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Why the “Is QE 3 Coming?” Debate is a Moot Point Pt 1
The QE 3
debate has been raging ever since the Fed announced QE 2 in November 2010.
However, this debate is moot. The reason is because the Fed HAS to perform QE 3
in some form or another.
Indeed, the
market has not operated without money pumps around $30 billion each. By June
2008, the Fed had done this 14 times to the tune of $200+ billion. Then came
the $700 billion bailout in November 2008.
After this
came QE 1 from March 2009-April 2010. This entailed roughly $50-80 billion in
money pumps per month hitting the market. Even after QE 1 ended the Fed
continued supplying the juice to the tune of $30 billion or so per month
(though most commentators completely missed this).
Then we get QE
lite, which results in another $50 billion per month, then QE 2 which brings it
to $100 billion per month, and finally, at the beginning of 2011, the Fed
starts pumping another $100 billion per month behind the scenes.
So, in the
last two years, the Fed has gone from making monthly money pumps of $30 billion
to monthly money pumps of $200 billion.
THIS is why
I am certain QE 3 is coming. The Fed has done nothing but pumped money into the
market since July 2007. Even during periods when it had no formal QE program in
place it was STILL pumping money into the system.
However, the
Fed has got itself in a bind. Having pumped so much money into the system, the
Fed has created mini-bubbles in Silver and a few other commodities. Add to this
the growing public outrage over the rising cost of living in the US and the Fed
is finding itself the center of unwanted attention.
Consequently,
Bernanke toned down his money printing talk and hinted at even worrying about
inflation in the most recent Fed FOMC announcement. As a result of this, Silver
and the other “bubbly” commodities have collapsed in a free-fall.
However, all of this is just idle
posturing. Ben Bernanke has done only one thing since taking the helm of the
Fed in 2006. And that’s monetary EASING.
During every
part of his tenure as Fed Chairman, Bernanke has responded to all issues by
loosening his monetary policy. Here’s just a brief recap of the moves he’s made
since the Financial Crisis began:
- The Federal Reserve cutting interest
rates from 5.25-0.25% (Sept ’07-today) - The Bear Stearns deal/ Fed taking on
$30 billion in junk mortgages (March ’08) - The Fed opens up various lending
windows to investment banks (March ’08) - The SEC proposes banning short-selling
on financial stocks (July ’08) - Hank Paulson gets a blank check for
Fannie/Freddie but promises not to use it (July ’08) - Hank Paulson uses the blank check with
Fannie/ Freddie spending $400 billion in the process (Sept ’08). - The Fed takes over insurance company
AIG (Sept ’08) for $85 billion. - The Fed doles out $25 billion for the
auto makers (Sept ’08) - The Feds kick off the $700 billion
Troubled Assets Relief Program (TARP) with the Government taking stakes in
private banks (Oct ’08) - The Fed offers to buy commercial paper
(non-bank debt) from non-financial firms (Oct ’08) - The Fed offers $540 billion to
backstop money market funds (Oct ’08) - The Feds agree to back up to $280
billion of Citigroup’s liabilities (Oct ’08). - $40 billion more to AIG (Nov ’08)
- Feds agree to back up $140 billion of
Bank of America’s liabilities (Jan ’09) - Obama’s $787 Billion Stimulus (Jan
’09) - QE lite (August ’10)
- QE 2 (November ’10)
I’m sure I
left something out. But the above make it clear just how Ben Bernanke likes to
tackle financial problems: printing money.
So make no
mistake…BIG inflation is coming. The Fed knows only one thing: printing money. On
that note, if you’ve yet to take steps to prepare your portfolio for the coming
inflationary disaster, our FREE Special Report, The Inflationary Holocaust explains not only why inflation is here
now, why the Fed is powerless to stop it, and three investments that absolutely
EXPLODE as a result of this.
All in all
its 14 pages contain a literal treasure trove of information on how to take steps
to prepare AND profit from what’s to come. And it’s all 100% FREE.
To pick up
your copy today, go to http://www.gainspainscapital.com
and click on FREE REPORTS.
Good
Investing!
Graham
Summers.
