Guest Post: Why QE3 Won't Help "Average Joe"

Tyler Durden's picture

Submitted by Lance Robert of Street Talk Advisors

Why QE3 Won't Help "Average Joe"

qe-stocks-yields-011212Are the markets already front running a potential announcement of a third round of Quantitative Easing (QE 3)?   Maybe so.  We had expected QE3 at the end of last summer as the economy weakened substantially from the impact of the Japanese earthquake/debt ceiling debate/Eurozone crisis trifecta.  However, with political pressures running high due to the raging battle in Congress raising the debt ceiling there was little support from the public for further intervention.  Furthermore, with inflation, as measured by CPI, already outside of the Fed's comfort zone, the Fed opted to institute "Operation Twist" (O.T.) instead. 

With the Euro-Crisis on the broiler, another debt ceiling debate approaching, the U.S. economy struggling along as Europe slips into a recession and corporate earnings being revised down there are plenty of reasons for stocks to decline in price.  Yet, they have continued to inch up.  With short interest on stocks having plunged in recent weeks it certainly sounds like the markets are betting on something happening and soon.

qe-30yr-mortgagerates-011212Let's remember that the goal of both the QE programs and Operation Twist was to suppress interest rates on the longer end of the yield curve in a bet, which has failed to this point, to revive housing.  Those programs did, however, drive a speculative frenzy as money flooded into the financial markets.  As you can see by the chart above the actual implementation of QE1 and QE2 actually kept mortgage rates elevated as money flowed from bonds, suppressing prices and increasing yields, into stocks.   When QE was not in effect and there was no support for the stock market money flowed back into bonds suppressing yields.  The only effective program so far has been the most recent aberration of manipulation which has been dubbed "Operation Twist"

However, even after more than $2 Trillion of infusions into the system housing is still in the doldrums as it is plagued by problems other than just trying to get interest rates low enough to entice people to buy a home.  The housing market is still flooded with excess inventory and prices that are still higher than long term norms.  The massive shadow inventory of homes that are in delinquent status have yet to be dealt with and the plethora of lawsuits against the major banks for foreclosure fraud and misrepresentation have clogged the progress of dealing with the problems.  Furthermore, high unemployment, excess consumer debt and leverage and tighter lending standards are suppressing individuals ability to qualify for either refinancing or purchases of a home even if interest rates were at zero. 

case-shiller-20city-index-011212The importance of the housing market is not lost on the Fed and Ben Bernanke.  Bernanke recently underscored the importance of residential real estate, which represents 15% of the economy, in a study he sent to Congress last week, that said ending the slump is necessary for a broader recovery.  It now appears that the Fed is considering expanding their efforts to try and stimulate the moribund housing market as the study showed that Americans who might refinance and buy properties are getting shut out by stricter lending standards or avoiding transactions as values tumble amid mounting foreclosures.

Here are the stats.  Since the Fed started buying $1.25 trillion of mortgage bonds in January 2009, the value of U.S. housing has fallen 4.1 percent, and is down 32 percent from its 2006 peak, according to the S&P/Case-Shiller index.  Unfortunately, the massive backlog of delinquent properties that need to move through the foreclosure process is likely to suppress prices further.

cpi-fed-trapped-011212For "Average Joe" This Is A Losing Game

Currently, it appears as if the market is "front running" a third round of QE coming by March with the current estimate being roughly between another $300 to $750 billion in purchases.   While the markets will likely get some boost from the program it is unlikely to spur any real resurgence in activity in the housing market.  While this might be welcome news for jittery investors clamoring for Fed intervention to help boost market confidence another round of quantitative easing wouldn't be a panacea for the ailing U.S. economy. 

For starters, the global economic landscape is drastically different than it was when the Fed launched its second round of QE2.  Since then, a series of temporary shocks—a catastrophic earthquake in Japan, debt-ceiling drama in Washington, and the sovereign debt crises in the Euro-zone, coupled with more fundamental economic maladies—have rocked the global financial system to its core. Furthermore, the challenges policymakers face differ tremendously as well. Back in 2010, deflation was the crisis of the moment, with markets fearing an unavoidable downward spiral of lower prices, weak demand, and massive lay-offs.

The Fed now faces a much more important problem as it relates to the consumer and ultimately the economy - inflation.  Commodity based inflation has risen markedly during the last two infusions of QE.  With oil prices already in excess of $100 a barrel and food prices on the rise as well the risks to this game are heavily weighted against "Average Joe".  Additional increases in inflationary pressures from a QE program would likely push the economy back into recessionary territory.  In turn this would further impact consumer's incomes, which have been fairly stagnant over the last two years, as they find difficulty making ends meet by combating higher prices.

