Bernanke Announces The Final Round of QE3: This Time, It's Unlimited

The Fed said:
  • it will buy $40 billion worth of MBS per month, with no end in sight. 
  • they will hold interest rate at zero until mid-2015 — "a considerable time after the economic recovery strengthens"
  • it will continue operation twist
  • the US has enjoyed broad price stability since mid-1990s
My points:
  • The Dow is at it's all time high, the interest rates and treasuries at their all time lows, mortgage rates at their all time lows, most commodities not too far from their highs, and according to official figures, employment has dropped significantly — obviously; this is a lie. Amazingly, Bernanke didn't want to prove the market's expectations wrong, and provided exactly what the consensus wanted.
  • The Fed has been forecasting an economic recovery for years, and nothing has happened, yet, they will keep on doing the same thing; over and over again. They again forecast a strong economic recovery to come in the next few months, while it's obvious that the reality is economic contraction and the Greater Depression...
  • My personal opinion about Bernanke is that he's the most inept Fed chairman ever, and most probably one of the worst economic forecaster ever. I don't think his brain is wired for the real world, and even though I have the lowest esteem possible for him, Bernanke managed to surprise me by is foolishness and prove me wrong on my forecast — Mea Culpa. I know will consider him an economic and monetary terrorist. 
  • Will printing money to buy MBS do anything to help unemployment? Only a madman will find a direct causation between the two, specially since when mortgage rates are at their all time lows.
  • Will QE provide a boost to the markets? I don't think it will beyond the first few days after the announcement and the resulting euphoria. Why?
    • Fundamentally, the markets are a discounting mechanism. So when the news comes in about the purchase of mortgage for $40 billion a month, this gets almost immediately priced into the market. The market only move by about 2% while integrating this discounting of the QE3.
    • The previous QE1 and QE2 seemed to work on the surface because they were announced when the markets had experienced significant declines and sentiment was very low. Currently, we're at the opposite: markets are at euphoria levels and irrational exuberance and confidence at historically high levels. When this happens; there's room for only one way: down.
  • The probability that Bernanke has signed his and Obama's political suicide is very high. Hopefully, Obama won't be elected and another inept President will take over and do a favour to the world by removing this economic terrorist from his position.
I'll need some time to rethink and see if my deflationary forecast might be postponed due to this "indefinite" printing of money... 

 Here's the Bloomberg report:
(Bloomberg) 2012-09-13 — The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment.

“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said today in a statement at the end of a two-day meeting in Washington.
The FOMC said it would probably hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."
[...] The decision provoked a renewed backlash from Republicans, including Senator Bob Corker of Tennessee, who said Bernanke’s policies damage the Fed’s credibility while doing little to spur the economy.
[...] Growth will improve to as much as 3 percent next year and as much as 3.8 percent in 2014, up from upper estimates of 2.8 percent and 3.5 percent in their previous forecasts. The so- called central tendency forecasts exclude the three highest and three lowest of 19 estimates.
While the U.S. has “enjoyed broad price stability” since the mid-1990s, the employment situation remains a “grave concern,” Bernanke said at a press conference after the statement. “The weak job market should concern every American.” 
The Fed said it will continue its program to swap $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action dubbed Operation Twist. The central bank will also continue reinvesting its portfolio of maturing housing debt into agency mortgage- backed securities.
[...] Republican presidential candidate Mitt Romney has said he wouldn’t reappoint Bernanke when his term ends in January 2014. Glenn Hubbard, the Columbia University Business School dean and Romney adviser, has said additional bond purchases by the Fed would do little to shore up the economy.

No comments: