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Sorry Folks, QE 3 Ain't Coming... Even the Fed Doves Admit It
Once again the US economy is tanking and everyone is talking QE 3. Sorry folks, it ain’t coming. Bernanke said point blank that it was less attractive as a monetary tool as far back as May ‘11.
Q. Since both housing and unemployment have not recovered sufficiently, why are you not instantly embarking on QE3? — Michael A. Kamperman, Waco, Tex.
Mr. Bernanke: “Going forward, we’ll have to continue to make judgments about whether additional steps are warranted, but as we do so, we have to keep in mind that we do have a dual mandate, that we do have to worry about both the rate of growth but also the inflation rate…
“The trade-offs are getting — are getting less attractive at this point. Inflation has gotten higher. Inflation expectations are a bit higher. It’s not clear that we can get substantial improvements in payrolls without some additional inflation risk. And in my view, if we’re going to have success in creating a long-run, sustainable recovery with lots of job growth, we’ve got to keep inflation under control. So we’ve got to look at both of those — both parts of the mandate as we — as we choose policy”
http://economix.blogs.nytimes.com/2011/04/28/how-bernanke-answered-your-questions/
Even the biggest monetary doves are now agreeing with Bernanke. Bill Dudley, of the New York Fed, who’s been braying for more QE for over a year had the following to say on Wednesday:
Fed's Dudley: If Growth Continues, More Fed Stimulus Unwarranted
The leader of the Federal Reserve Bank of New York repeated Wednesday his expectation that the U.S. central bank will not need to provide additional stimulus to the economy, even as he left the door open to further action.
Acknowledging the options before the central bank each have costs and benefits, New York Fed president William Dudley said "as long as the U.S. economy continues to grow sufficiently fast to cut into the nation's unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs."
http://online.wsj.com/article/BT-CO-20120530-712819.html
Folks if you’re buying into the whole QE 3 is coming on June 6th argument you’re out of your minds. This is an election year. If the Fed announces QE 3 now, Obama is done. Do you really think this is going to happen when even the Fed’s biggest doves are noting that the consequences of QE outweigh the benefits?
With that in mind, Europe will be collapsing as no one (not the ECB, not the IMF, not the ESM, and not even the Fed) will be stepping in to prop it up. The reason? NONE of these entities have the funds (Europe’s banking system is $46 trillion in size) to do so (bank runs are pushing leverage levels even higher in Spain, Greece and elsewhere).
Moreover, the political environments for their organizations (the US for the Fed and IMF and Germany for the ECB and ESM) will not permit a massive intervention. If the Fed cranks up the printing press, Obama loses any hope of re-election. If the ECB cranks up the printing press, Germany walks. End of story.
On that note, if you’re not preparing for the collapsing of the EU, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.
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Good Investing!
Graham Summers
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So then, we are going into elections with the Dow in the red for the year? These people are dumber than door knobs - but we knew that.
if the markets are not propped up by QE3, the obama/Soros team will NOT get in. (Well, its rigged anyway) You my sir are WRONG on this one. QE3 to save the elections and rigging.
qe is already happening via europe flight risk.
And if the FED does not announce QE, the pres maintains his inside track to economic prosperity?
Could this be a signal of TPTB plan? QE announcement = Romney for Pres, no QE = Obama?
Also, could the Fed launch a program to acquire all the bad CDS?
Nations will bail themselves out. Nations, WILL BAIL THEMSELVES OUT. It's all hitting the skids, and when Egypt enters its 3rd Stage of Revolution and the shooting and murder starts in earnest compounding Libya, Syria, Sudan, Somalia, Yemen, and whose next, this will exasperate the dollars position as the worlds currency and what is the only answer you can rely upon???? Guns, ammo, GOLD, and coin siliver. And do I think it's getting that bad? You damn skippy. SERFS UP AMERICA!
www.nar2012.com .... and ZeroHedge still hasn't figured it out, much less Egypt. Read'em and weep...
How entertaining, someone who claims to know what happens after the collapse of the system. It is a complete new experience, the most likely consequence would be a war, but even that is not for sure, and for sure no one can knw who would fight whom and how. So the idea that you can download a manual for the crash of this system really is a bit of a joke, isn't it?
We have been in the most expensive wealth destroying war in history for ten years! The depression/hyperinflation and regime change begins when the wars end and the troops come home.
The troops are not coming back until there is oil/energy to keep them posted all over the world.
Something on the US/Fed... Thanks for changing the tune Graham, i was ready to slit my wrists if you put on that Europocalypse record again
Reason why Graham's doom-mongering fails: he does not understand Bernanke and the nature of the hopium beast. Besides with oil prices dropping, Bernanke and Obama have more breathing room to crank up the printing presses.
Besides can anyone explain why QE1 failed in the first few months of its initiation? It should have propped the markets up from Nov 08' but instead stocks reached new lows in March 09'. If someone can explain this I'll be most grateful!