For an administration that has built itself upon the idea of creating "equality" for all Americans, while pointing the finger at Wall Street and blaming them for their increases in wealth, these programs continue to fuel that divide.   QE programs are great for Wall Street - however, for "Average Joe" it is a drain on their standard of living.

What I Think I Know

While I am not sure that the Fed has the political clearance to fire off another round of QE at this point, given the rise in inflationary pressures and recent ephemeral upticks in the economy, Bill Gross of Pimco apparently does.  According to my friend Tyler Durden at Zero Hedge:  "in December the fund [Pimco] doubled down on its QE3 all in bet, by 'borrowing' even more cash, or a record $78 billion, using the proceeds to buy even more MBS, as well as Treasuries, which hit a combined 31% of the TRF's holdings.  In other words, between MBS and USTs, Pimco holds a whopping 79% of total, mostly in very long duration exposure. In fact, this combination of long duration and pre-QE exposure has not been seen at PIMCO since late 2008, early 2009, meaning that as many banks have been suggesting, Gross is convinced that the Fed will announce if not outright QE3 this January, then at least intimate it is coming."

It appears that the markets are starting to come to the same conclusion given the recent "buy signal" that was issued last week.  While I am not "comfortable" with much of the underlying economic conditions the markets are clearly moving back into a positive trend - at least for now.  However, I wouldn't be "betting the farm" that QE3 will be a decisive win for the economy.

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km4's picture

Jimi Hendrix - Hey Joe - YouTube

LouisDega's picture

A classic act. Thank you

johnu1978's picture

Here's a good video of the depression in Northwestern Montana:



The Monkey's picture

Thanks for a super post Zero Hedge. Bottom-line the Fed has been sticking it to the man for decades. The argument now: "we must fight deflation". You let runaway asset inflation occur w/o including it in CPI for years (oh, I guess that's because RATES WERE DROPPING). Now that college tuition, gas and food went through the roof in 2011, IT'S THE PERFECT TIME TO HIT THE GAS.


The Big Ching-aso's picture



At some point, say QE27, Joe Average won't have two pennies to rub together.  The poor OTOH are really gonna be fucked.


fourchan's picture

in 1915 america kicked the tar baby that is the fed. now in 2012 we are tared and in the briar patch where

america the pragmatic will die along with dream of freedom and individual rights. the feds owners have won.


merizobeach's picture

QE was never intended to benefit the common citizen.  And now, even the name itself won't bring the desired effect, having been so vilified (here) and overdiscussed everywhere.  It'll still happen, as it hasn't really much stopped happening all along, but when the next head of hydra is raised, it again won't be called QE3.  Perhaps as Rickards has suggested, we will be treated to "Nominal GDP targeting".

BLOTTO's picture



Thats why it wont work


hint: Harry Potter, occult, paganism, spells, numbers, gold, silver, owls, sacred geometry, *secrets*, killing, lies, revenge, death, symbols, astrology...

and all neatly laid out for you to see...see?


Ned Zeppelin's picture

Why QE3 Won't Help "Average Joe"

My guess, just off the cuff, is that it is not intended to do so. So why would you think it would? 

Bicycle Repairman's picture

Making "average Joe" pay for all of the financial damage is the point of everything the FED does.

nope-1004's picture

When did QE end?  Benocide has been debauching our currency ever since he became ChairAsshole.  WTF?  It's like there is some kind of statement y'all need to buy PM's?

The fucker has been stuffing banks both home and abroad weekly.  QE is on in full force, just it hasn't been "announced" and the fuckers hammer PM's to keep you numb.

This ship is going to snap soon, and it ain't gonna be from a QE announcement, it's going to be a "Oh, and BTW, we're 100% insolvent" announcement.


Gohn Galt's picture

Chairsatan swore to everything he is doing to get the Chair, especially never to deflate and keep inflation presses running.

Average Joe, I don't know how to help someone without commiting a felony.  The bureaucracy at the volunteer homeless shelters is unconscionable.  Harder for youths to be involved, insurance requirements and permits increased.

Oddly enough I hear there a lot of accounts out there that can be easily grazed for a nibbler. 

Be aware.


The Monkey's picture

Bernanke: "Tell Grandma to invest in high beta stocks and junk bonds."

Freddie's picture

I think the saddest part is reading posts tonight and no one is posting Ron Paul 2012.  The evil f***ing media and TV want O versus Romney. 

I guess hoping for a miracle that the public might wake up is too much to ask for.

Ron Paul 2012

wandstrasse's picture

..Benocide ... ChairAsshole.

