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Goldman: QE2 Will Continue Into 2012, Will Be Over $2 Trillion, Models Do Not See Rate Hike Until 2015

Tyler Durden's picture


Goldman: "In practice, QE2 is likely to continue well beyond June 2011—at least well into 2012—if our forecasts for unemployment and inflation are close to the mark. We believe that purchases could ultimately cumulate to around $2 trillion...Under our longer-term projections it is easy to come up with models that show no tightening until 2015 or later." In other news, the economy will not recover for the next five years, but under the Centrally Planned Feudal State of Bernanke, the economy is irrelevant. Incidentally, Zero Hedge now believes a $5 trillion QE3 program will be announced by July 2011, when gold is trading at $10,000, the entire Treasury curve is at zero, and stock prices are meaningless courtesy of a DXY sub 50, and every commodity opening limit up daily.

Goldman's prior observations which concluded that a $4 trillion QE is needed now, not in 2011, now, and not $2 trillion as CNBC keeps saying, can be found here.

Jan Hatzius' observations below presented without commentary. Watching this country implode in slow-motion courtesy of a few openly insane economists is self-explanatory.

From Goldman's Jan Hatzius   

QE2: Slightly Slower Pace, But Long Time Frame (Hatzius)

  • Today’s statement by the Federal Open Market Committee (FOMC) shows a slightly slower-than-expected pace for the second round of quantitative easing (QE2), with purchases of “only” $75 billion per month.  However, the committee made up for this potential disappointment by signaling a longer-than-expected time period of purchases, cumulating to $600 billion through June 2011.
  • In practice, QE2 is likely to continue well beyond June 2011—at least well into 2012—if our forecasts for unemployment and inflation are close to the mark.  We believe that purchases could ultimately cumulate to around $2 trillion.  Moreover, it is likely to take even longer—perhaps several years—before the FOMC starts to increase short-term interest rates, although the outcome as always will depend on the performance of the economy.

We see two main takeaways from today’s FOMC statement:

1. Large-scale asset purchases (LSAPs) are on a slightly slower-than-expected schedule, but will likely grow significantly over time.

In a widely anticipated move to provide more support to economic growth, the FOMC announced that it would purchase $600bn in Treasury securities by June 2011. This is over and above the amount that will be purchased as part of the program to reinvest repayments of principal on agency and MBS, which the committee expects to total $250bn-$300bn over the same period. Thus, overall purchases will be in the $850bn-$900bn range between now and mid-2011. Previously planned purchases for reinvestment will take place as scheduled on Nov 4 and 8, after which the two programs will be combined with the anticipated publication of a new purchase schedule on Nov 10 at 2pm.

While the headline figure for the new program is a bit higher than the $500bn that we and many others had expected, the time period is also longer (eight months instead of six), implying a monthly purchase rate of $75bn. We and others had thought that this figure would be about $100bn.  If we focus on a measure such as the expected stock of Fed asset holdings at a 6-12 month horizon—consistent with our research showing that it is mainly stocks rather than flows of Fed purchases that matter for bond yields—these two surprises probably roughly cancel out.

We believe that the program will grow significantly beyond the initial $600 billion.  Today’s statement says that the committee will "regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability." If our forecasts of a 10% unemployment rate and a further decline in core inflation to around 0.5% by late 2011 prove correct, we believe the committee will continue buying assets well beyond June 2011.  At a minimum, we expect purchases into 2012 and still believe that they could ultimately cumulate to around $2 trillion.  (See “QE2: How Much Is Needed?” US Economics Analyst, 10/42, October 22, 2010.)

2. The statement is consistent with our expectation that rates will stay near zero for a very long time, possibly several years.

