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.
Gosh, if I didn't know better, it sounds like GW's saying there aren't a lot of other options for Helicopter Ben!
I forget who it was, but someone who experienced hyperinflation said, basically, that it took a lot longer for the economy to collapse than they thought, but when it happened, it crumbled a lot faster than anyone thought. I'm surprised it hasn't happened already, but I can't shake this feeling that we must be getting close now....
There is but one means available to improve the material conditions of mankind: to accelerate the growth of capital accumulated as against the growth in population. The greater the amount of capital invested per head of the worker, the more and better goods can be produced and consumed. This is what capitalism, the much abused profit system, has brought about and brings about daily anew. Yet, most present-day governments and political parties are eager to destroy this system. —Ludwig von Mises
Von Mises theory works only if everyone involved is honest. We know where government and the politicians are at. Now we should turn our focus to institutions such as Goldman, Morgan, Citi, etc. The market he refers to doesn't exist at this point in time. If it did, we wouldn't be having this discussion.
After a 640-page report based on 56 million pages of evidence documenting “rampant fraud and criminality” involving Goldman Sachs by a Senate investigating panel, Eric Holder’s Department of Justice decided not to seek a criminal indictment. That should give a hint as to just how bad things are in America.
In what Sen. Carl Levin called “a snake pit rife with greed, conflicts of interest and wrongdoing,” Goldman, a.k.a. the NY Fed, walked.
Why the acquittal? Columnist Peter Papaherakies, after referring to Goldman’s million dollar political contributions, asks the question: Could it be that “Sach’s attorney, Reid Weingarten, is Holder’s best friend…? Or it might be because Goldman Sachs was a major client of Holder’s and Assistant Attorney General Lanny A. Breuer’s previous law firm, Covington and Burling.”
Whatever, Holder’s DOJ “has not charged, prosecuted, or convicted a single top Wall Street executive for the massive damage they did to U.S. investors and the global economy.”
Now, Bernanke is asking savers and the economy class to “sacrifice” another few years of their labor earnings to feed this concentration of ill-gotten wealth known as the Creature from Jekyll Island, i.e., the Fed.
In short, this is s mob – related to each other in crime. They are crime buddies.
The point is, you can see the massive corruption; it abounds in full view. So what is it that you can’t see, below the surface? The connections with Goldman and the government and the government and Israel and the Administration and La Raza… all this is above the surface. But what is below…?
Answer: What is below: they’re stealing the country.
Eric "place holder" is the asistant Magic Negro. There;s a very primitive subconscious program going on there; They hate white America and they're perfectly willing to destroy it as far as possible.
Mises recognized that we didn't have a true free market when he said that...we have much less of one today.
Mises' theory works at all times. The institutions aren't the problem...it is the government that established the Fed and that allow the Fed to print infinite amounts of money and give it to these institutions. It is the government that is responsible for the moral hazard that allows them to avoid losses regardless of what they do.
In a free market, crooked institutions would go out of business.
“The market economy – capitalism – is based on private ownership of the material means of production and private entrepreneurship. The consumers by their buying or abstention from buying ultimately determine what should be produced and in what quantity and quality. They render profitable the affairs of those businessmen who best comply with their wishes and unprofitable the affairs of those who do not produce what they are asking for most urgently.” —Ludwig von Mises
"The consumers by their buying or abstention from buying ultimately determine what should be produced and in what quantity and quality."
While this is basically true, the sheep are damn stupid, and can be convinced to buy almost anything.
Pet rocks, anyone?
The "free market" established the Federal Reserve and currently run the "government".
Wrong - the free market did not establish the federal reserve system. Banksters and their bought and paid for politicians created the federal reserve system.
I think you missed the "quotes" around "free-market."
Hint: they mean something.
Bingo!
currently pwn the gov
I'm not in finance so excuse my ignorance..but i don't get this.
The federal reserve is not the government right, they are private people not necessarily Americans right?
They are buying up all of our mortgages by adding money to their balance sheet. It will end when
"they" own us? How can this be good. How can this be ok? Is it possible that our lack of will to live
within our means we will wake up and we won't own the USA someone else will?
@ tellmemore, First off you don't strike me as being ignorant as you have just unwittingly spoke the same content as the great american Thomas Jefferson did many moons ago.
Look it up-he said what you have said exactly.
Good for you!
Just keep paying attention.
