerce, otherwise known as legal tender for all debts, public and private.
Don't believe me, see if you can exchange a few pebbles from your driveway for groceries and gas. Nyet!
But they'll gladly exchange the aforementioned for ever depreciating pieces of cotton paper with ink on it called greenbacks.
Go figure.
So, do we live in a feudal system with the Federal Reserve is lord and master? In my not so honest opinion, YES!
"QE is just a euphemism for printing money out of thin air. Period. End of discussion."
Well, no. All money is created out of thin air. That's what fiat money is - money created out of thin air. So it really is up to you to decide which part of that "thin air" money is QE and which part isn't.
How many angels can you get on the head of a pin?
Fiat money is printing money out of thin air and trying to pin it to underlying assets in the most deceptive way possible to control the perception of both the money and the underlying assets.
Answer: QE is Peter Pan magic. It is whatever you wish it to be. But if you question it, it won't work.
The Fed sucks. It needs to be shut down.
QE - you define.
OK, it is fog.
so it's: onward thru the fog.
that is what the goverment creats; always!
Great work. In the past this adding and subtracting reserves was more or less innocuous. Today we have a mess cubed. I have been timid in my endorsement of the audit. I have believed that not everything needs to be seen, that we can offer the benefit of trust. Not that we small minded would not understand, merely that they are doing their jobs as defined. Of course, this was a bit naive on my part. The curtain must be pulled back enough to interpret their operations and its effect. Audit NOW!
it's interesting that people could entertain
the idea that the fed has executive privilege...
someone is managing the value of your dollar
and you don't care enough to see the details?
and this says nothing of the establishment of
a fourth branch of government answerable to no
one....
who would trust a secretive organization with
such important matters? would you turn your kid
over to a priest without asking questions?
would you deposit your money in a bank which
refused to comply with audits and financial
standards because, well, it is run by people who
know better? and besides you need to shutup
and just spend money?
this mentality astounds me....i'm glad
you now support the audit but my god who is
so virtuous that he is above an audit? do you
supervise anyone at work or home? do you never
follow up to see if they are following instructions?
i am not picking on you personally but your
mind set is shared by millions and i am trying
to keep from blowing a gasket....
It is the mindset of servitude. Of a lemming. Of a cow chewing on grass waiting for slaughter. Of someone who wishes they had a king to bow to. I have no tolerance for such foolishness. The kindest I can be is perhaps they suffer from Stockholm Syndrome. But my guess is they are just fucking morons.
Actually, I am a micro manager. So I am told. The fed is in another orbit. Sorry, this is not the same as counting paperclips.
Also, we have all sorts of ways of auditing. What we need less opacity and more leveling with the american public without giving away the jewels.
I trust the sausage as along as the maker is verified, I/we don't sick and the cost benefit of the effort is examined. I am just paranoid enough to be alert and dumb enough to not waste my precious time. Time is a finite quantity and 'the future is always uncertain and the end is always near....'
the protection of one's wealth and money cannot
be left to others. that is fundamentally
your responsibility and cannot be delegated and
still claim to attend to fiduciary rectitude....
the annals of entertainment are rife with
impoverished stars who thought that they should
just let their business managers make the
sausage....or in the case of bernie madoff (
if you believe the popular story) billionaires
who just assumed that they didn't need to know
the details)
i am astonished with the notion that anyone
could think that there are jewels for which he
has no business knowing. my view is that there
isn't a goddam thing to which i am not privy
concerning the management of the currency which
is everyone's wealth. leaving it to a cabal
of hyenas to manage is unthinkable....
the financial angle doesn't even begin
to address the political, diplomatic, and military
ends to which the fed has been put....talk about
use of finite time...
there is no rational justification anywhere
which says that an organization is exempt from
auditing because the time inputs are unjustified
or that it might cost too much - a notion which
would get you laughed out of any court, irs
audit, or classroom....a gsa audit in a budget
of trillions usd wouldn't even be a rounding
error on the budget....
i would hardly call you a micromanager based
upon your comments....but
i am glad that you are willing to press harder
into inspection than has been the case heretofore
with our leaders...
the end is not near!
http://www.flickr.com/photos/20158323@N04/3295855157/sizes/l/
What's the point of QE's definition? The Fed balance sheet is, and does contain, trillions and trillions of fabricated dollars summoned from the ethos, and they are being put to the use of a corrupt and influential institutions on the back of those who are holding dollars. The Fed has inferred it, the Treasury has said it's dangerous... What more do we need to act? What now?
During normal times the fed eases by adding reserves to drive down the fed funds rate and indirectly other short term rates. I suggest that any reserves added beyond the point necessary to push rates to their current near zero levels constitutes QE. Though the fed has resorted to some rather “unusual” (to be kind) programs to add reserves. I think it is the quantity of reserves rather than their source that defines quantitative easing.
i disagree somewhat - the problems which the fed
claimed to be solving were those of private
sector real estate
, sundry derivatives problems and even
commercial paper...the solution was to start
buying the bad assets - something which the
fed had never publicly done before....
and with that change in policy comes a new
term to help describe it...quantitative easing...
if the solution were solvable simply by adding
to its balance sheet the fed could have bought bonds
till the cows came home...in which case they
would have performed vanilla open market ops...
instead it includes a mix of asset purchases
plus exotic facilities such as talf, maiden
lane....bond purchases were only 300b usd of
the 1.75t qe bundle....
so to revise my previous defintion, i would
state that qe is the
provisioning of funds to purchase private
and public assets and the availability of
backstop programs to guarantee institutional
solvency and asset prices....
the definition could still be refined but that
is my starting point....so it's a little more
than money printing because it includes
guarantees but not quite raw printing press
activity because assets are presumably backing
the money...
