Does the New QE3 Concern You at All?
I know there are many other things to discuss in the Ricochet community, but I thought I should put a placeholder for comments for the question above.
The Federal Reserve, yesterday, announced it will now pursue zero interest rate policy into mid-2015, by purchasing even more mortgage backed securities at $40 billion per month. They do this by printing money. They are also extending their Operation Twist program of finding whatever short-term securities they can find and selling them in return for longer-term maturities. It's hoped that will decrease mortgage rates and lending rates; it has the additional effect of reducing the debt service costs of the U.S. Treasury.
Concerning the discussion of what I'd tell Romney/Ryan, I'd've run to the nearest microphone and said this shows the failure of Obama economic policy. Obama has taken us to a position where the only policy they seem willing to take is zero interest rates for the entirety of the next administration. (They've probably done this, but the press is probably preparing to ask Romney if those comments are premature since we don't know what economic growth in 2014 will be yet.) The House Republican Conference has already done the hard stuff, guys. Get to work.
I'd also make the point that the Fed is playing a dangerous game with inflation in the long run, and is just giving away revenue to the banks in the short-run. Those banks hold the MBS that the Fed will buy in QE3. Rather than lend that money out, banks are parking that money with the Federal Reserve, which is paying them interest for it. That's right, folks: The Fed is paying banks for not lending money to the economy. And then it says in its statement that business investment is down, and can't seem to see why.
Take it away, Ricochetland! Do you care? Or is this a non-story?
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Sep '11
Re: Does the New QE3 Concern You at All?
Yes, it concerns me. One day in the not distant future I am afraid I--and all the other people with life savings--will wake up to discover that those savings are worth squat. The late medieval scholastics said that debasing the currency is the easiest way for the king to steal from the people.
Jan '12
Re: Does the New QE3 Concern You at All?
This is lethal to our well-being as a nation, and, on a very personal level, it continues the policy of destroying any ability of those of us who are retired and living on our savings, to do anything except eat the principle!
Why, if only those who are retired voted against this madness, we would be a long way towards defeating these flim-flam artists!
But, once again, we have half of those folk, having never planned any savings to live off, but only the programs and services of the government, Medicaid being the 'last best hope', which allows them to sleep well at night.
I have said it here many times, we are losing the fight statistically; we are at a point where more people feel they need to live off the government than want to reduce the size, cost and scope of government.
Most of the remaining population, feel too young to be concerned. Combine that with an average public school education and a banal interest in what lies ahead, which goes no further than plans for the weekend, and we are screwed!
Please tell me that I am wrong!
Edited on September 14, 2012 at 6:04pmDec '10
Re: Does the New QE3 Concern You at All?
Just remember, though: Ron Paul is nuts. He might be kind of right about the Fed thing, but his foreign policy is crazy and we should keep meddling in the middle east...oh...wait...
More seriously, this is probably terrible news in the long term, but ok news in the short term.
If we keep punting the ball maybe we'll invent cold fusion or something and it will all work out.
Dec '10
Re: Does the New QE3 Concern You at All?
It's part of the 1-2 punch that will take Obama out if it lands. We're seeing in the Middle East the real world outcomes of his foreign policy. The further devaluation of our currency and failed "play it again, Sam" economic policies that haven't worked for 4 years are showing the real world outcomes of his domestic policies. If people can understand just a little bit of how this affects them personally (higher fuel prices, higher food prices, higher everything prices) then his abject failure will be so obvious that even the MSM can't cover for him this time.
May '10
Re: Does the New QE3 Concern You at All?
I've been in the finance business for over 30 years. Trader, portfolio manager, department head....now have my own financial planning firm since the corporate world no longer desired my services. I've seen enough over the years to realize that I should stay very humble about what I think I know and don't know. But frankly, I have become so cynical over the past few years that I surprise even myself.
My experience, such as it is, leads me to be very pessimistic about what I believe is coming down the road. The economy was no great shakes, but neither did it appear to be deteriorating. Unless, of course, the Fed knows something we don't about the state of affairs. Anyway, I do think this will end badly. When, I can't say, and the Fed surely looks committed to inflating our way out. They say jobs, but I have a hard time seeing how higher energy, higher food, higher interest rates (look at the reaction of the 10 year Treasury) will lead to more jobs.
I'm wondering where all the adults have gone to? The clownage out of DC is astonishing.
Feb '11
Re: Does the New QE3 Concern You at All?
Basically, what the Fed is trying to do is to force more air through the hose by increasing the pressure, even though a guy is standing on the hose. They may get a little bit more air through, but at some point this process leads to blowing up the hose.
The real solution is to get the guy's foot off the hose, which requires replacing Obama and destroying the power of the Democratic Party.
May '10
Re: Does the New QE3 Concern You at All?
Can't say I'm surprised. Inflation is an attractive option for a government sunk in debt, so sooner or later it had to come up. This is feeling more and more like the late '70's, eh?
Jul '11
Re: Does the New QE3 Concern You at All?
This on the heels of a downgrade threat. Madness. I'd be very worried if I was 65 on a fixed income.
Jan '11
Re: Does the New QE3 Concern You at All?
I'm very concerned about this. I have children & elderly parents.
What will zero interest rates mean to senior citizens living on a fixed income? What inflation rates can we expect in the future & how will those rates affect our children's abilities to save, to purchase cars, to purchase homes when they are adults? How will this affect Americans' ability to retire with dignity?
How do we prepare for a future of high inflation?
If Romney-Ryan win and enact pro-growth policies, how will that affect the $16 trillion we already have in accumulated debt? That debt isn't just going to disappear. We will have to deal with it. How?