One implication of the slightly longer time frame for QE2 is that, at the margin, the likelihood rate of hikes anytime soon has receded further.  If Fed officials are committed to buying assets through June 2011, it is very hard to see how they would turn around a few months thereafter and start hiking the funds rate, barring a massive surprise in the economic data.  This is likely to warrant some additional adjustments in the expectations of many economic forecasters.  Although the OIS curve has already removed any rate hike expectations from the 2011 outlook, the median economic forecast in the October Blue Chip Economic Indicators survey still has the first rate hike in the third quarter of 2011.  This is likely to change in coming months.

How long will rates stay near zero?  Of course, the answer depends on the economic outlook, but at least under our longer-term projections it is easy to come up with models that show no tightening until 2015 or later.  (See “No Rush for the Exit,” Global Economics Paper No. 200, June 30, 2010.)  Fed officials will not commit themselves that far out.  However, it is quite possible that senior members of the FOMC will provide further guidance about the short-term interest rate outlook in coming months to explain to market participants just how distant the prospect of interest rate hikes really is.  This could take the form of a version of our Taylor rule or policy reaction function analysis, with a strong implication that even the current market expectation of rate hikes in 2012 may well prove premature.


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Thu, 11/04/2010 - 08:48 | 699025 Azannoth
Azannoth's picture

"Zero Hedge now believes a $5 trillion QE3 program will be announced by July 2011, when gold is trading at $10,000." - the lights will go out long before gold gets to 10,000

Thu, 11/04/2010 - 09:39 | 699214 barkster
barkster's picture

Barkster's Investment Tip of the Day:

Go get some nice brand new crisp notes at the bank and put them away. Like Confederate currency, they will have value in approximately 100 years.

Thu, 11/04/2010 - 10:35 | 699414 amusedobserver
amusedobserver's picture

Currently, the price ratio of gold to oil is about 12.  At $10,000 for gold, oil would be $625/bbl and gasoline would be $35 to $40 a gallon.


Since at that price the arabs would find out that our military isn't necessarily in the mid-east to protect them from the Iranians, the price of oil will only rise about a third as much, and gold will rise 3x more, to $30,000...

Thu, 11/04/2010 - 14:42 | 700339 Azannoth
Azannoth's picture

You got the 1st part correct the 2nd not so, I think it would be in reverse all commodieties will run faster than gold because of real shortages, people need food and gasoline but not gold to survive, by the time gold gets to 5k half the people will be starving to death

Thu, 11/04/2010 - 10:48 | 699460 Phill
Phill's picture

It's called sarcasm, bro! Flavored with irony.

Thu, 11/04/2010 - 08:52 | 699041 Marge N. Callz
Marge N. Callz's picture

We are Japan.  Pomo arigato Mr. Bernanko!!!

Thu, 11/04/2010 - 09:35 | 699200 Divided States ...
Divided States of America's picture

I feel for all the Americans out there.

my advice:

Wake the FUCK up! Your country will be disowned in a few more years if you dont stand up for yourself.

FTW, I am from Canada so I am in a bit better situation that you guys.




Thu, 11/04/2010 - 08:54 | 699047 jcrows
jcrows's picture
Crimestop is a Newspeak term taken from the novel Nineteen Eighty-Four by George Orwell. It means to rid oneself of unwanted thoughts, i.e., thoughts that interfere with the ideology of the Party. This way, a person avoids committing thoughtcrime.

Thu, 11/04/2010 - 08:54 | 699049 H. Perowne
H. Perowne's picture

That was quick. 1375 and 25.5, thanks Bennie! 1400 around the corner? 'Ere we go . . .

Thu, 11/04/2010 - 08:56 | 699054 mule65
mule65's picture

TD says avoid stocks.  Horrid advice thus far.

Thu, 11/04/2010 - 09:00 | 699072 Tyler Durden
Tyler Durden's picture

Are you sure you don't work for the BLS?

Thu, 11/04/2010 - 09:28 | 699172 NoBull1994
NoBull1994's picture


Thu, 11/04/2010 - 09:36 | 699202 Cognitive Dissonance
Cognitive Dissonance's picture

Be gentle Tyler. The captured mind is a terribly difficult thing to wake.

