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As Part Of Its NEW QE Q&A, Goldman Warns Of Possibility For $50-$75 Billion "Flow" Program
Not like it should come as any surprise that the bank that first among peers "discovered" that flow, not stock matters, implying the Fed may literally never be able to stop monetizing, is expecting the FOMC to "ease monetary policy on June 20", but nonetheless here is the full just released Q&A from Goldman's Jan Hatzius, who just happens to be a Pound and Pence drinking buddy of former Goldmanite Bill Dudley, who just happens to run the New York Fed. Connects the dots. Implicit is that a big dollop of Large Scale Asset Purchases is imminent. That said, if the Fed does disappoint on June 20, and merely extends the maturity of bonds that it will sell as part of a Twist extension from 3 to 4 years, as the bond market appears to be implying (as first warned by Zero Hedge), then all bets are truly off. On the other hand, note where Goldman says: "However, it is also possible that the program would be specified as a "flow" of purchases of perhaps $50bn-$75bn per month." If that happens, gold is going to $2000, $3000, hell, $10,000 very soon, as it means the Fed will not stop printing ever again. Period.
From Goldman:
FOMC Preview: QE or Not QE (Hatzius)
We expect the Federal Open Market Committee (FOMC) to ease monetary policy on June 20, in response to the weaker economic data and increased downside risks from the intensifying crisis in Europe.
The form of the easing is a closer call. Our baseline is a new asset purchase program that involves an expansion of the balance sheet, but an extension of Operation Twist and/or a further lengthening of the short-term interest rate guidance in the FOMC statement beyond the current “late 2014” formulation are also possible.
Q: Will the FOMC ease monetary policy?
A: Probably. Although renewed Fed easing by mid-2012 has been our forecast all year, we felt more uncertain about this view a few months ago given the temporarily better data and the apparent shift of the Fed's reaction function in a more hawkish direction. But at this point, we would be quite surprised if we saw no easing this week.
Q: Why?
A: In her June 6 speech, Vice Chair Yellen listed three alternative criteria for further easing:
…[i]f the Committee were to judge that the recovery is unlikely to proceed at a satisfactory pace (for example, that the forecast entails little or no improvement in the labor market over the next few years), or that the downside risks to the outlook had become sufficiently great, or that inflation appeared to be in danger of declining notably below its 2 percent objective... (emphasis ours).
We believe criterion 1 has been met. As shown in Exhibit 1, we expect the committee to lower its forecast for real GDP growth and raise its forecast for the unemployment rate significantly in the Summary of Economic Projections to be collected at the meeting. If we are right in thinking that the "central tendency" forecast still shows the unemployment rate at 6.9%-7.6% at the end of 2014, many committee members may view this pace of improvement as insufficient, and be inclined to ease accordingly
Exhibit 1: Out Estimates for the Fed's Summary of Economic Projections…
Criterion 2 may also have been met given the deterioration of the European crisis and the tightening of financial conditions of about 30 basis points (bp) since the April FOMC meeting. This tightening is a key reason why our statistical model of FOMC decisions implies that additional easing in June is likely.
Criterion 3 has probably not been met in the committee's view. As shown in Exhibit 1, we expect only the headline inflation forecasts to be revised downward, while the core inflation numbers are likely to be largely unchanged. However, our own view is that there are signs that underlying inflation pressure is actually starting to come off quite sharply, so this criterion may well be met at a subsequent meeting.
In addition, it is important to note that a decision not to ease is tantamount to a tightening. The reason is that the impact of unconventional easing--unlike that of conventional short-term interest rate policy--"decays" over time. This is the implication of our own research, and Figure 9 in Yellen's speech shows that Fed officials have come to the same conclusion. We estimate that this "decay" would push up the 10-year Treasury yield by about 30 basis points (bp) between now and the end of 2013 if no further balance sheet action is taken and the forward guidance is not extended, and Yellen's estimates seem to be similar.
This decay factor kicks in only gradually, so one could argue that it need not be a reason to expect further easing in the near term. However, there are two other reasons besides the decay to believe that the impact of not acting could be sizable even in the near term. First, the market now clearly discounts some probability of easing, so financial conditions would likely tighten if the Fed did nothing. And second, we have found that a small part of the impact of asset purchases on bond yields occurs via the "flow" of Fed purchases than the "stock" of Fed holdings; this implies that very long yields should rise when the purchases stop.