PS. We also
offer a FREE Special Report specifying exactly how to prepare for the coming
collapse in the US stock market (inflation will NOT be positive for stocks for
much longer).
I call it The
Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a
wealth of information about portfolio protection, which investments to own and
how to take out Catastrophe Insurance on the stock market (this “insurance”
paid out triple digit gains in the Autumn of 2008).
Again, this
is all 100% FREE. To pick up your copy today, go to http://www.gainspainscapital.com
and click on FREE REPORTS.
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qe3 will happen, qe4 5 etc. etc. etc. But all the money that was meant to help the mortgage market, has had the opposite effect. Now 40,000,000 americans on food stamps and rising every day. I recently watched an ad on business news channel. If you can put $ 200,000 dollars in a trading account we will lend you $ 2,000,000 at 2%. It is only injecting huge capital into the markets. This shows a growing economy. When minimal research is showing rising unemployment. soaring commodities prices. Coffee, Oil, Gas. All the Bills are going up despite the govt saying inflation is a 5%. This is garbage. Inflation is at the very least 10% or more. Inflation figures are hopeless, when if a tv costs the same price as last year, but is higher res, has more features. This counts against the inflation figure. Using the example of the loan at 2% before. That means If you are savvy enough and have $ 200,000 to invest you are getting the 2 mill, at -8 % interest. Ordinary familys will soon be unable to afford bread, coffee, etc as all this cash in the markets is driving prices up artificially, causing huge inflation. Every new round of QE weekens everyones purchasing power. And makes more money for the richest 1% of the populus. in USA the bottom 50% of the income scale hold less than 1% of the total asset value of the USA. these being families that survive on 2 - 20 $ a day. The US debt will never be paid with QE, rising prices and more and more legislative red tape are actually stiffiling growth in real jobs and startup companys. The $ is on its way out and everone who has done the research knows the US will default on its bonds in less than 5 years, it costs more than its entire tax income to pay for its unfunded liabilities, social security, medicare, medicade. Without any govt spending which is huge, or military spending which is even larger. So it certainly has no money to reduce its debt. So it continues to print fiat currency, the situation gets worse and worse. Perhaps the eventual aim is to repay its debts through hyper inflation. It was not that long ago that one zimbabwae $ was worth 1 us $. now zimbabwe prints $ 100 trillion dollar notes. How did they get there. Quantative easing. My advice, buy physical gold and silver while there is still some out there to get and while the market is still being manipulated with paper silver trades in a day ammounting to over 1 billion ounces. There are not 1 billion ounces of physical silver above ground. The market counts all the silver held by all funds, the comex, individual investors as being available for sale. Thats like a realtor saying all the occupied houses are available for sale. The collapse is coming and the $ will not be reserve currency for much longer. You can bet the bank on that/
What does it say about the "Not So" Federal Reserve buying all of this treasury debt.
The real debate should be exactly that. If I could print 100$ bills, I would be out buying real estate(bad debt and the like from the court house steps) in my local area.
The questions I'm concerned with is who will we be pledging allegiance to once the FedRev buys all of America's Debt.
A question that should not be asked outloud, i guess.
Why do we talk about raising the debt ceiling or what they are going to call QE3 when we should be talking about, oh - I don't know - how we can spend $4 trillion a year when we only have $2 tillion coming in from taxes?
We all know that government spending will cease (at least temporarily) after our currency collapses. Why not just stop the spending now? Oh, that's right - politics. Must. Get. Elected.
So why don't we at least start the dialog about how the fuck we can have three simultaneous wars going on, 700 military bases around the world (with a couple dozen new ones GOING IN RIGHT NOW in the middle east) and military bases in over 130 foreign countries when we have. No. Money.
Entitlements? Don't get me started. Didn't our country get along just fine for a couple hundred years without SS, federal backed education or a federal income tax for that matter?
Guess I better go watch some TV so I can be scared into justifying all this spending.
/rant off
Graham, don't be a Fox News douche. The stimulus plan has nothing to do with this, and you know it, you disingenuous pig. This kind of misinformation has no place on zerohedge.com.
Bubbles in Silver? More like a drive by shooting by JP Morgan.
August, August 2011...that's when the sky will clear on QE 3 or not...or variations on that theme.
