The Chart That Shows QE3 Failed Before It Even Started

Tyler Durden's picture

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.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
BaBaBouy's picture

Keynesian GOLD Kill Is On AGAIN Today...

Its their Primary Weapon, Keeps them in Power,
and the rest of the sheeple as their slaves...

Azannoth's picture

They can only short paper gold, they can't (yet) come into your house and sell your gold for you, so who cares just buy more

I am personaly freeking out a bit at how expensive gold has become and I almost can't afford it anymore, last year I was buying with both hands now I am forced to wait for drops like this so a price breather like this suits me just fine

nope-1004's picture


then just why is the Fed focusing on lowering long bond yields even more?


There is no other "policy" left in the Keynesian textbook.  Benocide is running on fumes in an attempt to keep banks afloat.

 Better to look good than to be good, I guess.


BaBaBouy's picture

Of course... They Will Fail... Eventually...


Meanwhile, back at the Ranch...

Popo's picture

there is still war. And we should not forget that it was war that made Keynes look correct the first time around.

Leopold B. Scotch's picture

Look correct?  For moron believers in the broken window fallacy, at least.

B9K9's picture

I still chuckle upon recollection of the old hippies plaintive cries that "war is not the answer". Jeez, on the contrary, war is always the answer. It's been that way since the first proto-humans realized it's much easier, and a lot more satisfying to boot, to murder some other tribe, steal their crops, and screw their wives & daughters.

This time around, the war aims won't necessarily be directed towards asset acquisition (we already control the ME oil), and/or destruction of competing productive capacity (see WWII). No, this time around, the war objectives will be focused on a two domestic fronts: destroy all pensions/savings (mostly the elderly & retired) and destroy all entitlement programs.

Under the ruse & fog of war, the various allies can usher in hyper-inflation in which to make the huge, unpayable debt overhang magically disappear. With a few EOs and other associated war powers acts, we can have price controls, anti-blackmarket regulations (eg barter), confiscate gold, and allocate resource (um, food, gas, etc) aka "rationing", all wrapped up with nice, 20 year sentences for violations.

If the war could continue for another 10 years, just think how many oldsters might die off, making the problem of anyone with a living memory of 'how things used to be' that much easier to manage. And with a new underclass comprised of illegals, the entitlement cut-off could be achieved with nary a whimper of complaint.

Never forget that all organizations reach the point of self-awareness and the survival instinct. At this point in time, the federal gov't bears absolutely no bearing on some fantasy concept of representing citizens, but is rather in full blown survival mode. The outline above achieves all the important requirements of ensuring COG, which is why they will be implemented.

Leopold B. Scotch's picture

Parasites should be careful not to kill the host...

Raymond Reason's picture

Son of a motherless goat!  Ok B9K9, you have my respect.  A very succinct reckoning.  "Never forget all organizations reach the point of self-awareness and survival instict".  Never heard it put that way, but its what i've been thinking for years.  God, i hope you're wrong about where this is going though. 

There has to be a point where the govt simply doesn't have the resources to wage war abroad, and micro-control every little thing domestically.  Maybe the police state will be transitory. 

New_Meat's picture


"There has to be a point where the govt simply doesn't have the resources to wage war abroad, and micro-control every little thing domestically."

Well, that point is South of 1940 in the U.S.

We're a long-long-long way above that "starting point."

- Ned

Raymond Reason's picture

So your point is the govt is already leveraged as hell, a paper tiger essentially?  Agreed. 

RockyRacoon's picture

I still chuckle upon recollection of the old hippies plaintive cries that "war is not the answer".

What was the question that war was supposed to answer?   Was it the same then as now?   During the marches of the 1960s I was in high school in a sleepy little town, and then into the Air Force until the early 1970s.   I missed the street movement but got to see it from the bleacher seats.   What a hoot!   I'd love to participate this time around.

hambone's picture

Hmmm...could the "why" of pushing rates have as much or even more to do w/ CRE and ability of banks to roll non-performing loans to ever lower interest rates???  Extend / pretend / one look at IYR should say it all.

Thomas's picture

A colleague, just this morning, told me that he got a 15 year fixed rate refi at 3.5%. I wished him well but could not help but suspect that I was somehow subsidizing his loan with my tax dollars and debased savings. The free market would demand a greater return. I am feeling very Orwellian of late.

Clorox Cowboy's picture

It all becomes perfectly clear once you have a PhD.  Univ of Pheonix just created an online 12 week Doctor of Money Science degree...I suggest you go rack up some student loan debt ASAP!

sun tzu's picture

Lower long rates and allow everyone to refi for a flat $1500 fee to 4%. Free up hundreds of billions for the economy. The only way it would work is if the refi'd mortgages are recourse. Money for mortgage brokers and homedebtors.

sun tzu's picture

Lower long rates and allow everyone to refi for a flat $1500 fee to 4%. Free up hundreds of billions for the economy. The only way it would work is if the refi'd mortgages are recourse so the taxpayers won't get fucked too royally. Money for mortgage brokers and homedebtors.

