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Why Would the Fed Launch QE 3?
I continue to see commentators claiming QE 3 is just around the corner. I don’t see how this is possible because all of the Fed’s excuses for more QE are no longer valid.
First off, interest rates are already at or near record lows. So the Fed cannot argue that it needs to lower rates. Moreover, it’s not like lowering rates via QE 1, QE lite, QE 2, and Operation Twist 2 did much to help the US housing market. So QE 3 can’t be presented as a solution to housing.
Secondly, the economic data coming out of the US has been massaged to the point of not looking so bad. So the Fed cannot use the “economy is collapsing” argument this time either. And it’s not as though the public isn’t totally aware that QE 2 did next to nothing for the economy.
Indeed, the Fed spent $600 billion on QE 2 and had at most three months’ of improved economic data as a result (QE 2 was announced in November and the US economy rolled over in February 2011). The public is well aware of this as well as the fact that QE 2 saw inflation exploding higher.
Despite end-of-year decline, 2011 food prices highest on record – UN
Global food prices declined in December, but the overall annual average was the highest ever on record, the United Nations Food and Agriculture Organization (FAO) reported today.
Last month, FAO’s Food Price Index level was 211 points – 27 points below its peak in February. The decline was driven by sharp falls in the international prices of cereals, sugar and oils due to a productive harvest coupled with a slowing demand and a stronger United States dollar.
However, despite the steady decline in prices during the second half of the year, the Index overall averaged 228 points in 2011 – the highest average since FAO started measuring international food prices in 1990. The second highest average occurred in 2008 at 200 points.
http://www.un.org/apps/news/story.asp?NewsID=40925&Cr=food&Cr1=prices
Food prices hit all time highs in 2011, resulting in numerous revolutions and riots throughout the world. The increased cost of living also drew a lot of negative attention to the Fed from the US populace. So it’s not like the Fed can use the “QE will stimulate the economy” argument anymore.
The final argument for QE is that Obama needs the economy to recover to win the 2012 election. This argument completely overlooks the fact that Bernanke and the Fed are now politically toxic.
If the Fed were not in trouble politically, why would it:
1) Stage town hall meetings
2) Open up to Q&A sessions
3) Have “humanizing’ articles written about Bernanke in major media publications.
4) Moving towards more transparency on its forecasts and projections
These are all defensive moves. And the Fed wouldn’t be making them if it wasn’t under pressure. Which makes it all the more unlikely that QE 3 would help Obama. The public is already outraged at the Fed moves. And QE 3 would send inflation through the roof. How exactly would this benefit Obama’s Presidential campaign?
In the end, the bar for QE 3 is much, much higher than most people think. The days in which the Fed could do whatever it wanted are over. And there simply isn’t a decent argument for QE 3 at this time.
It’s not as though QE 3 would do much for the market anyway. Look at the recent coordinated Central Bank intervention in November… the benefits lasted less than a month.
And somehow QE 3 is going to send stocks through the roof? Give me a break. Look at earnings. They’ve been a disaster, and investors are pulling their funds from the market en masse.
On that note, I truly believe we’re on the verge of the next round of the Great Crisis. The credit and bond markets are already starting to predict another 2008 event. Only this time things will be even worse because the Fed has already used up its tools into combating the First Round of the Crisis.
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Agreed. Many of them think the government and Fed know best. They believe what is on the news. Why shouldn't they? The news is one sided, and many lack the capacity or willingness to think for themselves or they are ignorant.
This time, its different. In 2008 everyone believed the FED could 'fix it'...the next coming crash I believe will not be fixed, there arent enough lifeboats for even half the passengers, and whatever shorts are being established right now will be what theyre left with.
Its not 2008 anymore with a new 'miracle boy' president and a plan to fix it all with just this little $800 billion here.
It makes me laugh too that all people can talk about is 'Surely theres another QE due any minute now'....with markets near all-time highs? Why?