The only thing I am sure of is that I have no idea what they will do nor do I truly care. I will adapt as conditions arise and do my own forecasting. But at the end of the day this game is rigged and that is all anyone can do.
Anyone who is firmly in any camp IMHO is gonna have their head handed to them on a platter.
One theme that permeates this discussion is the belief that the FED HAS to keep th game going.
Why should they? The banksters are safe, they are safe, all the bad crap is now owned by us the stupid taxpayer.
Many of ytou seem to believe they are working for your society.
They are not
QE3 is not a given, in fact I believe we won't see it. If it happens it'll be invisible. I would suggest you all be flexible here. The answers are not that clear cut
The FED will do what is best for their brethren not you
THIS is why i continue to buy PHYSICAL GOLD AND SILVER.. AMAI CAN AFFORD
because after QE III
there will be
QEIII
QEIIIII
QE IIIIII etc etc.. you get the idea..
Giving all this money pumping I wonder how long the World economy will accept the USD as a reserve currency?
As long as we are able to use the US military to back the dollar's reserve currency status. We are making the world "an offer they can't refuse". There are many leaks in the reserve currency dam as countries decide to trade in their own currencies and barter for commodities. These individual deals will continue to grow, then one day some oil producing country or Ipad producing country says, "no more dollars".
There are still a few big positions in treasuries that need to be unwound in a semi orderly manner before that day arrives. As the conversion from paper to real by US creditor nations continues, the FED's QE is assured.
Consequently, Bernanke toned down his money printing talk and hinted at even worrying about inflation in the most recent Fed FOMC announcement. As a result of this, Silver and the other “bubbly” commodities have collapsed in a free-fall.
Not quite. Silver, long suppressed and in chronically short supply (double entendre not intended) got intentionally hit by Comex margin increases followed by HFT algos trading it into the ground with daily volumes exceeding annual supply.
It looks to me that silver went high quickly, was taken down quickly, and resides at 32 to 36 dollars a OZT. This seems to be the place where it is taking a breather. I wouldn't call it 'free fall' or a collapse, it was not in the 40 dollar range for very long at all, I would call a free fall a drop to the lower 20 dollar range.
Forget parts II and III, they're not needed.
Anyone foolish enough to believe QE3, 4, 5, 6, etc won't happen is ignoring reality. Reading parts II and III won't change their mind.
QE is necessary to keep the federal government operating if no other reason. The Fed is the only real buyer of treasury debt these days at these absurdly low yields, and the Fed will keep buying treasury debt to keep yields low.
But QE will also continue buying up devaluing securities from TBTF insolvent banks to keep them operating, keep those bonuses flowing.
The Fed no longer cares about the dollar. They'll keep printing and see the dollar keep losing value to keep the federal government going and keep Wall Street going.
There is a little Pony on a thread that will read your posts. An inverted horseshoe. He calls himself Lucky
Silver is not in a bubble. You proclaim that so matter of factly as if it was some proven fact. This video explains it better than I can:
http://www.youtube.com/watch?v=-IiarVvZguY
We used it all up.
Agree completely.
Nice of you to say it.
Say it again. Once a day if needs be...
You rarely see this mentioned in discussions of QE3, but if the Fed doesn't buy all the USG debt, $150B/month of new debt plus what rolls over, who will at these interest rates? Not the Japanese, not the Chinese any more, not the Europeans any more, not US domestic demand. No one.
And if USG interest rates moved to a realistic level, govt interest costs soar, the deficit grows, interest rates make capex crash, and Obama is embarrassed in his re-election campaign.
Very hard to see this happening when the answer is so easy, the Fed just keeps buying Treasuries at ridiculously low rates (high prices) until it's too late for a change to affect the Nov. 2012 election. So, I figure regardless of what they say, the Fed is in the USG market until mid-2012. Since the Fed balance sheet is still full of 2008 shit, they can't liquidate their holdings without destroying their clients, the big banks, so teh Fed has to monetize the deficit.
QED?
There should be some pension fund money still not used to prop up the gov, they will use that. When that's all out they'll force people to buy more bonds somehow, you know, for their own sakes, the safety and all that.