Q: So how will they ease?
A: This is much more uncertain. However, our baseline remains a return to balance sheet expansion, with purchases of mortgage-backed securities (MBS) and Treasuries. There are three reasons why we believe MBS purchases would feature prominently. First, these may be more powerful than Treasury purchases in boosting economic activity on a dollar-for-dollar basis, as MBS yields are not nearly as close to the zero bound as Treasury yields. Second, Fed officials have repeatedly mentioned housing as a key headwind to a stronger recovery, so a policy that directly targets housing would make sense. .Third, there may be more support among the public for MBS purchases because of the implied support for US homeowners as opposed to government deficits.
That said, some Treasury purchases would probably be included as well; after all, the stock of Treasuries is rising much more quickly than that of MBS, and Fed officials may therefore want to provide some additional support for this asset class.
Q: How large will the program be?
A: If it is specified as a "stock" of purchases, we would expect a similar size as in past programs, i.e. $400bn-$600bn over 6-9 months. However, it is also possible that the program would be specified as a "flow" of purchases of perhaps $50bn-$75bn per month. Although there has been little talk about the latter option, it enables the committee to respond more flexibly to changing economic conditions and may be optically more attractive if the committee is worried about a political backlash domestically or abroad against further balance sheet expansion. Economically, the effects of the two options are likely to be quite similar because financial markets are forward-looking; for example, if markets believe that a purchase flow of $60bn per month will be sustained over 8 months, this would be equivalent to a $480bn stock announcement.
Q: Will the purchases be sterilized?
A: This is a tough call, but on balance we think yes. The argument in favor of expecting sterilization--which involves financing a Fed balance sheet increase via term deposits and/or reverse repurchase agreements as opposed to yet more excess bank reserves--is that the cost-benefit analysis looks quite promising. Economically, we believe the choice whether to finance a balance sheet increase via overnight liabilities (bank reserves) or 1-week/4-week liabilities (reverse repos/term deposits) matters very little. However, there is a belief among some investors and commentators that increases in the monetary base are more inflationary than increases in other types of Fed liabilities; if so, sterilization may be a low-cost way of reducing the risk of a rise in inflation expectations or a political backlash against "printing money."
The substantive argument against sterilization is that it would put upward pressure on interest rates at the very short end of the yield curve (because the Fed would borrow additional funds at a 1-4 week maturity). Moreover, there has been relatively little talk about it since a Wall Street Journal article in March that floated the idea, so it is possible that the idea has fallen out of favor.
Q: Are they also likely to extend the forward guidance from the current "late 2014" to "mid-2015"?
A: This is not quite our baseline but very possible, especially if the committee decides against renewed balance sheet expansion (see below). After all, such a shift would roughly restore the forward guidance to the same three-year horizon as at the January FOMC meeting, when the "late 2014" formulation was first adopted. At a minimum, we think that the funds rate forecasts from individual FOMC participants in the SEP are likely to move toward a later exit date (see Exhibits 2).
Exhibit 2: …and the Timing of the First Rate Hike
Q: What if they decide against expanding the balance sheet?
A: The leading alternative to balance sheet expansion is a small extension of Operation Twist, i.e. a sale of the remaining $200 billion or so of Treasury securities with a remaining maturity of 3 years or less, and a corresponding purchase of longer-term Treasuries and/or mortgage-backed securities.
If the committee decides to confine itself to an extension of Operation Twist, this would further increase the probability of a lengthening of the forward guidance from the current "late 2014" formulation to "mid-2015" in order to reduce the risk of doing too little and also to mitigate any upward pressure on short-term rates that might otherwise result from selling yet more short-term Treasuries.
Even so, we believe that an extension of Operation Twist could well be insufficient on its own and could thus be followed by additional easing action before long. Recall from the discussion above that the "decay" of unconventional policy could boost 10-year yields by 30 basis points over the next 18 months. Using standard estimates, a further $200bn twist combined with a lengthening of the guidance would offset only about half of this impact. More than this is likely to be needed eventually.
Q: Could the committee make an extension of Operation Twist more powerful by selling intermediate-maturity Treasuries (e.g. 4-years)?