It's as though people wish to see fate fulfilled, even if it is bad for them personally. It makes the universe seem ordered. No QE = absolute madness.
sheepdog - i usually agree with your posts. but it doesn't matter with market near all time highs. the banks are all deeply underwater. and buffet bought bac at something north of 7. he has to see at least that much. only comes one way. pump. and think about how bad it really is. they are all borrowing at .25% and still can't make money. qe3 is already one and another trillion coming to town soon. why not? nobody stopped them since, there was some whining, but super bowl is on in 3 weeks, that's lots of time to print plenty under cover.
"Despite end-of-year decline, 2011 food prices highest on record"
My favorite dessert topping, Reddi-wip fat free whipped cream in an aerosol can, recently changed their aerosol can size from 7 ounces to 6.5 ounces, but it sells for the same price. I wonder if they thought we wouldn't notice. That is a ~7% decrease in volume for the same price. That is inflation.
Tried to buy a 'pound' of coffee lately? I had an older bag and a new bag same brand; same size bag, one held 16oz, the other 12oz. Price? $.50 higher...go figure...the vacuum used to seal the bag is the same one used on your wallet.
I don't buy coffee, but I have noticed more products following the same path. Clever marketing tactic to fleece the masses.
They are all doing it. Smart for business to do, shrinking amounts creates less resistance to continued purchase. Unfortunately, this plays to government's phony "price inflation" figures. Notice that standards of weights and measures is of priority importance in both Constitution and the bible.
Have you weighed an inch lately
I have really noticed that with a variety of products. Sorta like the frog sitting in the increasingly hot water unaware... until its skin boils off.
By the Fed's "substitution" methodology, you'll just start buying cat food to top off your dessert instead of whipped cream....VOILA!...no inflation!!!
Good one! Kudos to the good ole Fed for making me feel better whilst getting ripped off.
A can of compressed air has less calories and would therefore provide more value to the weight-concious customer.
Just skip the can altogether, and allow yourself to realize the fact that we all live submerged in and surrounded by an ocean of ultra-low-fat, non-compressed dessert topping.
Do no visualize the dessert, BE the dessert.
"Do no visualize the dessert, BE the dessert."
Good one! I can always count on a witty reply. ZH provides a great forum.
the numbere for QE 1,2,3 ad nauseum will not continue as it must be now the continuous modus operandi no matter what they call it. remember what shakespeare said "if the name rose becomes politically incorrect we will change it to what "sells" no matter how bad it doth stink".
Live long and prosper
This Phoenix Capital stuff is pure garbage. Why even post it?
ZH gave them a contract at some point, or there are family ties. No other possible explanation for these useless infomercials. I haven't cliked on this crap in at least a month but I was curious how many posts these ZH genital warts were getting. A LOT? WTF? Where is the old ZH crowd. Help me Marla!
agreed
Why even read it then?
keep 'hoping' it might be something useful? in this case, thought it was funny it was actually bullish
If you can explain how China and Japan are massive sellers of Treasuries and the price remains the same or higher I'm listening.
In a word, derivatives. In particular, the Interest Rate Swaps conducted by the US Treasury's Exchange Stabilization Fund (ESF) and the TBTF banks. The ESF is unaccountable to CONgress and we all know how well "regulators" are doing at protecting free markets. Here is a link to an article that explains the game very well...
http://www.24hgold.com/english/news-gold-silver-the-u-s-dollar-centric-derivatives-complex-progenitor-of-parasitic-ponzi-price-fixing.aspx?article=3771942832G10020&redirect=false&contributor=Rob+Kirby
Thanks ... enjoyed the reading. Assuming the ESF is the payor of the CDS to the primary dealers this simply is a another stealth bailout or tax Americans are incurring. Can you imagine the European Central Banks using this same mechanism?
It would seem that the exposure to more and more credit swaps by the primary dealers is a given. Alarming?