Thu, 11/04/2010 - 09:06 | 699093 Kina
Kina's picture

I'm still pissed I missed out in getting into the Zimbabwe stock market before it took off. Who were those people saying dont do it, take you money out and into gold? I could have made trillions of ZB dollars.

Thu, 11/04/2010 - 10:19 | 699341 downrodeo
downrodeo's picture

I personally hold one quadrillion Zimbabwe dollars. Price on eBay at time of purchase: 10FRNs.

Thu, 11/04/2010 - 09:14 | 699129 Popo
Popo's picture

And "avoid housing" would have constituted terrible advice in 2006.  

If you're a master of market timing, then perhaps you should be in stocks.  

...But if you're a mere mortal, Tyler's advice is probably sound.



Thu, 11/04/2010 - 15:00 | 699841 Hugh_Jorgan
Hugh_Jorgan's picture

So Mule... Say hello Mr. Soros for us, will you?

Thu, 11/04/2010 - 08:57 | 699059 Cognitive Dissonance
Cognitive Dissonance's picture

It looks like the horror movie's going into overtime.

Do I have time for a quick shit, shower and shave before they begin?

Thu, 11/04/2010 - 08:57 | 699060 wiskeyrunner
wiskeyrunner's picture

Yes the magic futures always rise before the cash open. Once the cash market opens flatline for 5 hours. Same stuff over and over and over. Gap up on the open tread water for 5 hours.

Thu, 11/04/2010 - 08:59 | 699068 wiskeyrunner
wiskeyrunner's picture

The insiders at ORCL,AAPL,GOOG,AMZN, all thank Ben. They worship him.

Thu, 11/04/2010 - 09:00 | 699069 Turd Ferguson
Turd Ferguson's picture

Obviously took out a boatload of stops just above 1365 in the Dec10 gold.

As mentioned yesterday, the last line of defense for the Evil Empire is near 1390, where we double-tapped a couple of weeks ago. They'll try to "weather this storm" by defending that number so it may take a little time to get through there. However, there's no reason to think that it won't.

Once through 1400, the EE will probably try to set up mild resistance around 1420. They'll try even harder around 1440, at which point we'll probably fiddle around some as a little profit-taking sets in as well. Ultimately, however, the USDX looks like 72 which will take gold up to my oft-stated goal of 1500 by 12/10/10.

Lastly, keep in mind that soaring gold, the by-product of all this QE, generates headlines that the Fed does not appreciate. Silver, not so much. So expect silver to continue to outperform on a relative basis.

Thu, 11/04/2010 - 09:05 | 699088 I need more cowbell
I need more cowbell's picture

Yes, incredible call yesterday on the pre-annoincement beat down, why, and your forecast of the aftermath.


Thu, 11/04/2010 - 09:14 | 699130 Turd Ferguson
Turd Ferguson's picture

Thanks and don't forget that today and Monday are both POMO days.

Thu, 11/04/2010 - 09:35 | 699193 Cognitive Dissonance
Cognitive Dissonance's picture

Double your pleasure, double your fun.

Thu, 11/04/2010 - 09:46 | 699231 Spastica Rex
Spastica Rex's picture

Electra Woman and Dyna Girl?

Thu, 11/04/2010 - 09:07 | 699094 I need more cowbell
I need more cowbell's picture

Then, on to Jim Sinclairs' million dollar bet that gold hits $1650 in January

Thu, 11/04/2010 - 09:13 | 699124 iota
iota's picture

Keeping an eye on copper as well, started mimicking silver/gold's moves around early/mid September. Difference being it makes nice little intraday retracements fairly consistently.

Thu, 11/04/2010 - 09:33 | 699189 desgust
desgust's picture

Thanks, you're really great!