QED? Is that the QE that follows A B and C?
That is what I tell everybody. It is simply ECON 101. Supply vs. demand.
The demand is nill for Treasurys at these prices. That is why the Fed is buying 80% of them.
The prices need to go a lot lower to create demand.
But everybody knows the Fed, Gvt, TPTB, etc. can't allow high interest rates so the can gets kicked down the road.
Which causes higher and higher input inflation but the tollerence for end point inflation is nill also. With high unemployment and no raises the companies are going to have to eat it.
What's with the machine-gun posts from PCR today? Is this number three or four on the day? (They all could have been easily combined into one post) I support Tyler having to pay the bills, but why does PCR feel the need to have to stay on the front page all day long? Me thinks Mr. Summers needs to raise some capital before the rapture. ;)
this is the third article written with decreasing emphasis on the pause between 2 and 3. you're starting to sound like a sellout looking for clients instead of standing your ground (which I happen to agree with). this site is the best, but if you dare say anything not bullish for PMs for even one second, the peanut gallery will jump your shit in a nanosecond....this too shall pass. The pause between 2 and 3 makes sense. Weak hands will fold short term, long term PM holders will do great. And serious PM gains will be had by those who buy low. For what its worth, I wish I was a perma PM bull all along. But to think there won't be great entry points is just silly.
You speak like you "know" something, but you don't. It is easy to say things like "the pause between 2 and 3 makes sense." But you have no real insight as to why it makes sense to have a pause, what the duration would be, and why it would start up again.
I'm a PM holder with a macro view. That means I don't regularly trade in and out of anything chasing transient, fiat-denominated gains, as do some that post here.
The U.S. is paralyzed by the weight of its debt, which is being compounded daily by the lack of will to reign in spending. It is mathematically too late to recover, and the only reason the Fed budget hasn't imploded is because of manufactured, negative real interest rates. In the macro picture, there is an unmistakable flight FROM U.S. sovereign debt, meaning the buying pool is dangerously shallow. There are two, and only two paths this can follow - the FED backs out as a buyer, resulting in a rapid rise in interest rates and an implosion of a barely-breathing economy OR the FED maintains its buyer-of-last-resort role, blowing up further a bubble with ever-thinning walls. Option one is untenable to those empowered to decide.
So PM holders like me don't fret the price gyrations and manipulations at all. Such transient issues are irrelevant so long as the macro picture holds. As to the notion of "timing" entry points and dips, etc. - knock yourselves out I say. In the same way, it is irrelevant whether there is a "QE pause" and how long it lasts. What's relevant is the void of a viable equation in which FED asset buying doesn't continues in some form.
So while you're bashing the "peanut gallery," ask yourself what you expect to be holding when the dust clears on a failed currency. It will be more important than what price you paid.
I do know something. You know something. We all know something. I hope I've learned something after the time I've put into this little adventure we call a market. My point was pretty clear, you however rambled on about what is already pretty clear. As for "bashing" the peanut gallery - dude, if thats bashing you should be prepared for a vile rant when I'm fired up (just say "union"). Take a broader perspective, don't drink and post - whatever. As for what I'll be holding, I'll have PMs for sure and my AR-15.
Looking forward to ignoring your vileness.
Don't go away sad. Just go away.
Exactly. +100
The PM crowd is unfortunately the investing equivalent of bible-thumpers. The intellectual calibre of ZH plunged ever since Tyler started tossing regular bones to the gold and silver crowd. I'm sure it's good for pageviews though... :|
So your bible is placing your savings into other peoples debt. Good luck wuth that.
There are ignorant investors who are apologists for every asset class. The question really is do you buy or not buy gold because you are making an informed decision, or because you are following popular sentiment. And also, you did your research, you're ready to invest, but are you still ignorant?
There are also trolls of every class on Zerohedge. Sometimes I wish Tyler would have a troll rating tool.
What do you think the "flag as junk" button is for?
The intellectual calibre of ZH plunged ever since Tyler started tossing regular bones to the gold and silver crowd
When you cut through the surface-level stuff, the cerebral capacity here is pretty rich.
We look forward to you backing up your judgment with some real insights, chimpy.