I'll explain:
Deleveraging simply out-paced the FED's money printing. Compared to the amount of total outstanding debt that must delever, the FED's QE policy will not be enough when the large scale collapse occurs. DEFLATION is baked in the cake. The economy simply cannot sustain the level of credit outstanding. As de-leveraging ensues, the economy will shrink making it even more difficult. Gold will fall along with every other asset as a rush to dollars to pay down debt and to just plain buy essentials ensues. The FED will not totally ruin its own balance sheet with crap debt. It will only take on debt that is guaranteed by the USG. There will be no more Maiden Lane accounts, IMHO.
The Fed has already ruined it's balance sheet.
The Fed is a private bank.
The Fed is the bad bank. They will continue to load up its balance sheet with shit. This time it won't be called QE, but 20 smaller programs.
Banks go bankrupt, and the owners start a new bank.
The Fed will go bankrupt too. They will start a new bank with the same owners, who will issue dollars.
Thanks a lot! So come this year or 2013 massive deleveraging in the shadow banking system and in the derivatives markets, combined with a shrinking amount of quality debt or USA bonds, will mean the Fed's QE options are limited. Thus the effects of QE3 will be very muted and not spell a repeat of late 2009 and early 2010 when the markets soared on rocket fuel?
There is roughly $36T total debt in the system which puts it at over 300% of GDP. Mean debt levels are about 150% of GDP so reversion to the mean will likely bring it to at least $18T. The FED has about $3T on its balance sheet. Total deleveraging in the first round ('08 to '09) was about $5T and the FED's balance sheet took about half of that. There is no way that the FED will expand its balance sheet enough to stave off $18T in deleveraging without impairing the credit of the USG. If USG bonds go to junk then the USG will not be able to fund the military and all the other pork. Its very survival will be at stake. I think Graham is right. The FED's choices (and by extension the USG's choices) are limited. The most obvious piece of evidence for deflation are the 10y Treasury yield which are at ALL TIME lows. We are talking in over 200+ years of history.
Bill Gross is betting the boat on QE in some form when he bet on those $138 billion of MBS, didn't he?
Lucius... I'll give you props for your well-reasoned explanation why QE3 is not in the cards. You described the difficulties much better than Graham Summers ever could. Perhaps you should write a newsletter. :)
That being said... I think QE3 is a tough hurdle, but it's definitely not out of the realm of discussion. As you so astutely point out, the Fed isn't in a position to match deleveraging dollar for dollar-- they just can't because the math don't work.
What the Fed can do, however, is inject liquidity near acute points in the deleveraging cycle to prevent full-blown crises from happening. Make no mistake-- the Fed WILL battle deflation (rightly or wrongly), and the WILL do whatever they can to save the banking system. If they don't do the latter, they simply won't exist.
My hope is that Bernanke doesn't expand the balance sheet for the purposes of keeping the stock market elevated-- because that reasoning has alway been critcally flawed. But the consequences of moving to early too soon for the sake of Dow 13,000 is a significant possibility.
I think more realistically, if the Fed expands its balance sheet, it will do so nominally by executing Euro-Dollar swaps... again... to help 'save' Europe (and to marginally depress the USD). They will also likely continue to extend the duration of securities (call it Twist, or whatever)... with the focus on newly issued debt going out to the hinterlands of the yield curve. Since we will likely still be in the world of massive deficit spending, we're going to be kicking the can way, way down that road, it appears.
Other than that, we pretty much just buying time until we become the next major sovereign risk. Good thing most of Europe, Japan, the U.K., and China sucks so much.
IMHO, the S&P will pass through 900 before another round of QE. By then it may be too little too late. Bottom line is that huge amounts of credit must be destroyed in order for seeds of a true recovery can take root. As you stated in so many words (and I agree), the status quo will fight it all the way down. So this process will likely be dragged out much longer than most people expect.
QE is continuously flowing and has not stopped since many years ago. What markets respond to are the ANNOUNCEMENTS and yet I still believe QE3 will be paraded by August or even September. Just the Fed shadow books are well beyond $3T.
DING-DING-DING!! Give the man a cigar!! Dead-ON!! Graham, sorry man, you just don't get it - Bernank & Co. have kept the QE spigot flowing IN THE SHADOWS for years!!! If they stop then Obama & the rest of the status quo has a very worse chance of re-election because people dependent on govt money will not be getting their govt money - the whole system will implode - debt will not be rolled over, will default, which will blow up the $700+ trillion in derivatives, etc. WE ALREADY HAVE QE-INFINITY UNDER THE RADAR IN THE SHADOWS AND THEY ARE FOOLING MOST PEOPLE INTO THINKING THAT IT AIN'T HAPPENING!!! WAKE UP PEOPLE !!!
I would not be surprised if there was a trillion or more of under the table funny money being sloshed around by the IMF, ESF and a fistful of other unaccountable operations to prop and juice things up and keep the Ponzi alive.
Case in point:
http://www.cnbc.com/id/47513542
In a nutshell, the bankers have been handing out one loan after another, in order to substitute for the industrial capital's flight to Asia: The West's productive base has been shrinking for quite a while now, but the loans handed out out by the bankers have been masking this uncomfortable truth for all these decades So, the multinationals have been getting richer and richer by exploiting the -massively underpaid- Asian workforce, and the banks became bigger and bigger (they are now "too big to fail", and Goldman Sachs's CEO even considers himself as doing God's work - talk about hubris).