I agree, he is, but I am also a bit tired of all this Bernanke-bashing. He is just one more puppet of the compound-growth-debt-fiat-Ponzi system which was installed a while ago by a small group of reverse Robin Hoods. Within the ranks of executive Ponzi puppets there is personnel much more disgusting than Bernanke.

DormRoom's picture

The best investment bet for the future: poverty.

The big banks are long worldwide poverty.  Goldman Sachs underwrites the call.!/gselevator


shinola's picture

I think you nailed it, Zed.

molecool's picture

Seriously - why even bother writing this article? QE1 didn't help Joe Sixpack and neither did QE2 - quite on the contrary. So even knowing nothing about the nature/structure of QE3 - the odds hint strongly at another blowjob for Wall Street, and another anal cleansing for Main Street.

centerline's picture

Beat me to it.  Ha ha.  But, at least there are stainless steel rats to prey upon the shenanigans that are to come.

Oh regional Indian's picture

Stainless Steel Rats? That is a first CL, where from? 

The drone of the How and Why of it is now like white noise though. Joe Average, Joe Sixpack, QE, Banksters, Chairsatan, EU, panic, CDS, MBS, EndTheFed, manipulation........ on and on and on....

What is being done about it? Perhaps everyone is preparing in-wardly? That is why the only collective expressions out of here are for Beer and Gun gatherings?

Tylers, how about some action? Some satisfaction? The ZHfaction? Do-ers?

Call the collective into action? A ZH Changeling Fund? A ZH Micro-entrpreneurship fund? 



Caveat emptor: /truth/

Maos Dog's picture

Thanks centerline for that blast from the past! Time to dig out my copy of "Stainless steel rat is born"

centerline's picture

LOL. Unless of course the kindest thing that can be done is prolong the clusterfuck that is to come as a result. Which of course is a bit of a catch-22 in that every moment spent resisting the inevitable only makes the "correction" worse.

In just reading the title, I have already seen enough. My apologies to the author. I mean no disrespect towards your hard work. I promise to read it later!

fourchan's picture

the creature has won, its game over for america.

JamesBond's picture

QE3 - Not this year.

Mr Lennon Hendrix's picture

QE has continued through various names such as POMO ops and OT2.  It's like that TARP and STIMULUS had names that weren't QE; they are all the same, just in diferent forms; each operating to float the dollar, the Tresurie, and the Fed.  This so the US/Europe oilgarchy keeps their foot in the door so when oil peaks they have established their New World Order.

The Monkey's picture

Don't fool yourself. Consider the recent jawboning about the housing market, even though they know damn well QE will increase nominal rates. The Fed is getting ready to monetize Agengy RMBS in order to weaken the dollar under the guise that they are looking out for the common man.

The real agenda is to reduce real long-term rates paid by financial institutions & corporations that have are over-leveraged. A plan to bail out the sick and stupid at the expense of the prudent. Brilliant.

JPM Hater001's picture

All those minus's-  Thats what we call "reality check" here on ZH.  In more mundane are not ready for ZH if you still think that way.

roy10's picture

There will be no QE3 unless the economy tanks in a serious manner. The political pressure on the Fed is way too big right now. If we didn't have QE3 during the summer soft-patch, we're sure not to have it now.

lolmao500's picture

The economy IS tanking.

nmewn's picture

I don't care too much for money, money can't buy me love.

lol..."monetary policy".

The Monkey's picture

There will be a QE3 long before you see any serious impact to the economy. They are concerned about long-term financing costs for their banks (go look at the secondary market for financials).

But, of more concern, if you are not satisfied with how things "feel" (which requires keeping their banking buddies happy), they will be relegated to ashes.

QE for the status quo.

Long-John-Silver's picture

The economy is like a ghost. It has died but refuses to believe it and move on.

JPM Hater001's picture

Economy...Fed..Obama...Meh...this might be the smartes analogy I have seen in a long time.

kwality's picture

Or like Poltergeists sliding chairs across the radiant heat floors and cooking steak on the granite countertops.  And wouldn't you know it, Zelda Rubenstein kicked the bucket years ago.  Who's gonna help get these fuckers to the other side?

Sam Clemons's picture

But most ignoramuses in the Fed, congress and media don't know that it is unless the stock market is tanking.

Teamtc321's picture

Fed Provided $16 Trillion To Foreign Banks, Financial Houses


The U.S. Federal Reserve gave out $16.1 trillion in emergency loans to U.S. and foreign financial institutions between Dec. 1, 2007 and July 21, 2010, according to figures produced by the government’s first-ever audit of the central bank. Last year, the gross domestic product of the entire U.S. economy was $14.5 trillion. Of the $16.1 trillion loaned out, $3.08 trillion went to financial institutions in the U.K., Germany, Switzerland, France and Belgium, the Government Accountability Office’s (GAO) analysis shows.

JW n FL's picture



QE to Infnity and Beyond will help the average Joe.. Mr. Main Street!!

Think of all the Happy Bankers and the Trickle Down Effects!!


Wall Street investors will receive significant new protections under a plan adopted by federal regulators on Wednesday, an overhaul that comes in the wake of the collapse of MF Global.

When MF Global filed for bankruptcy last year, some $1.2 billion in customer money vanished from the brokerage firm. The firm’s futures customers, farmers and hedge funds alike, are still without nearly a third of their money.

But the new rules would not prevent a brokerage firm from repeating MF Global’s mistake of misusing customer money, nor would they apply to any futures industry clients like those of MF Global.

Instead, the changes affect only customers who trade swaps, complex derivative contracts that allow companies to hedge exposure to interest rates and other financial products. These investors are usually Wall Street banks, hedge funds and large companies.

The Commodity Futures Trading Commission voted 4 to 1 on Wednesday to adopt the overhaul.


See! they get it!! SWAP Protection helps with the Trickle Down Effect!

Wake Up People!

Trickle Down is as Good as it gets until you start voting with Bullets!

There is no need to bitch about it! just start boot licking, you may / can have crumbs!


SillySalesmanQuestion's picture


Thank You Sir for the post and the informative links! Terrence Duffy is nothing more than a paid off shill and two-bit whore for Jon Corzine and Jamie Dimon. The C.F.T.C and the CME have made it clear that there will be NO protection for average joe and small investors. Only the T.B.T.F, and the "big boys" will be looked after...the rest of us, go piss off and wait to see if anything "trickles down".


I'm all for voting with bullets for these no good, mutha-frickin, slimy, lying, cheating scoundrels... Good day and good aim... buy gold and lead bitchez...I'm off.

bonderøven-farm ass's picture

Trickle-down, bitchezzzz...........!

"It is hard to free fools from the chains they revere...."  ~ Voltaire!

JW n FL's picture



bonderøven-farm ass

Trickle-down, bitchezzzz...........!

"It is hard to free fools from the chains they revere...." ~ Voltaire!


That was Fucking Beautiful! Thank YOU!! from the bottom of my Heart!

Let us Hope, Pray and even WORK! towards educating enough to start a Domino effect! We can Free a person.. who can free a person.. who then can free a person.. we just have to free enough to make sure that enough chains come off!

Loving the chains.. is eaier than Loving the Truth.

That sad fact may slow us down some...



Sutton's picture

ben I might be long but for the fact Corzine stole my money-and DeusheDimonBlankfein- from MF Global


People BAIL  Run -Go to the mattress

If its not witin 20 feet its GONE




JW n FL's picture




are you saying that if segregated accounts are not sacrosanct.. that C.D. (Certificates of Deposits) are as well.. questionable?

imagine everyone with a C.D. at Bank of America really having to read the fine print.. when it goes belly up.

and they will say... we didnt know! it never happened before!!

a fool and his money are soon parted!

the bad news.. the good people, the smart people.. who work and save and who have even planned for problems going forward.. will be targets because of their success in planning!

either thru Taxation! or physical robbery to support the system!

the Local Police are an armed gang who knows where ALL the goodies are! thru the help of your insurance company! I understand that this thought may be getting out near the edge of probability.. but the World has not been as close to that edge .. as it is now with Europe spinning out of control, due to ego's!

The root of all evil.. mixed with HUGE Ego's!! equals!! a Real Potential Risk to Global Stability.. because of printed pieces of paper (fiat).


Definition of 'Certificate Of Deposit - CD'

A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years.

Read more:

meatball's picture

QE so far has boosted the stock market and that's about it. And who benefits the most from that? Not the Average Joe, who barely makes ends meet and has very little in the market.

It won't surprise me if the government gets the banks to cut people's mortgage payments or helps them in some other way next.

I guess they should have just said, go all in, borrow as much as possible, and buy everything you can back in March 2009.

The Monkey's picture

No. QE helps the financial institutions. When credit spreads crack wider, the tried and true method to get them to relax is to print money. Financial institutions (the Fed's banks), that are heavily levered, are very sensitive to changes in real rates.

The Fed siphons money from Joe Sixpack to give to their banks. That is the bottom-line and the true intention of QE.

HarryM's picture

As in writing down the monthly mortgage payments to the level of the estimated rental income of the property?


The taxpayors, er, I mean the Fed picks up the slack?