Except, as I just mentioned, if we have some sort of a Black Swan event that causes the whole PM market to gap up 2X to 10X in a couple days. Then there will be no place to get in. I would suggest considering getting in now, even though there may be lower points of entry, just to insure being in for a potential Black Swan.
All the terror talk on the news, may be leading up to something.
The market appears to be immune to Black Swans. One would have thought that the disaster in Japan could qualify for instance, the third largest economy in the world getting completely crippled, I mean how much bigger of an event are we looking for?
Bullseye.
+100
No other QE program has gotten the flack that QE2 has taken. The Fed would be moronic to not sit back and wait for the plebes to beg for QE3 before instating it; they're perfectly in teh driver's seat to let things falter and allow the minions to come begging before QE3.
Yep, I agree. To "prove" their point and re-affirm their ego and work for God, the Fed will wait for the sheep to beg for more QE. TPTB may even let the sheep riot a little so that the FBI can identify the "troublemakers" ahead of time.
+good point. At this point- it's hard to get angry about deflation. But the sheeple will certainly hit the dislike button.
+ 100 agreement
When your only tool is a hammer, every problem is a nail. QE 3 is a certainty.
Exactly.
This sentence only says half the truth: "However, all of this is just idle posturing. Ben Bernanke has done only one thing since taking the helm of the Fed in 2006. And that’s monetary EASING"
The other half is: "The Fed **CAN** only do one thing and it's monetary EASING".
They only have one button. They're going to push it. The Fed's problem isn't a lack of tools, it is their belief in the unicorns of everlasting economic growth. They believe they can "fix" the laws of mathematics which (only) they believe are broken.
I would say, "not necessarily so." Something has to take up the slack, the money to run the gov has to come from somewhere. But, I can think of a bunch of ways that QE3 would not be it. Like a big war. Like a huge earthquake on the New Madrid fault. Bunches of money would get created, but it wouldn't be called QE3.
Thoughts on Russell 2000 from here?
Bullish because of inflation or sharp pullback because of its rapid ascent past 2.5 years?
No sign of long term breakdown yet. Must clear and stay above the 25 day MA in the intermediate term. Yet another opportune stick-save a few days ago to prevent a H&S top from kicking in (just like last August). But the market may not have as much energy at these stretched PEs, compared to last August.
The russell was looking very very bearish, but i do not think that ist he case now.
Go check out the guy from australia and his FFT economic newsletter at http://www.forecastfortomorrow.com that guy has called many big events before they have happend, including the stock market crash in 2008 and the current financial collapse of the US. (currently happening) I found him from a friend last year, and he has some important work.
His oil calls are insane, and I have been making good money with them. He is well worth a look, if you want to keep two steps ahead of the sheeple out there.
I am worried about my financial future. Is anyone else nervous out there?
A little nervous, like, are you kidding?
Anyone really know what the word "moot" means? It means debatable.
** dup
The inflation/deflation debate rages on.
The dollar's current reserve currency status allows us to contemplate a future where the dollar actually gains purchasing power (deflation) as our productive ability continues to fall. Can the continued deflation in real estate drag all other assets and commodities down with it? Harry Dent tried to make this case a couple of days ago in an article posted here.
I am not buying the deflationist kool aid. Assets and commodities that are liquid and portable will continue to inflate as Benron continues his mad quest to print a recovery. The money may not be trickling down to the people in the form of higher wages, but it is going to bail out bankrupt banks and our bankrupt federal, state and local governments. The demand needed to push prices higher will come from outside the US, as creditor nations (China) try to spend their soon to be worth less (worthless?) dollars.
The bailouts will continue in Euro countries, and the bailouts to states, businesses, unions, unemployed, etc... will continue here in the US. China and Japan, our number two and three creditors are having economic issues which could force them to divest from US treasuries at a faster pace then they already are (China dumping at -6%/yr. pace).
The FED's QE has to continue and will continue (perhaps exponentially). Reserve currency status makes it possible, and the US military currently backs up that status. The world is figuring out a way to trade without the dollar, and will soon reject it as payment for goods and commodities.
Shift from the original meaning stems from usage in U.S. courts; a moot issue is one that has become purely academic and not (further) actionable under the law.