But the economy reached a point where the Western worker simply couldn't pay for his mortgage (that's a bit of an over-simplification, but you get the point). So, now the banks are in trouble as well, because if they can't collect the money they were supposed to collect from the recipients of those loans, they are bankrupt (ALL of them). Let's not forget Lehman's collapse, not to mention the hundreds of other (smaller) banks that have gone bankrupt in USA over the last four years.
But, as we all know, most banks are being rescued via your -and my- money. But the banks need a lot of money. Well, I know that they have already received huge bailouts, but that's not enough. Banks are failing in Europe (now it's the Spanish banks, then Greece again, etc) and in USA, stocks are going down, and it seems like everything is about to collapse.
But guess what - no matter how much the banks need, money can be printed in today's economic system - and they will.
States all over the world have been printing money for quite some time now, and they continue to do so. Savings the banks is more important than preserving the value of their currencies, so...they will inflate these currencies. And as more and more people realize this, these currencies will hyper-inflate, as noone will want to trade ("loss of confidence") in a currency that keeps losing value compared to gold, the only thing that will remain stable, as it always does.
[By the way, did you hear about China and Japan's deal to trade with each other in their own respective currencies, instead of using the dollar? Or maybe about China's deal to buy oil from Iran in exchange for yuan, instead of dollars? Oh, and guess what, China and Russia are no longer buying a lot of US bonds, are they? They are however buying gold...]
As for the workers, printing money is a great way for the ruling class to stealthily lower their wages, making them more "competitive". After all, they do have to compete against the dirt-cheap Asian labor-force, don't they? So, they only way to go forward, according to our rulers, is for us to become really poor, and for them to receive huge bailouts, making them even more powerful than they already are. This is the only way they will return to the West for investments - until the workers accept "modern serfdom", the capitalists will simply let them starve. Hunger will take care of the rest. And since our rulers are already doing God's work, they could even declare themselves to be Gods, like the Pharaohs. And why not? Their will is our command, isn't it?
But this process of debasing the currency has to be completed "one step at a time". If they print everything at once, everyone will be on to them, and things will get out of hand. So, they first let the stock market almost crash, and then they "save the day", by printing more and more money. This has already happened a lot of times, and it will probably continue to happen in the future, in both USA and in Europe (Europe is an even more complicated case, since it is a monetary union of many different States: Germany is letting everyone else crash, and only then they allow the ECB to print money (in order to save the German banks among others). But before Germany agrees to money printing, they always hold a conference, where they propose a few new treaties, that give them more and more control over their fellow eurozone members protectorates. So, it's a bit more political in the eurozone compared to the situation in USA, but the economics of it are pretty much the same, and the ECB will also print money sooner or later, and one way or another).
http://whataboutmarx.blogspot.com/2012/06/gold-and-jobs-report-if-you-on...
"In a nutshell,..."
Ur doin ti rong!
LOL
Well Graham, that isn't at all what gold hinted at today.
Even the Fedgov pensions assume 6% yield. With 10Yrs at 1.5%, how the hell are they going to pay out? There will be monetization, and it will flow into the stock market.
$2.60 on RBOB, maybe $2.50, means a $2 handle on unleaded in some states. That's the green light for knocking the dollar down 20% and goosing the ES.
You say QE3, O doesn't get re-elected.
No QE3, and 50% market crash and higher unemployment is supposed to get O re-elected how?
90% of the people I know don't care what the stock market does. 50% don't even contribute to 401k, and even if the market tanked 50% the contributors will still be up because of employer matching. Voters don't want to see the rich get richer, and the stupid get bailed out. Thats it.
No QE = Unemployment over 10% by election day (in BLS numbers). I doubt Barry will let that happen. If no QE or similar, he might as well concede the election to Zombie right now.
This is why we can expect to see one hell of a war starting soon.
what would QE do at this point? QE is about lowering interest rates, they are already at HISTORIC low, and will go further with the risk flight from Europe. Europe is already doing a qe to us.
QE is a non issue, only thing that cares about a QE is some algorithms.
So why put out a weak number when one could have statistically justified a stronger number?
http://jessescrossroadscafe.blogspot.com/2012/06/net-asset-value-premiums-of-certain.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29&utm_content=Google+Feedfetcher
Eh, if stocks rallied as well - then there'd be more QE. But only Gold is rallying (most in 7 months). That's the fear talking. Not the QE hopium.
yeah, it was a major safehaven search spasm, move in Gold. Unfortunately all safehaven needs to get destroyed before they can move on to next stage of world manipulation.
ZH should refer to it's favourite Kyle Bass, there will be major deflation scare first, before there is (hyper)inflation scare.
In deflation scare lots of gold gets sold off to meet collateral/margin calls.
"...all safehaven needs to get destroyed before they can move on to next stage of world manipulation."
The safe haven only gets "destroyed" whe you sell.