Image via Max Keiser
We predicted last week that Bernanke would launch QE3 this week.
Today, the Fed announced that it will buy $40 billion dollars of mortgage-backed securities per month ... indefinitely.
This is just another bailout for the big banks. (If the government had instead given money directly to the consumer, we would be out of this economic slump by now).
Bernanke claims that the main justification for QE3 is to boost employment. This is slightly ironic, since Bernanke's policies are largely responsible for creating high unemployment in the first place.
The real justification is to try to artificially prop up asset prices. But that approach has been proven to be an absolute failure.
This is in addition to numerous other easing programs. As CNBC notes:
In addition, the Fed said it will continue its program of selling shorter-dated government debt and buying longer-term securities, a mechanism known as Operation Twist. It also will continue its policy of reinvesting principal payments from agency debt and mortgage-backed securities back into mortgages.
***
“These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative,” the Fed statement said.
And the Fed isn’t stopping there:
“There’s strong hints that they’ll do Treasurys next,” Joe LaVorgna, chief economist at Deutsche Bank Advisors, said in a phone interview from London. “They’re pulling out all the stops to try to get this economy to gain some traction and, most important, to get unemployment down.”
This sounds nice … except that the experts say that quantitative easing destroys the economy and – despite the initial optics of it – hurts the little guy.
As we said in 2008: welcome to the Fed’s Weekend at Bernie’s.
P.S. Yes … if you’re a homeowner, you will probably want to re-fi.
DNA tests reveal 'Hitler was descended from the Jews and Africans he hated'
Is President Obama's Depression Coming Our Way?
DNA tests reveal 'Hitler was descended from the Jews and Africans he hated'
_________________
Oh, my! What a tremendous piece of news! So called indo europeans'roots trace down to Asia.
Who could have thought of that? Dumbfounded...
more new jobs that pay much less than the previous ones and you will need to pay $5 gas to get to them -- thanks benny I needed that, may I have another? (buying silver and rickshaws)
Thanks, Ben ... and Tim
I hope The Fed knows what it is doing. But with the transmission mechanism broken (low bank lending, low money velocity, etc)., this just creates bubbles.
http://confoundedinterest.wordpress.com/2012/09/13/fed-pulls-the-trigger...
Bernanke is largely largely responsible for the low rates of lending and of breaking the transmission mechanism.
So what you're saying then is that QE3 is just farts in the financial bathtub?
Quite a leap from a modest/irrelevant easing 'programme' to hyperinflation.
Any issue on the part of the Fed is more debt, it adds to the gross burden of debt (not much but the margin matters). The Fed cannot cause hyperinflation because it cannot add debt-free currency.
The Fed fills a hole by digging a larger hole. It fills that by digging an even larger hole. Right now the holes are gigantic: $55 trillion in debts that would have to become currency in order for there to be currency inflation. One year of stated policy would only add $1.08 trillion to Fed accounts ... only a small percentage of this amount would become circulating currency. This would serve to replace funds that have been deleveraged out of existence (repayment of a debt extinguishes both the debt and the funds created when the debt was taken on).
There is no real independent monetary policy because the worth of money is not determined by interest cost. Instead, money price is priced at gas stations all over the world millions of times a day. Like interest 'rent' a too-high petroleum price causes the economy to slow then run backward.
Without independent monetary policy the managers including the Fed Chairman have little to do: this is another attempt on the part of the Chairman to gain some credibility. If crude prices rise and gas prices increase to + $4/gallon, the economy will sag and the blame will fall on Bernanke. If prices DON'T rise, it means the Fed has no useful policies to deploy. It also means there is no effective lender of last resort ...
BANK RUNS! LOOK OUT FOR THE BANK RUNS!
This is the real danger. Irrelevance + no lender of last resort + no effective independent monetary policy = loss of confidence in finance system/currency/banks.
Hello .. gold?
I feel like a lot of readers arent getting the connection between banks and collateral and reserves.
You sir, are getting it.
The banks are CASH starved. THIS QE just like the last, will never make it to the market. It will offset mark to market losses.
At least we now know DHS won't use the 8-zillion rounds of .40S&W on USA peoples until after they take all our fiats!
I don't see why not. They know where our bank accounts live.
This is central planning at its best. The gov says there is no inflation. I figure Benny is more worried about deflation and thus is artificially pumping up assets. Neither the FED nor the Prez can create jobs. Jobs come from demand for good and services. With the Babyboomer generation past their prime spending years, where is the new demand going to come from? Many of the later generations do not own stocks, bonds or gold. I guess demand will come from the welfare collectors and those on the dole.