Jan '12
Re: Does the New QE3 Concern You at All?
Sadly, many people do not understand the concept of increasing the money supply.
If I were smart, I would devise a color-coded graph, showing the U.S. population starting at the extreme left with 2% red (Marxists), then 20% pink (socialist ideologues), then 30% beige (those whose jobs depend on their being liberal or silent), then 30% white (those who accept liberal positions because they like to be liked, but are persuadable to a more conservative view), 15% yellow (those who know better but are gutless) and, finally 3% blue (those who, understanding the basics of Constitutional government and free-market capitalism, have the moral courage to buck the enormous pressure to be 'accepted' and keep silent, and are willing to fight this beast.
Then I would make this graph into leaflets and bumper stickers and let people see that unless we win by a landslide, we will not get Obama out of office!
We will not defeat Obama if this election is close because they will steal the election!
Edited on September 14, 2012 at 6:40pmMay '10
Re: Does the New QE3 Concern You at All?
You're right, of course. Problem is, we've only got a month for that cascade to occur.
Apr '12
Re: Does the New QE3 Concern You at All?
This is scary, to say the least! Canada has to be deeply concerned as this affects us too.
I find it appalling that people are allowed to vote who know nothing about economic theory, history, political science, or anything that is necessary to really understand what is going on.
I've begun to speak out here in Canada, and it is beginning to have an effect in my circle. I was amazed to have a friend speak out about how wise PM Stephen Harper was to close the Embassy in Tehran and expel the Iranian diplomats from Canada. With the dreadful events in the Middle East, it seems as if the PM and John Baird were clairvoyant.
Now I will make myself more unpopular by talking about this latest move by the Feds.
May '10
Re: Does the New QE3 Concern You at All?
Financially, this suggests to me that, volatility or not, I have no choice but to skew my portfolio heavily toward equities where inflation will at least appear to help. Whereas, in fixed-income securies I will be lucky to stand still.
May '11
Re: Does the New QE3 Concern You at All?
I think the Fed's move yesterday was brilliant. It's basically an adaptation of what Milton Friedman advised the Japanese to do when they had their financial crisis, and has been effectively promoted by the libertarian economics professor Scott Sumner, among others.
From the Reagan boom till mid 2008, we had a fairly steady trend of 5% nominal growth in the economy per year. Since 2008, however, nominal growth has fallen far below trend, and market indicators have shown low nominal growth expected for decades. Boosting expectations of nominal growth should reduce unemployment, increase output, and help eliminate part of the debt overhang created by the 2008 shortfall.
The Fed's actions are an indictment of Obama; to an extent they are even an indictment of the Fed, since it waited so long to do this. But it is also a good thing for the economy.
Jun '12
Re: Does the New QE3 Concern You at All?
I tend to believe that this is bad policy, buying our own debt, but here on Ricochet postes on August 8, Episode 4 of Money and Politics with James Petahoukis, there was an interesting pod-cast "Inflation with Professor Scott Summner" where Prof. Summner recommended a Fed Policy that would track Total GDP, and adjust the money supply as necessary to achieve some target, say 2.5% real growth + 3% inflation, or 5.5% money growth. How does this Fed action support/not support such a policy? Should we be discussing this more seriously. I don't think I understand Macro economic policy enough to decide without more knowledge, as this was the first time I had heard that deliberate increases to money supply beyond that necessary to keep deflation from happening might be a good thing. What say all of you?
Mar '11
Re: Does the New QE3 Concern You at All?
With all due respect to the madness going on in the Middle East and elsewhere there is nothing more important than this event. By the end of 2013 the Fed will be monetizing 1/2 of the entire budget deficit under this plan and its' balance sheet will have expanded to $4 trillion dollars!
Bernake is notorious for his stated belief that blowing speculative bubbles is his preferred method of intervening in the economy but this is something even worse I fear, the prelude to true financial repression:
Capital controls will be next no doubt.
Edited on September 14, 2012 at 7:14pmMar '11
Re: Does the New QE3 Concern You at All?
Ben Bernanke swears to monkey with the markets by printing unlimited dollars to prop up toxic assets. Further, he appears politically motivated as the consensus is that if Romney wins, he'll can Ben when the time comes.
Oh yeah. Concern is one way of putting it.
Jan '11
Re: Does the New QE3 Concern You at All?
I am very worried. I remember the 70's with "stagflation " and the cost of living going up and up. At that time, I was at a good point in my career and my salary kept up, but I remember thinking that it would be awful to be on a fixed income. Well, I am now retired. The value of my portfolio has gone up in the last several days, but I think it is more a reflection of the devaluation of my assets than any actual improvement in my net worth. And I believe worse days are ahead.
Re: Does the New QE3 Concern You at All?
Josiah Neeley: I think the Fed's move yesterday was brilliant. It's basically an adaptation of what Milton Friedman advised the Japanese to do when they had their financial crisis, and has been effectively promoted by the libertarian economics professor Scott Sumner, among others.
From the Reagan boom till mid 2008, we had a fairly steady trend of 5% nominal growth in the economy per year. Since 2008, however, nominal growth has fallen far below trend, and market indicators have shown low nominal growth expected for decades.
John Taylor posted on this several months ago. I wrote a paper on NGDP targeting with my mentor and presented it at a professional meeting about 25 years ago. Friedman was in the audience. He eviscerated it so completely and so cleverly it took a moment to know he'd done it. We never published it. I could be persuaded by Sumner and Krugman, since I was at one time, but almost certainly Friedman never supported it, and I disagree with Sumner's (and Woodford's) interpretation.
Jun '12
Re: Does the New QE3 Concern You at All?
You can't make this [expletive] up.