I am not a defender of the fed or its policies. I,m just trying to come up with a definition that makes since to me since there seems to be no official one. Yes ,the fed could have purchased excess t-bonds thru normal OMO "till the cows came home". In my opinion, this still would have been QE. They may have used some exotic programs to print money in a more stupid, reckless or criminal way than usual. But, I don't see a requirement to incorporate these methods into my QE definition. Most of the wrong headed guarantee programs come from the government, not the Fed and I wouldn't call them easing at all. I prefer more precise definitions where possible rather than just lumping all the "bad stuff" under Quantitative Easing.
any definition of qe requires criteria for
determining which programs and "liquidity"
provisioning belongs or does not belong to the
set of qe operations. your definition is too
narrow and does not help in the longer term
academic discussions which have surely begun.
normal omo are only part of the puzzle and very
small in terms of dollar volume. thus a good
definition should also consider both quantitative
and qualitative aspects which include real
and potential interventions.
the philosophy of qe is to supply "lquidity"
and other guarantees to stabilize the markets
and institutions....to achieve this goal a collage
of orthodox, non-orthodox, and exotic provisioning
have been introduced.
omo operations are one of the legs of the policy
structure but qe goes so much further especially
as measured in dollars. it includes
talf, maiden lane, and other entities found on the
h.4.1 and and other fed documents...i grant that some of the programs come from the treasury and elsewhere....nonetheless
the reach of qe is far beyond standard omo....
hence a new term both to describe the essence but
also the philosophical and policy intents are
required.....(this is not to deny any of the political
spin associated with the term or this massive
cleavage next to this editing box)
my definition is hardly concerned with lumping
"bad stuff" under qe....but there exists much than
bad stuff - which goes far beyond t-bonds -
now found on the fed balance sheet...
that said i am an strong oponent of qe....
QE is just a euphemism for printing money out of thin air. Period. End of discussion. The Fed will not define "QE" for you because they KNOW it for what it is - A SCAM, A FRAUD. This is how they confuse and mislead the public - by coming up with fancy names and definitions for ponzi schemes and frauds. I mean these guys must be laughing their asses off in their smoke filled backrooms - knowing that the John Q public is discussing the "definition" of "QE" instead of calling it for the swindle it is and burning them down for defrauding the public on such a grand scale.
It may or may not be a swindle, GG and Bruce K. But I think qe proves to be simply a series of massive loans, of colorful purpose and variety, printed out of thin air.
Loans!?!? I think you need to face up to reality friend, and find out how our "monetary system" (using the words monetary and system pretty loosely here - a more accurate description would be Ponzi Scheme) really works.
Banks pay interest on these gov't injections; they possess them with the stipulation that they be repaid. Hence qe is a series of loans. Whether or not repayment comes to pass is another matter.
Your reply confuses me. What government injections are you talking about? TARP funds?
With QE we are talking about Fed purchases of debt - MBS, agency debt, USTs, credit card bonds, etc.
Anon 73193: Thank you. You are right. I got slapped, and the door shut in my face. I should have expected as much. The less 'we' know the better we will be. That can't be right, can it?
Hey at least you tried.
You should feel ebullient that they even deigned to answer a lower life form, the common American citizen.
It must have been tough for you to tilt your head back and peer into the wispy vastness to see all the way to the top of her ivory tower.
At the very least they probably thought you were Ron Paul making inquiries anonymously through ZH and wanted to make sure they had a cya contingency plan in place.
Nest time, try not to discommode the cloud minders and you won't be dismayed by their elucidation.
You should have followed up with:
"I've used this chart to identify all the programs that qualify for QE... per your suggestion."
"This FOIA requests you disclose the value of the collateral assumed in each program, and in additon determine the current market values of collateral on hand."
"I'm anxiously waiting your response."
"p.s. Please note that you may be held liable in a court of law for any and all healthcare costs associated with me holding my breath for longer than doctors' recommendations."
The reply you received smacks of hubris and arrogance. And rightly so. After all, what sense is there in having power if you don't use it?
Who has the power or the balls to force the Fed to answer questions it doesn't wish to answer? Congress? The President? We the people?
Power is exhibited by those who possessit. Congress asked questions of the Fed and got a middle finger in reply. You asked questions and received the same reply. The President reappointed Bernanke.
Now we know who has the power in the USA.
i wouldn't assume that the president's office does not know the operations of John Law's, eehh hem, Ben Bernanke's central bank. It was Geitner that said it would be "problematic" for the country to know what the FED is doing. Remember--there is a 2010 election, and thus a reason to bullshit the hoi polloi with monetary and economic mountebankery.
Of course the President's office knows the operations of the Fed. The question is who controls the Fed. Who has power over the Fed.
He who controls the money supply ultimately controls the nation. That power is not in the Presidents hands.
What is QE?
QE is whatever you want it to be!
Who me?
Yeah you!
Can it be anything?
Yeah!
A POMO?
Sure!
An OMO?
Why not?
A TOMO, a MOMO, or a HOMO?
Hey, that's not PC!
How bout an elephant...with a donkey for a head!
Sure!
Audit the Fed!