You've got some followers here :)

Thu, 11/04/2010 - 09:03 | 699080 WineGuy
WineGuy's picture

Turd, my hats off to you. You've been spot on lately. Cheers


BTW, I've got to say this ... Where's Johnny Bravo?

Thu, 11/04/2010 - 11:10 | 699544 Turd Ferguson
Turd Ferguson's picture

He's apparently changed his name to "goldmiddlefinger".

Thu, 11/04/2010 - 09:29 | 699089 GuyFawkes
GuyFawkes's picture

Remember, remember the fifth of November. Yes, the lights will go out long before $10,000 gold and gold will outlive the dollar once slaughter comes...

Thu, 11/04/2010 - 09:11 | 699097 Miles Kendig
Miles Kendig's picture

Hell, if the fed determines that the combined situation at state & local government pension funds, or the muni market/local tax receipts poses serious risks to the financial system I could see the fed dumping more than 5T into the next round.  Especially if members of congress and the political elite start pressing the fed for enhanced support of the broad economy through greater asset purchases as a swap for holding off on trade legislation..

Thu, 11/04/2010 - 09:09 | 699106 Kina
Kina's picture

Topped up in some Australian gold and silver mining stocks today. That is looking good.

Thu, 11/04/2010 - 09:11 | 699107 cowdiddly
cowdiddly's picture

The NYT has an article out already saying that the QE II might not be big enough. You will never win this argument with a Keynesian idiot. No matter how big and often, it will be, always and forever, not big enough when it does not work, rather than admit failure. The Keynesian Kopout.  

Thu, 11/04/2010 - 09:09 | 699108 Rusty Shorts
Rusty Shorts's picture

Is Max Keiser Tyler Durden?

Thu, 11/04/2010 - 11:08 | 699536 andyupnorth
andyupnorth's picture

No, Keiser isn't TD.

Keiser has an average intellect and a flamboyant personality.

TD has phenominal intellect, and is very reserved (in person).

I'm almost certain I know who TD is, but just like Superman's human friends would never give up his identity, the same goes for me :-)

But then, I'm not sure if I'm right either....

Thu, 11/04/2010 - 09:12 | 699118 web bot
web bot's picture

It would for once be nice to see Goldman model the events surrounding the impending collapse of the USD.

Thu, 11/04/2010 - 09:13 | 699121 razorthin
razorthin's picture

Gold at $10,000 implies gasoline at $30/gal.  We all know we are dust long before that point.

Thu, 11/04/2010 - 09:15 | 699131 Cdad
Cdad's picture

Sweet little flash crash on GLD this morning.  Nothing major...just a 3% rip off.  Probably a retracement point for later this afternoon.

Who believes in any of this anymore?

Thu, 11/04/2010 - 09:21 | 699149 MarketFox
MarketFox's picture

There are lots of ways to tax the US population....and the non US population....

Money counterfeiting and interest rate impositions are just forms of government taxation....


Retired savers are paying a 100% income tax on their earnings...and no...this is no joke....


The developing countries are paying 40% more for food and energy....and this is going up....


The tax impositions that the US is imposing....just because of fraudulent securities....for which there has been no one becoming more and more unacceptable....


It is also the BIG tbtf banks that are causing higher energy and food constructing the dollar/oil hedges.....and levered energy/food investment products for the rich....

And no....this is no joke....


It is the time for accountability ?????



Thu, 11/04/2010 - 09:22 | 699154 goldmiddelfinger
goldmiddelfinger's picture

Got to think gold's in the tank for Bannana Benjy. headfake $34 tank yesterday now a $40 combacker to the mound. There's no manip here. JPM's on the DL.


Maybe Roberta Shapiro will ban naked access in Gold futs also (but just for the BD customers).

Thu, 11/04/2010 - 09:22 | 699155 buzzsaw99
buzzsaw99's picture

Zero Hedge now believes a $5 trillion QE3 program will be announced by July 2011, when gold is trading at $10,000, the entire Treasury curve is at zero, and stock prices are meaningless courtesy of a DXY sub 50, and every commodity opening limit up daily...


