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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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awesome poem
Its called the RICO act and it applies at least 5or6 times over.
Amazing, we're paying the salary of Ms. Hooks just so that she can make canned and senseless responses which could be done by a simple auto responder program anyone could write in about ten minutes. I think the only reason for the fed to have a position called "Media Relations and Public Affairs" would be if the position itself was part of QE, as it's only purpose would be to throw free money in the form of a salary at the public.
YOU GET TO CHOOSE!
Yup! Either way you're screwed, so who cares how we define QE, just take a pick, and leave us alone!
Then perhaps one can come up with a definition of QE that clearly establishes that laws have been broken, investigations should be launched, and prosecutions begun. Oh - and that, therefore, the FED should be abolished.
Pete
Ms. K. Hooks:
Thank you very much for your response. Unfortunately, you may have misunderstood. It wasn't MY definition of QE I was trying to get but the FED's. It seems like I have to wait to get my answer until the FED gets audited early next year (yes, I still believe in the tooth fairy).
Respectufully
A raped taxpayer
you were told to fuck off and not to let the door slam you in the ass on the way out....you got bitch slapped...
just as alan blinder told america on national network news in the 1990s when he said that the last job of the federal reserve was to tell the american people the truth....
qe is basically open market operations applied to private assets rather than merely to treasury bonds...further more the assets need not to be bought through primary dealers or other intermediaries...that charlie brown is what qe is all about....
it is bald faced raw theft of the american people in two ways. the fourth branch of government gets to aquire assets pennies on the dollar - some of them which will turn out to be valuable...others will turn out to be crap...however the fed wins either way because the tax payer carries the loss....
this is why people should be in the streets burning down banks, bankers, and poltiicians....i am not speaking hyperbolously - i am speaking quite literally.
BUT YOU CAN'T REBEL, in January 2008 this law was passed quietly by Congress and Senate:
TITLE 10 > Subtitle A > PART I > CHAPTER 15 > § 332
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§ 332. Use of militia and armed forces to enforce Federal authority
"Whenever the President considers that unlawful obstructions, combinations, or assemblages, or rebellion against the authority of the United States, make it impracticable to enforce the laws of the United States in any State by the ordinary course of judicial proceedings, he may call into Federal service such of the militia of any State, and use such of the armed forces, as he considers necessary to enforce those laws or to suppress the rebellion."
My take on this:
No more French revolution style rebellion allowed unless you can rebel against tanks, machine guns, rockets, bazookas and choppers, F15 bombings, warships etc. States are no longer sovereign... I did not find out about this until recently.
I think you got your answer pretty clearly. It's all QE. Every last bit. Who cares what "the market" thinks? The key is what is the impact of all these excess reserves:
1. Ramping the stock market as ZH reports every day.
2. Attempting to lower the long end of the yield curve with mild success at times.
3. Igniting massive increase in prices of some items down the road.
4. Gold to the moon? Quite likely!
In response to item #3:
Here in Bakersfield CA, a shrunken version of the typical 1/2 gallon of ice cream (1.5 qt I believe) goes for 5.99 when not on sale. The prices at the average grocery store in my middle class neighborhood are for the most part out of my reach now. I have to go down the road to an overcrowded bag-your-own place instead. Oh, P.S. my husband and I earn low 6 figures, combined. (2 kids in college though, and no financial aid of course.)
Agreed, agency debt, MBS, USTs, TALF, it is all QE.
And, as you imply, it all creates new money.
As they increase the level of sophistication of the assets they designate for QE, the ability to exit the program decreases.
It is going to be a disaster. I would NOT hold any material wealth in USD, you are asking for trouble.
"Igniting massive increase in prices of some items down the road."
been to a deli or restaurant in NYC lately?
if not, let me be the 1st to tell you amigo,
the road is already going down...
gouge of the day: $1.50 for a single packet of pop tarts.