Quinvarius's picture

You can't afford not to buy it.  I own a few half ounces and quarter ounces from times when i didn't have much money for savings.  I have no problems going to grams if it comes to that.

Manthong's picture

Ten years or less from now people will be commonly transacting in milligrams.

sun tzu's picture

In that case, I think silver would be a better choice

StychoKiller's picture

Gold can still be bought in fractions of an oz and in grams...

samsara's picture

Don't think of the $100 swings in Au and $5 swings in Ag as 'Volatility',

Think of them as convulsions.  

Nascent_Variable's picture

I can't shake the feeling that the war on gold hasn't even started in earnest.  I still think there will be a major plunge in the next year or so.  But in the end, the central planners won't be able to contain it, no matter how hard they try.

Even if there is a severe drop soon, it is still the safest long term bet available.

Ruffcut's picture

Who in the fuck knows what QE we are really on. THe friends of Ben are his masters, at the same time.

They might be printing and giving to such a degree that would make your head explode, back out of your ass.

I still feel the market could go north to uncharted waters. Do people really give a shit even when you know its ponzi, as long as your wallet gets fatter?

I thought not.

CvlDobd's picture

Surely TNX, TYX, and the DAX are wrong and the 500 is right.

sun tzu's picture

Could it be that the market thinks sovereign debt is more risky than corporate debt and equities? When the Third Reich fell, German industry survived. The same happened with the Japanese Empire. 

youngman's picture

Because they really don´t know what to do....they can´t just bail out the banks all the time...they do..but they have to look like they are doing something for the little guy

Belarus's picture

I think the next major move will be.....

Silver. It will take out $50 ounce. I think Faber is right on the market; bulls and bears are going to be disappointed. 

SumSUN's picture

Gold will pass tha torch to silva.

Josh Randall's picture

That stock to Silver price spread has got to be killing The Morgue!

hedgeless_horseman's picture





...why is the Fed focusing on lowering long bond yields even more?


...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.

The Fed is of the banks, by the banks, and for the banks. Higher rates would spell disaster for the banks that are marking assets to myth and still razor thin on actual reserves.

Not too hard to figure out, folks.

WeekendTrader's picture


The Federal Reserve is neither Federal nor does it have Reserves.

Details, details.....


Seer's picture

No reserves?  Is that like the EU, which recently stated that banks will be required to have less reserves?  Isn't this a good thing?  Have less of what's worthless?  Maybe they're coming to their senses? </sarc>

fishface's picture

lots of paper and ink


You don't call that reserves  ;-)

Leopold B. Scotch's picture

My currency is backed by loans paid in my currency mostly paid with freshly minted units of my currency!

Who could possible want more?

Seer's picture

But, but... wouldn't it be much simpler to just do, as the EU has done, reduce the reserves that banks have to have?  If you don't have enough money then don't make money a requirement- there! poof! "problem" "solved!"  Could there be a greater farce (complete defiance of logic)?

Next thing they'll be trying to tell us that gravity doesn't exist... Oh, wait!  They already did do this- 9/11!

Or, do like here in the US, pump more inflated dollars into the self-digging hole.


Romanzo's picture

Market saying to Bernanke:I m giving you your QE3, just fix the jobs! 


PaperBear's picture

QE3 won’t fail to put a giant rocket under gold/silver.

baby_BLYTHE's picture

...nevermind we are only some $45-50 billion away from hitting the debt ceiling yet again! Who wants to bet we won't hear dick about this in the MSM media?

Ahmeexnal's picture

Baby, that's why Ogolfer will lie and claim that the money needed is not for compound interest debt payment but for job creation. At least 300bill is the figure being handled.

NotApplicable's picture

Don't they just have to do a ceremonial dance in order to invoke the next level? Or was it a goat sacrifice? Stuff changes so fast these days, it's hard to keep up.

Seer's picture

Hey!  Let's not drag goats into this discussion!  Goats are honorable (and have utility)!

Belarus's picture

Every time you see these hail marys, the market skyrocketing in unison with Gold and Silver dropping only tells you the scumsuckers have lost control. Therefore, of course, Gold and silver are set to go higher. All these are is "sucker" rallies...nothing more or less. 

Quinvarius's picture

Indeed.  Stocks up with gold down always means buy gold.  Stocks are only rising for the same reason as gold, but from a far weaker fundamental base.  It is only money creation moving both markets.

Alpha Monkey's picture

Except, people are buying gold.

kito's picture















when all of these phrases are replaced with the word "dollar" or 'fiat" i will sell my gold. until then remember:

make new friends but keep the old, one being silver, the other being GOLD!!

GOLD BITCHEZ!!!!!!!!!!!!!!!!!!!!!!!!!!!!



samsara's picture

All those bullet points add up to one thing.

A BIG False Flag somewhere and WAR WITH IRAN