While it is all too clear that a year from today, right about the time QE4 is gearing up for deployment, QE3 will have had absolutely no impact on the economy (in the upside case; the downside case would imply millions in job losses primarily in the financial sector courtesy of record low 2s10s and even lower Net Interest Margins, aka Carry Trades), just as QE2 ended up doing nothing not only for the US economy but for the stock market as well, what is somewhat disturbing is that the only primary purpose of Operation Twist, namely the lowering of 10 Year bond yields in order to make consumers "weathier" through cheaper refis, has already failed. Presenting Evidence A: 10 Year Treasury Yields (inverted axis where lower yields are plotted higher) and the MBA Refi Index, which today dropped by 6.3%, the third week in a row, sending the Refi index to 3169.4 from 3915.5 in the beginning of August. As the chart makes all too obvious, the correlation between the two series has been as close to 1 as possible... at least until talk of QE3 via Operation Twist not only picked up but was made virtual fact through Wall Street's wholehearted acceptance of more monetary easing. What has happened recently is a substantial break between dropping yields and increasing refinancings. It thus begs the question: if an ever flatter 2s10s curve, the explicit objective of Op Twist which has gotten priced in in the past several weeks, has no impact on the housing market currently languishing in a historic depression, then just why is the Fed focusing on lowering long bond yields even more?
And while one can attempt to attribute this drop to "transitory" factors such as hurricanes and summer vacations, the reality is that every single time the Fed commences another monetary easing episode, mortgage refi rates plunge, in the process undoing everything that the Fed tries to accomplish by forcing mortgage-holders to refinance into a cheaper loan.
This also means that the only other reason for QE is and continues to be the funneling of zero cost money to banks via excess reserves which can then be used for all sorts of asset levitating fungible purposes. It also has some unpleasant side-effects: such as sending gas to $5/gallon (for consumers) and gold to over $2000 (for central bankers).
And while none of this is likely to change any of the course that the Fed will embark on after its next FOMC meeting, the population at least deserves to know just why it is being fleeced over and over.
And tangentially, the most dramatic confirmation of just how much of a failure not only monetary but fiscal stimulus have been (and will be) is the following snapshot of major headlines on Gallup's economy page.