Just placed an order for another eFoods Direct Liberty Unit. The ol' girl can't take it anymore, keeptain! She's gonna blow!
Silver is shining and still cheap folks,..hint hint.
This is the very first time I've ever seen the Fed revise their inflation expectations HIGHER-- yet still get meaningfully more accomodative. The problem is, we've been extremely accomodative for over 3 years now.
It makes you wonder if unemployment was really a serious issue all along-- why wasn't the Fed MUCH MORE aggressive with QE in 2009, when unemployment was 10% and deflation was knocking on heavens door????
The case for QE1 was strong, due to the weakened state of the economy and real threat of deflation, as referenced above. The case for QE2 was less strong, but still solid, as financial strsses were buliding and inflation expectations were falling like a rock.
At this stage, an open-ended Q3 was launched in an environment with rising inflation expectations, expanding GDP and tepid employment growth-- but still growth nonetheless. And of course stock market highs. Sure, it doesn't make sense, but what does it mean?
What the Fed is telling us today is that they are willing to throw out the 'price stability' mandate in favor of extending a plan that hasn't helped the employment picture in a meaningful way for over the past 2 years. And-- even worse-- they are willing to up the ante even more if they don't get the result on the unemployment picture that they expect.
At what point does the Fed conclude that this more aggressive 'growth' strategy-- let's call it nominal GDP targeting-- is an abject failure? How much damage to the world economy will will the Fed be willing to inflict, due to its own instransigence?
Silver may be one of the better places to be for quite a while.
I feel horrible for those who don't own Gold/Silver!
We have both, but I still feel horrible.
It's going to get ugly, no matter how much shit repellant you're wearing.
Yes, America escaped most of the carnage of the Twentieth Century. That luck won't continue.
I'm thinking they can print themselves into a slick and shining world economy with a seemy underside & whirled peas until...
the 4 horsemen.
how can you go back? It's pedal to the metal & "Eat, drink and be merry for tomorrow we die."
You're exactly right, it's over and Bernanke knows it. The problem with monetizing aka printing is that it's an insidious trap. You see it's designed to allow the victim/country not to get hurt at first and at the same time entice them to do more because they didn't feel pain in the beginning. And once out deep enough they can't go back to shore because the quicksand or tarpit got them and the only thing to do is to enjoy the time you have left and prepare for the end. No country has ever did what we are doing and not paid for it in the back end, no country. Everyone always say we will be the first, all the others thought the same also.
So refi? What if you are in the neighborhood for purchasing a house? Prices going to go up, sideways, or down, or something else?
How much people can afford to pay per month drives the price of homes. When interest rates fall, so does the monthly payment - for a given purchase price at the new lower rate. So - if you can afford $1,300 per month mortgage payment, when interest rates fall, the purchase price can go up and you will still end up with a $1,300 per month mortgage payment.
So - house prices are likely to rise a bit - which I think is the intention behind this. Higher house values = fewer people under water on their mortgages = more justification for foreclosing on those not making their payments.
Once again, RP. this move will barely affect interest rates, which are already low enough to "stimulate" purchases. Next, the interest rate won't bring any more people to the table, since the issue is not the rate, it is the conditions whereby the credit is extended. It will barely if at all budge the needle in housing. Them's the facts.
Now, what's next on your list of reasons why this is so great?
Richard.... Puhleeze stop using "price" and "value" as if they were interchangable. Thank you.
|8-(
As house prices rise, people will not be able to buy them because their wages will NOT keep up with inflation - much less hyper-inflation. And the banks will foreclose at the drop of a decimal point because a house is a hard asset - ie a way to preserve value/wealth through the hyperinflation. Then the house can be sold when the economy comes out the other side.
Folks who owe a mortgage now - may be able to pay the mortgage off if they have savings in the right form (nothing paper) and a COLA that will increase their wages. But also realize that COLAs won't last long in a true Hyper-inflationary scenario since as fast as people can get paid and run out the door to buy something, ANYTHING to get rid of the money-on-a-roll (toilet paper), it will be devaluing. The COLA won't be able to keep up either.
And terminology like "interest rates" and "underwater" will become quaint phrases from the past.
Yah....but look at the bright side of hyper-inflation...when bernanke starts printing trillion dollar bills and minimum wages is 750 trillion dollars an hour...you will be able to pay off your current mortgage in a blink of an eye...Hell, the national debt can be paid off in no time at all....
NO ONE IS GETTING A LOWER INTEREST RATE...the banks have gone as low as they will for the MAJORITY of borrowers. this does nothing for the housing market. it does move shit off the banks balance sheet to the feds and sooner or later to the us taxpayer.
the law of diminishing returns....