Ironically this is exactly what will happen. Bernanke on the gerbil wheel, run bennie run!

Thu, 11/04/2010 - 09:23 | 699159 wiskeyrunner
wiskeyrunner's picture

Just buy as many SP 500 you can afford, stops forget about it, dips are bought every single time it drops. There is ZERO risk is this market ZERO NONE NADDA.

Thu, 11/04/2010 - 09:35 | 699198 HelluvaEngineer
HelluvaEngineer's picture

Go back to the Yahoo message boards.

Thu, 11/04/2010 - 09:24 | 699161 GuyFawkes
GuyFawkes's picture

Another flawed Goldman model. If short-term rates don't start moving up until 2015, it will be with 30-year yields at 10%+ and what kind of yield curve would that look like?

Thu, 11/04/2010 - 09:26 | 699164 israhole
israhole's picture

Looks like I'll be a billionaire by 2012, even though there'll be nothing left to spend it on.

Thu, 11/04/2010 - 12:08 | 699801 Hugh_Jorgan
Hugh_Jorgan's picture


Thu, 11/04/2010 - 09:26 | 699165 waterdog
waterdog's picture

2015 is consistent with Gregor MacDonald and JS Kim projections of economic destruction through massive inflation.

Look for the complete collapse of Mexico during the same year.

4 years is a long time to be holding physical if one has a carrying cost.

$ 20 trillion debt by mid-2015.

Thu, 11/04/2010 - 09:27 | 699167 lizzy36
lizzy36's picture

In other words, Bernanke will raise ineterest rates when JFK jr, has his balls to my wall.

Thu, 11/04/2010 - 09:29 | 699175 goldmiddelfinger
goldmiddelfinger's picture

"2. The statement is consistent with our expectation that rates will stay near zero for a very long time, possibly several years"

Sounds a lot like the land of the bullet train

Thu, 11/04/2010 - 10:12 | 699318 Astute Investor
Astute Investor's picture

Let's just call it QEP (quantitative easing in perpetuity) and everyone can move on.

Thu, 11/04/2010 - 10:25 | 699366 cranky-old-geezer
cranky-old-geezer's picture

This might be the most informative post on ZH in a l-o-n-g time.

Thu, 11/04/2010 - 12:07 | 699782 Hugh_Jorgan
Hugh_Jorgan's picture

I would sincerely like to hear Bernanke's detailed explanation about the resuting chain of events that he theorizes will actually get us back on track. But, he can't becaus this is not his plan. This is the same problem with the policies coming out of the political class in DC, they cannot explain how to get from point "A" to point "B" once ALL of the facts are out on the table, and few will ask the question or hold their feet to the fire. So, these elitist devils are either criminally incompetent, (which is debatable but unlikely). Or all of these unconscionable measures are simply a means to the hidden end. In my mind this inevitable collapse we face will make a convenient "safety net" out of a global banking and governance agenda, and that will not end well.

Thu, 11/04/2010 - 12:13 | 699821 fenner
fenner's picture

QE infinity floors the whole world. 2012 just awaits us.


Thu, 11/04/2010 - 12:37 | 699900 Hugh_Jorgan
Hugh_Jorgan's picture

So if $500B is estimated to de-value the dollar by 15-20%, what awaits after the injection $2T into this stagnant economy? Am I alone on this line of thinking?

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Mon, 12/06/2010 - 10:30 | 781786 senthil456
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Tue, 04/26/2011 - 13:45 | 1208348 william.smith61
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Fuel Pump But, he can't becaus this is not his plan. This is the same problem with the policies coming out of the political class in DC, they cannot explain how to get from point "A" to point "B" once ALL of the facts are out on the table, and few will ask the question or hold their feet to the fire. So, these elitist devils are either criminally incompetent,

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