A: In principle yes, but we do not find strategy very attractive. The main reason is the risk of putting upward pressure on intermediate yields and thereby sending very mixed signals about monetary policy. If the committee wants to do significantly more than implied by a further $200bn twist alone, balance sheet expansion is likely to be needed.
Q: Do you expect a cut in the interest rate on excess reserves (IOER)?
A: No. We believe that the committee views the forward guidance as a better way of mitigating upward pressure on short-term rates than a cut in the IOER because it seems less likely to interfere with money market functioning.
Q: Do you expect additional Fed easing to be effective?
A: Only moderately. While we believe that a sufficiently large program focused on the mortgage market would help, it is unlikely to be very powerful. That doesn't mean Fed officials shouldn't do it, since we view the costs of additional easing as low. The risk of inflation is remote, and even when it becomes less remote Fed officials should be easily able to tighten policy sufficiently.
But it does mean that it makes sense to think about other forms of policy easing. Obvious candidates would be fiscal policy or purchases of non-government guaranteed assets, but these require the cooperation of Congress and are therefore probably not feasible. Instead, a move in the direction of "unconventional unconventional" options holds more promise. These include the Evans proposal of promising not to raise rates until the unemployment rate has fallen to a specific level and a nominal GDP level target. We do not expect these to be adopted in the short term, but they could be more effective than balance sheet action and date-based forward guidance on their own. They may therefore represent the next frontier for Fed policy should the recovery continue to disappoint.
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I think GS' public stock picks and what they expect the FED to do are two different things.
The Debt and Flow reminds me of the tapeworm joke.
Hedge fund manager goes to the doctor with huge tapeworm problem. Doctor says it will take four days to cure. Says to pull his pants down and bend over, and then shoves a hardboiled egg up the guys ass. Then, exactly 3 minutes later, shoves a lemon cookie up his ass. Says to come back again tomorrow.
This procedure continues exactly like this two more days.
On the fourth and final day, the doctor has a hard boiled egg and a hammer. He shoves the hard boiled egg up the patient's ass and just waits. After 5 minutes, the tapeworm sticks his head out of the guys ass and says, "Hey you stupid nematode, where's my fucking lemon cookie!?"
The markets require their lemon cookie.
"Unconventional Unconventional" dependent upon a particu unemployment threshold?! Are you kidding me, that would guarantee perpetual high unemployment.
"...hell, $10,000 very soon, as it means the Fed will not stop printing ever again." Mightn't it be more accurate to say, "hell, the dollar very soon may go to 1/10,000th an oz of gold"?
And
Haven't lots of the good guys warned that once you start this printing, you can't stop? Peter Schiff, Milton Friedman, Van Mises, Tyler's post on hyperinflation...
It would be surprising if it could possibly play out otherwise.
These guys never give up. Printing is such a tasty vice.
I don't see any QE other than extending operation twist. Anthing beyond that is just not going to happen at this time. Things will have to get much worse before the Fed goes down the full retard street.
The US dollar and thirty year bond just don't suggest much in the way of QE.
ahh now I see...They get more and we get less. That's how it works.
Covert QE is spilling over into all the "Markets" all the time regardless of stated policy. We don't know about half the pumping and white washing, all the numbers look wrong but hardly anyone is looking. Pass the fairy dust.
Deleted
is qe a flow from an imaginary stock, a dilution
of an imaginary stock or a creation of a
new specie/s of stock? or is it just a confiscation
of a part of a cycle and stealing?
did somebody say Goldman?
rev up the Duesenberg cause here they come!
YouTube - Goldman Sachs Squid Skull Hood Ornament - Arriving for the Kill
the second link explains how the mentally ill,
from fear and paranoia , become the stock from which leadership
emerges and dysfunctional structures and agendas are initiated and prosecuted. the third link goes to the
market making nature of the squid. the rest are fundamental and gratuitous?
p
Romney Obama the Same?
http://www.youtube.com/watch?v=IWDJEc92d38
.
http://www.rawilson.com/tsog.html
T.S.O.G.
The Thing That Ate the Constitution
.
http://www.nydailynews.com/news/world/partially-cooked-squid-inseminates...
