Quantitative Easing

Tyler Durden's picture

Is The Surging SOMA To Excess Reserve Differential Proof That Quantitative Easing Is A Failure?

One of the more peculiar observations we noted in our analysis of the Fed's balance sheet yesterday, was that in the week just ended, reserves held by banks with the Federal Reserve dropped by a very material $64.2 billion even as the Fed ended up buying a net of $4 billion in securities: a $68 billion mismatch between an increase in reserves and Fed asset increases. A quick look at how this mismatch has progressed since the announcement of QE Lite (and QE 2) demonstrates this phenomenon very distinctly: while during the QE Lite phase, net holdings of the Fed were flat, bank reserves, which should have followed suit in fact declined notably, by almost $40 billion. Yet it is during the POMO phase of QE 2 that this difference become glaring. During a period when the Fed added a total of $88 billion (net of MBS paydowns) in securities, reserves increased by only $14 billion. This does not include the cumulative differential since QE Lite. And all this came to a head in the just ended week, when the difference between cumulative asset purchases and reserve changes hit a whopping $138 billion. This is very disturbing for a variety of reasons, the number of which is that, as Jim Bianco points out, banks are rapidly exchange securities with higher reserve requirements for those with lower: the net result is a far slower increase in reserves held with the Fed. It also means that banks ever since QE Lite have been stealthily offloading lower quality fixed income products to the market and replacing these with Treasuries (motivation being unclear but likely having to do with presenting a better capitalized state). If true, this would mean that during the entire orchestrated HY bond rally sine August, those who have been buying are in fact the greatest suckers, and have been buying hundreds of billions worth of lower quality paper from none other than the allegedly smart money banks. Alternatively, what this means, is that instead of opening up capacity for banks to bid up riskier corporates and thus stimulate the economy, banks are forced to gobble up the toxic treasuries, that the Treasury puts upon them each and every week. Should this divergent trend persist, we would be very mindful of obtaining verification of either of these two hypotheses.

Econophile's picture

Why Quantitative Easing And Fiscal Stimulus Are Unnecessary

In my article "Something Is Happening" I noted a glimmer of positive economic data. I was cautious to not call it a "recovery" yet because there isn't a clear trend. I still feel that way. The Fed and the federal government may yet blow up a recovery. But ... I can't ignore positive signs. I read the same data as other free market oriented blogs out there, I am just about the only one seeing this. "Believe what your eyes see, not what you want to believe."

smartknowledgeu's picture

Quantitative Easing Explained

QE explained in such a brilliantly simplistic manner that even asleep-at-the-wheel Americans whose lives revolve around the NFL team they call god can understand what it is.

George Washington's picture

Quantitative Easing Explained

Don't know who created this, but it is worth watching ...

williambanzai7's picture

i'M iN a QuaNTiTaTiVe EaSiNG STaTe of MiND...

It comes down to unreality--And it's fine with me 'cause I've let it slide--Don't care if it's a buyer's town or the sell side--I don't have any sound reasons--I've left them all behind--I'm in a Quantitative Easing state of mind...

Tyler Durden's picture

Glenn Beck Explains The Latest Iteration Of Quantitative Easing

Does most of America still really have no clue what Quantitative Easing is... Nor that Bernanke committed perjury over the whole "Federal Reserve will not monetize the debt" thing... Nor that Tim Geithner also lied on CNBC when he told Treasury puppet Steve Liesman that the Fed is not monetizing debt? So what is the point of all of this?

asiablues's picture

From Quantitative Easing To Stagflation?

The latest dismal GDP data probably will cement an official kick-off of Fed's QE2 on Nov. 3. However, as more quantitative easing could further dilute the value of the dollar, pushing up the commodity prices, the system could be pushed beyond its limit into a possible “demand-pull stagflation” scenario.

Tyler Durden's picture

Guest Post: Will Quantitative Easing Save the Equity Markets?

Notwithstanding persistent headwinds in the global economy, ranging from sovereign debt fears in Europe to double dip risks in the US, equity markets had their best September in over seventy years. This may be largely attributed to the expectation that in order to prop up a flagging recovery the US Federal Reserve will soon embark upon a second quantitative easing (QE) program, as further evidenced by recent US dollar weakness and gold reaching historical highs (in nominal terms). This expectation seems to be getting traction. According to a leading financial blog (1), Goldman Sachs recently sent a note to its clients stating that the Fed will announce $500 billion in asset purchases at the November 2-3 meeting. Even prominent hedge fund managers are publicly proclaiming that QE is a sure thing, and that this will put a floor under equity prices. But will the Fed implement a sizeable QE program over the near-term? And how much is actually needed to keep equity markets humming along?

George Washington's picture

Bernanke Knew Back in 1988 that Quantitative Easing Doesn't Work

For the little guy or the economy as a whole, that is ... But it's GREAT for the people who really matter

Phoenix Capital Research's picture

I Thought Quantitative Easing Ended?

Back in April investor bullishness was at extremes. Consequently, Wall Street ramped stocks first upwards (the usual predilection) to shank the puts… only to swiftly reverse the action in the middle of the week to shake out the calls. This whole system occurs courtesy of the Federal Reserve which openly and blatantly pumps the market on options expiration week. I’ve shown the below chart before. It’s staggering that no one in Congress or any of the regulators actually bother following up on this. How much more obvious does Bernanke need to get?

Reggie Middleton's picture

The ECB and the Potential Failure of Quantitative Easing, Euro Edition – In the Spotlight!

Simply copying the US style of Central Bank Crisis mitigation is a bad idea, particularly since I believe the US has not mitigated the problem at all, but simply kicked a soda can down the road until it gained the unstoppable momentum of a dumpster. Now, the ECB is actually trying to kick that dumpster, and appears to be stubbing its toe!

Tyler Durden's picture

Bob Janjuah Prepares For A Sell Off To Below 850, And A Coordinated $10 Trillion Quantitative Easing Part 2

"Ben, keep up the rah rah if you have to, but I think you need to accept that folks are beginning to see the post-Lehman global recovery for what it was - a 1 yr wonder driven by the most extraordinary policy response ever seen in history at the global economy level. And folks are now beginning to accept that a slow down is on its way, with policy makers pretty much all-in. All that's now left, as I have said before, is for the Fed to shift to a USD5trn or so new QE programme, likely in co-ordination with a bunch of other central banks, which in total may give us USD10trn or more of new QE. But this isn't happening until much much later this year or, more likely, next year."- Bob Janjuah

Tyler Durden's picture

Fed's Bullard Says Could Do More Quantitative Easing If US "Got Into Bad Downturn"

If you needed any confirmation that the next round of QE is just around the corner, here it is. Just headlines for now. As the US is in a pretty "bad downturn" right about now, it is only a matter of time before Bernanke flips the turbo-print switch. Recall that Bob Janjuah expects the Fed to launch a new $5 trillion QE version by early 2011. The odds of him being right just went HFT caught in a short squeeze. Bullard also noted that QE will be removed eventually and in due course, which he presumably equated with a 5 year period. Expect ZIRP to last through 2015 at least. By then US debt/GDP will be around 100x (not %).

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