Lots of young people are confused by this. Long rates will eventually go up, devastating housing prices. This is a reasonable time to buy only if you are sure you will live in the same house for 20 years and have stable cash flow for at least ten. Good luck with that.
a house which produces no cash flow is a consumption good.
But it saves me from having to pay rent, because ultimately my family needs a place to live. Some percentage of the overall payment is consumption, but GIVEN that I have a housing expense every month, I'd rather the majority of it be fixed for 30 years
Correct. Houses are a consumption good.
We lost sight of that reality about 30 years ago. Ultimately, millions of us screwed ouselves with the help of a bank-wielded electric screwdriver.
If rates go up, purchase price has to fall to keep monthly payment at $1,300. Fed has stated it won't raise rates any time soon. Rates don't rise, house prices don't have to fall = prices stay stable. I predict this near-term certainty will give some folks a bit more confidence about taking the plunge and buying a house. This increased confidence about buying a house will probably lead the seller to raise the purchase price a bit. And if mortgage rates do fall a bit, there will be even more excuse to raise prices a bit.
But I don't see the future. We will have to wait and see what happens.
RP: Your reasons in support of this Bernanke Fed's move today seem pretty scripted. Who do you work for?
I'm in housing, this theory about "getting people off the fence" is utter nonsense, and there is no evidence for it. The reasons people aren't buying are not price or rate, it is credit availability, and the inability to sell due to a damaged or underwater equity position. I heard this off the fence nonsense on Bloomberg today for the first time and I'm starting to think TPTB handed out some kind of "talking points" bulletin to some folks.
Prices go up due to demand, not because someone "feels better."
I also know bullshit when I see it in print. Find another reason, 'cause this ain't it.
People aren't buying houses no matter what the monthly payment is. The young are unemployed and owe more than a mortgage in financial aid and current homeowners are underwater.
This is just another scam to bailout the banks. The banks can sell their underwater mortgages at 2007 prices to the Fed and don't have to eat the leveraged losses on their mortgage backed derivatives in the process.
Touche. Exactly said.
richardP - i can tell you EXACTLY what will happen. pricing (for housing) will continue to decline. it wont decline to the old 'normal' but will pass that and fall below the old threshhold of price/default rates/income. it will over correct. we have a long way to fall with prices...much of the newer housing bubble developments will actually fall to zero. no one will buy them even for a $1.....they will be razed.
They can't buy mortgages indefinately. Eventually there will be no mortgages to buy.
That is not true. If mortgage #1 can be packaged into MBS 2012, then MBS 2013, then MBS 2014, we have one mortgage that [albeit "illegally", whatever that means these days] that can back an infinite stream of paper for the Fed to buy.
The reality is that even if only one neighborhood's mortages were packaged, that package could then be repackaged and resold ad nauseum.
It's a Ponzi scheme that could be built around the mortages on a single cul-de-sac.
Damn, I've got to get busy and talk to the neighbors about refinancing....
"Fractional Reserve Mortgaging?" 100:1?
Yes and Fractional Collateral Securitization.
Good point, but people with the clout of Bill Gross are already starting to bail on this shit. I'm not sure they can maintain the illusion of a market much longer, and we know it's only smoke and mirrors.
The more people that bail, the easier it is to maintain the illusion after they're gone. No more sellers = no more problems.
Besides, they'll blame the lack of volume on something else.
They aren't buying mortgages, they are buying MBSes. And if you have been following the whole housing debacle, you would know that there is practically an infinitude of toilet paper MBSes to buy.
Last I heard I think it was somewhere around $50 or 60 Tn
The Fed isn't looking at eventually. They are looking at the Fiscal Cliff at the end of the year and attempting to cushion the blow that will result from Congressional inaction. The Fed can back off once the Government gets better control of the difference between tax receipts and expenditures. That should start to happen when taxes go up after the first of the year.
you sound like the MIT professor who was on Bloomberg this afternoon... keynesian lunatics ya both are...
Taxes going up will likely reduce receipts and accelerate the number of wealthy with 2 passports... and will be another nail in the coffin of this zombie
RP: but explain the mechanism whereby buying MBSs helps with the "Fiscal Cliff?" I hear ya, but it makes no sense, to me at least. How does what the Fed is doing "cushion the blow?" Please explain the mechanism.
This has the odor of desperation about it. Either that or you or Ben cut the government cheese.
You actually think things are going to improve under a government that seems determined to destroy the economy? (Both Dems and Reps seem to be in on the joke...)
Really? As the country slips deeper in to recession from a combination of higher taxes and input costs, you think the gap between revenues and spending will close? I think not.