Partially cooked squid inseminates woman’s mouth
The 63-year-old experienced a ‘prickling, foreign-body sensation’ in her mouth after
taking a bite
Read more: http://www.nydailynews.com/news/world/partially-cooked-squid-inseminates...
.
"..This isn’t the first reported case of a squid trying to inseminate a human mouth.
Several people in Japan have complained of oral stings after chowing down on the seafood,
the news site reports."
.
http://www.democracynow.org/2012/6/14/breaking_08_pledge_leaked_trade_doc
Breaking ’08 Pledge, Leaked Trade Doc Shows Obama Wants to Help Corporations Avoid
Regulations
.
A draft agreement leaked Wednesday shows the Obama administration is pushing a secretive
trade agreement that could vastly expand corporate power and directly contradict a 2008
campaign promise by President Obama. A U.S. proposal for the Trans-Pacific Partnership
(TPP) trade pact between the United States and eight Pacific nations would allow foreign
corporations operating in the U.S. to appeal key regulations to an international
tribunal. The body would have the power to override U.S. law and issue penalties for
failure to comply with its ruling. We speak to Lori Wallach, director of Public Citizen’s
Global Trade Watch, a fair trade group that posted the leaked documents on its website.
"This isn’t just a bad trade agreement," Wallach says. "This is a
'one-percenter' power tool that could rip up our basic needs and rights."
.
http://jessescrossroadscafe.blogspot.com/2012/06/in-memory-of-journalist...
16 June 2012
In memory of Journalist Carl von Ossietzky
"We cannot look to the conscience of the world when our own conscience is
asleep."
Carl von Ossietzky
"Silence in the face of evil is itself evil: God will not hold us guiltless. Not to
speak is to speak. Not to act is to act."
Dietrich Bonhoeffer
.
http://geraldcelentechannel.blogspot.com/2012/06/corporation-america-las...
.Friday, June 15, 2012
Corporation America the last Plantation
.
http://geraldcelentechannel.blogspot.com/2012_06_12_archive.html
William Engdahl : Massive Debt Collapse
Lots of talk about India gold imports declining and that is supposedly going to take the price down?
Hardly-
India imported almost 1000 tons last fiscal and say they will decrease 30% this year-
So-300 tons less-will that matter-would it matter to the price if they imported zero-i doubt it-
1000 tons is not even a rounding error when you compare to the total gold supply of 160,000 tons-the LBMA trades 600-700 tons every single business day and as everyone knows-gold has basically zilch for industrial applications-so demand has been coming from somewhere and for some reason other than commodity demand and jewelery demand is about the same as yearly supply-2000 tons/yr-
Central banks all tolled hold about 32,000 tons-
So who or what has been bidding up the price and why-we know it's not the public-we know its not industry and we know the goldbugs are an insignificant small crowd-
Can anyone trace where the smart money flows are going?
Likely a lot going into bonds by looking at that bull market and I think i know of one other indicator that should be counted-
There is already a "flow" it is called government deficit spending.
That's why it will NEVER be repaid, the flow will not be reversed well.
Instead deficits, government, and debt will all continue to grow all the while causing more problems for all concerned.
The public will want lower deficits not realizing that it is only the "flow" that is keeping the matrix from going blue screen for good.
The very act of "minimizing the deficit" will be the only check on the powerful inflation that would otherwise be released by these incredible policies.
This is the way the ponzi seems designed to work.
Welcome to the New World Order.
It's easy to predict stuff. It's hard to be right. Unless you predict a lot, and then your odds of being right at least once increase. If you predict everything you are certain to be right sometimes, but your predictions are useless.
The fed will monetise untill all assets are on their balance sheet. What an epic asset grab. Not a shot fired, total communism, all property belongs to the collective, or those who claim to channel the collective.
"flow" will move into commodities cause "stock" is infinate.
If Goldman is correct on what's coming, we are talking about a major manipulated upside move for stocks, commodities and the economy. It means Bernanke is pitching for the Team Obama.
http://www.economicpolicyjournal.com/2012/06/hot-goldman-on-feds-qe3.html
"potter's not selling, Potter's BUYING"
The Global Banksters (locally, the FED) already seized the assets (properties) of FM & FM in 2008-09.
That included millions of US "homeowner" properties- all without any protest. Any other "acquisition" would be smaller-scale (me thinks). National Parks? Regional banks? Corporations?