He seems to think the Fed is limited by either logic or its previous excuses. The Fed will keep printing faster and faster. The toolbox isn't empty, they have a wonderous device called a printing press.
qe3 is already here with reinvestments of the fed portfolio of treasurys mbs and cdo's back into the same junk. at par. qe4 will be coming. it doesn't matter what sort of 'inflation' you think the world experiences. you think lloyd and jamie are concerned about the price of rice in some 3rd world country? come on? we played this song before. they are now talking about 'limits' on bonuses on wall street. just like 2009. and then what? 2010 came and they set bonus records! suckers....
When people write articles speculating what bankers will do, please avoid sayings implying bankers won't do things that are bad for everyone but bankers. Of course they will print. They won't be able to call it QEx, but it is still printing, and it's going on right now.
When people write articles speculating on why bankers won't do something "because it won't work," they must be specific on how it won't work for bankers, because all of their actions for the last 20 years were clearly suicidal for America, but they were always good for the bankers.
When people write articles speculating on why bankers won't do something "because it won't work," they must first answer when history and logic has ever stopped the Keynesians from holding onto a self destructive policy in the past?
Whether you believe in inflation or deflation, all they have is the printer. The point to embrace austerity was a long, long time ago. They are going to peg their fiat to the SDR, peg the SDR to gold, inflate the price of gold, and print like there is no tomorrow.
Devaluation, it's in your future. Spare me your petty logic, this isn't about fixing the system or what is logical, it's the crew locking the passengers in steerage and stealing all the life rafts.
@Smiddywesson - excellent comment. To your third point, I would add they need to read Mackay's 'Extraordinary Popular Delusions and the Madness of Crowds' to see that this self-destructive pattern pre-dates even the Keynsians.
Oh, and in response to the original author's questions about "if the fed were not in trouble, why would it" - a really simple answer, one that I'm shocked continues to go overlooked: ITS ATTEMPT TO MANAGE LONG-TERM INFLATION EXPECTATIONS and INCREASE THE EFFICACY OF ITS EXISTING AND FUTURE POLICIES. Anyone who operates in the markets or just wants to truly understand where the Fed/other central banks are coming from (as fucked up as it is) just needs to just go on www.federalreserve.gov, read the choice nugs by Bernanke, then hop on http://www0.gsb.columbia.edu/faculty/fmishkin/research.html and put in a few days of 'in-their-shoes'-type reading. Mishkin, by the way, is by far and away the most influential monetary economist of all time, as far as the European illumi (igno) rati are concerned.
Re SDR's - apparently Larry Summers has backing to be the new World Bank chief. Obv not the IMF, but of note because it's more evidence (like we needed it) that people who got us to where we are/developed and supported the ideologies that made it possible are GAINING power and influence, not losing it.
And to your last point, again, spot on, and well put. Like an Italian cruise ship captain.
As Socrates would say: "What we have here is not a failure in logic by either argument, but a failure to define terms and intentions."
poetry.
Who is going to monetize the government's trillion-dollar deficits if not the Fed?
That shit ain't gonna monetize itself.
But will they tell us? The FIAT you know ain't going to be the FIAT your kids know. Money is like water already. They're past the point of no return. Faith in FIAT is gone for this age. Not many can even begin to comprehend what that means and what that will look like when money doesn't buy anything. Saudis want more "money" for their oil. Not because they're running out of oil, but because they know it's completely and utterly worthless.
people who look between the lines know that shit is exploding soon. But how much longer can the bears hold up? today's knee jerk reaction to IMF probably wiped out more shorts. It's quite scary to bears that even with all the bad shit happeneing right now, stocks are still going up the roof.
GS reports huge topline miss and the eps "topping" esitmates due to 1. low estimates in the first place 2. cutting staff and lower compensation -> this just means as a corporation they adjusted accordingly but the huge revenue miss should be taken as a precaution
i have been shorting every since spy at 124 and it's killing me personally
I think Rickards explanation in his book Currency Wars is the right one. Stock prices go up from inflation. It's the beginning of the end for the dollar. When both the dollar and the stocks go up, then I will feel more comfort that this isn't bullshit, but right now, all this tells you is we're about to get creamed. Look at gasoline today. Thanks Bernanke, Fuck the Fed.
Curious, are you a trader for your occupation?
no i am not. i do work closely with finance though.
eventually it's gonna drop i just hope it's going to happen sooner because it's so frustrating
According to Rickards when there is no growth like now, like 1921 Germany, then governments are forced to print to pay the pensions and workers, this kills the currency and the printing causes inflation. For awhile the upper class are okay because they see stock market rise, but then they wake up when the currency goes off the cliff with their stocks denominated in the currency. Printing and currency devaluation is the only reason stock market goes up now, and I wouldn't want to be short if they keep printing.
So fuck you Bernanke. Are you going to lead us to Weimar Germany?
Nice posts whstblwr. Gasoline prices going up, yeah so is it really any suprise that the sale of stills is also going up? A great solution for both your fuel and entertainment objectives.
w blwer-spot on-exactly what be happening.
all so simple right in front of your eyes.
zoom to 20,000 feet above sea level and take a look!
read some history germany post w.warI to hitlers rise.
soo fucking simple and obvious - the gorilla is walking accross the gym floor and NOBODY is noticing...
the answer to your question is simple, but not so clear. This is a war to bring about the end of sovereign nations and usher in an acceptable one world government in broad daylight, period. We have technically had a one world government (backed by the U.N., NATO, and the U.S. military) since the creation of the Federal Reserve and the silent theft of American citizenship (all Americans are "tenants" of the Corporation of the United States, who's board of trustees is made up of the Federal Reserve board - a private group of bankers).
Just like in wars there are little battles for control of the essential resources and capital needed in order to secure victory. Once all the capital and resources are under control of the right few central banks via their government proxies we will get our next leg down. These power brokers have known it will take lifetimes to accomplish these goals and pass the required knowledge and information down to the "right" people (mostly family) through "legacy agreements" at all the right institutions of higher learning. My guess is more war is coming along with the "revaluation" of gold once enough is in the "right" vaults. For the average joe holding PMs it will be illegal to use them as money and people will be encouraged to "say something" if they "see something. All of this has happened before, read your history.
This is why markets will always remain irrational longer than you can remain solvent.
Excellent high level summary. My compliments in cutting through all the distractions to get the real lessons.
LawsofPhysics: right on! we are merely the progeny of the aristocracy of ancient times updated. the idea that the dynasties of kings and queens of the past have dried up and blown away over the centuries is ridi-culous - now that's some wealth and the power. Buffet and Gates... they have ONLY a lifetime of wealth - these folks are an accumulation over centuries! they own COUNTRIES and CONTINENTS. Hate to get all Eustace Mullin on you but we (assuming you are not of the rhealm) are just the pieces in their ongoing chess game of control. So... we know, right? You are correct sir... is history all over again. So when the MAN comes for your gold (cause that's all we CAN really own)... what you going to do? Stand and fight or run and cower. Fight or flight baby... now that's history!!!!!!!!!!!
Fight and then flight. Get your head on straight.
"Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win."
For the common man you are spot on. For those who have real power and already have the loyalty of thousands of hearts and minds, why fight when you can set your enemy up for failure and have thousands (even millions) of others die for you. Win-win, the population/resource problem is resolved for a while AND your eCONomic model built on growth can resume.
We own our freedom as well. Well I should say that there are people here who have the courage to own their freedom. There are many who sold their freedom out and they will be the ones who are slaughtered like lambs by "the man".
I say-"I'm not going out like that". I own my freedom and to take it from me is to take my life. If "the man" comes for my freedom, he better expect a fight for my life.
politics no longer matter - I withdrew my consent.