They aren't buying mortgages. They are buying the securities--the bs paper that mortgages get sliced up and packaged into and tranched--those things. They have been worthless since 2008, as in $0.00, but the banks are still showing them as having value on their "off-balance sheet" vehicles because if they didn't, they would be instantly insolvent and have to declare "bank"-ruptcy. So what the Fed is "buying" is worthless paper in order to keep the accounting gimmick alive. I really think QE is just an accounting gimmick and not inflationary.
Problem being that the fed is buying these worthless paper MBS's from his butt-buddy TBTF's with OUR money. Or what is left of it. Wheelbarrow days ahead.
Monetizing worthless paper is indeed inflationary, as without this activity the facade of value wouldn't exist, and the resulting loss would be deflationary as the holders have nothing of value.
Instead though, they are given a handful of BennieBucks which still have some value. Well, at least until enough of them start working their way through the economy to undermine it all.
But that's where things get foggy in the Magic Eigtht Ball.
The "working their way through part" that is.
I don't see a conditionality tied to new pleb lending here. Maybe Congress will tweek SBA guidlines and subprime it out with some explicit FED Purchase deal?
HOW DOES THIS CREATE CONSUMER DEMAND?
Magic Eight Ball says "move along, its transitory"
"I really think QE is just an accounting gimmick and not inflationary."
are you suggesting that "purchasing" doesn't mean buying with money? or...are you suggesting that that money the fed is using to purchase the securities already exists and not printed or created out of thin air?
Inflation is just a quantity...meaning there is too much of something..money inflation should be measured by commodities...a commodity is something you can hold in your hand..if what you hold in your hand costs more tomorrow than it does today, then you have inflation..
Gas..check...gold, oil, silver, corn, etc..check..Inflation..check..
You did fine until that last sentence in the 3rd paragraph.
"if what you hold in your hand costs more tomorrow than it does today, then you have inflation.."
Not unless you are a Keynesian and have no idea of what inflation really is and its causes - which given the rest of the paragraph I don't think you do.
Prices can rise and fall due to supply and demand. Such rises and falls are NOT inflation and deflation.
Inflation is connected to quantity, but isn't necessarily caused by it. If the economy is growing, then more currency/money must be created to provide for the needs of the economy or the economy will stagnate. Such creation of more currency is not inflationary as the economy is creating new value. Inflation is when an increase in the quantity of money exceeds the creation of new wealth, thus lowering the VALUE of the money per unit.
We need to stop using the word inflation when we mean price increase. This is tough to do since we've been taught that they are the same thing since at least the 50s.
But the point isn't semantics. The point is that we're being screwed, fucked, raped, sodomized, cornholed or inflated. Words mean little when you can't afford dinner.
But won't this just mean more dinners out by those closest to the funny money fire hose thereby creating more jobs?
+ hunger pangs and you are exactly fucking correct in your last sentence!
And a correction if I may. the MBS' "acquired value" when BBB "bought" some of them (thus establishing a value for them) and "paid" for them by crediting the banks with "excess reserves" at the FED - after BBB had Congress pass a new law allowing him to "pay interest" on "excess deposits" - thus making them "cash - interest bearing deposits - and so cash equivalents" and so capable of being included n the bank's balance sheets as "cash assets".
This is all I can come up with since the stated reasons for this QE to infinity are not true: they are buying up the MBSs from banks, at par, while their value as collateral has collapsed, thus rendering the banks even more insolvent. The MBSs are replaced with cash that can be used to acquire things like US treasuries that have value as collateral, at least until the Fed decides it has to start buying those as well to keep the FLOW going. But in the meantime, it is another blast of "exchanging cash for trash" with the buyer being an entity that can hold the assets until maturity. The losses will simply "disappear," since the Fed can print away the losses. Who's to say they cannot? No one.
But the "unlimited" aspect of this, the capitulation to the need for FLOW, is quite revealing, and disturbing. The real question is, who benefits directly? It is the sellers of the MBS. There can be no other answer.
@Ned Zep: "The losses will simply "disappear," since the Fed can print away the losses."
Er, not quite. Printing money does not cause losses to disappear, nor does it destroy purchasing power. It shifts losses from the banks who hold the impaired MBS to savers who see the value of their life savings eroded by the appearance of new money with no origin in either goods or services produced.
When the Fed "counterfeits", as Rick Santelli put it succinctly, it has the same effect as criminal counterfeiters on the money supply, except at a vastly larger scale and it's all perfectly legal. The total purchasing power of existing money is diluted by new Fed credit. The Fed's balance sheet is now on track to rise from $800 billion in Sept 2008 to $4 trillion by next year. That's a five-fold increase.
Now you know why gasoline is at record high prices and WTI is near $100/bbl even as there is no shortage of either crude oil or distillate inventories.
Add to this that ZIRP means losses to savings from real inflation will not be matched, nor nearly matched by an interest rate dividend to savers.
So what exactly is the point of even HAVING a depository banking system for savers again?
Especially when 'investing' most of your cash in a mason-jar and a hole in the ground is the wiser option, and leaving only enough money in a deposit account for basic transactions.
Actually, I agree - the moment the MBSs are purchased at par for freshly printed FRNs, the money is "diluted." What it does it transmute "trapped" money - represented by the dollars "within" the MBSs - into "freely tradable" money.
But once those MBSs are stashed behind what I call the "Fed Event Horizon" they are gone forever.
Once the Fed buys those worthless MBS, you think they're gone to Derivative Hell? I'm sure you're mistaken about that, Ned. Remember that Ben von Havenstein assured us the Fed has a very detailed and effective plan for unwinding all these asset purchases and extracting trillions in Fed liquidity from the system.
I can't wait to see how he gets JPM Chase to repo the Maiden Lane portfolios at par. He's a genius. On the other hand, if he's not a genius, we are so totally fooked.
Right Aero, it's the difference between "par" and "marked to market". Think 50% or greater difference in today's terms. Which of course means a windfall to the Banksters.
MBS' continue to circulate and "have value" because when the banks created them they used MERS to "register" the ownership of them, and MERS threw the warranty deeds away that tied them to the actual property. So what they did was to change the MBS' from a collection of mortgages backed by specific real estate, to "non-specific debt" - virtually no different from FED notes (aka US Dollars). that's one of the big jokes about MBS' - the mortgage backed securities aren't backed by ANYTHING. So the essence of what the bank's did was to create a NEW fiat currency - which is why it's still being traded and treated as if it has value.
And your idea of QE being an accounting gimmick and thus not inflationary has merit - since BBB is not releasing money into the economy - but simply offsetting bad (worthless) assets on bank balance sheets with "money." ie he's not ADDING to the bank's store of "wealth" - simply changing the nature of it and sucking the poison out of the economy.
1. No one owns their house until the mortgage is completely paid off. So it will be with what the Fed is buying - not the house, but the mortgage. When it is paid off, the Fed will own nothing and the buyer will own the house.
2. The Fed is a creation of Congress. It is beholden to Congress, although it is mostly allowed wide lattitude. Congress can disband the Fed whenever it wishes.
So, no, we won't ever wake up to discover some other entity owns the U.S. because of Fed activity.
On the other hand, the Treasury Dept has pretty much sold the U.S. to China in the form of notes and bonds.
Ahhh... Richard. You live in an interesting world.
The ONLY way anyone will EVER own the houses that went into an MBS is by living there and filing for title by adverse possetion. There is no other lawful tile to be had.(Even if the buyer pays off the mortgage, the banks have no title to convey.)
And the banks cannot foreclose because they can't prove they own the property. And there are now a bunch of folks who aren't paying their mortgage payments and can't be tossed out either.
It's a very interesting situation.
After you pay off the mortgage you still have to pay rent to the county and the state. If you don't pay the rent, they take your paid off house. Reality 101
Call it what it is in a system based on mafia values, extortion.
And then it would be the state or county taking your house, not the Fed. The question was whether the Fed could end up owning the country by buying up mortgages. Your response is correct, but it has nothing to do with the original question.
The Fed doesn't want your property.
The FED wants you to be property. And you are. Have a good weekend!
FED is beholden to congress? that must explain why congress has had the FED audited so many times... oh wait.... and also, better check again who owns the U.S. debt, its not China or Russia.
Congress could audit the Fed if it wanted to. You can't. The reason for this? The Fed is beholden to Congress, not you.
Tell me....What's it like working in Santa's workshop?
"The Fed owns CONgress" - fixed.
I wonder if Obama had anything to do with this?
puppet actor, like bernanke. these are not the real faces of power... useful idiots that can and will be thrown under the bus when needed.
Bomb,bomb, bomb the economy
From an Austrian economics view, this is technically defined as:
"Quantitative Sleaze"
amazing that someone from Goldman would do this
McDebt
(aka The Pink Slime)
Anyone else see a middle east ambassador position in Bernanke's future?
Yes - Israel...
!!! LOL.
yes....one where he is kidnapped and bunga bungaed to Death!
i think the ben is just sodomizing the econmy before he kills it.....