WC Varones

Don't lend your hand to raise no flag atop no ship of fools

QE 3 : Zimbabwe Ben goes Full Retard

Now he's done it. Not just the QE3 everybody expected, but an open-ended commitment to keep printing money as long as it takes.

Straight from the Dirty Fed:
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.
Translation: we will print $40 billion a month out of thin air because, despite the experience of the past three years, we still believe that printing money fixes the economy.
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 until such improvement is achieved in a context of price stability.
Translation: we will keep printing, and maybe even start printing faster, as long as the employment market sucks.

It's going to be a LONG time before the outlook for the labor market improves "substantially." Inflation will be a problem long before that. We'll have $5 gasoline long before we have 5% unemployment and normal labor force participation rates.

Printing money doesn't create jobs. So Bernanke has just committed to giving us stagflation for as long as he can until inflation gets too out of control.

The 1% thank Zimbabwe Ben for jamming their stocks, gold, and silver higher.



The 99% will have to be content with food and energy inflation.



UPDATE: The SLOBs are going off on Zimbabwe Ben and the Damn Dirty Fed:

The Liberator Today: The Most Dangerous Easing Yet
Doo Doo Economics: FED Commits to Devalue the Dollar by $40 Billion Per Month
The Scratching Post: A Trillion Bottles of Beer on the Wall
Left Coast Rebel: Quantitativus Sedatus III

And one of my favorite leftie blogs, Naked Capitalism, has a post on QE∞ that sounds positively like something you'd read at the WCV, The Fed's QE3: No Exit.
The Fed’s launch of QE3 looks more than a tad desperate. If you believe the central premise of the Fed’s action, that propping up asset price gains would have enough effect on consumption to lift the economy out of stall speed, it would seem logical to sit back a bit and let the recent stock market rally and the (supposed) housing market recovery do their trick.

[...]

But another big issue is that the Fed looks to have painted itself in a corner. Is the US going to have 3.5% mortgage interest rates forever? If the central banks does manage to create a bit more inflation, how does it think it will exit? A mere 1% increase in interest rates, from 3.5% to 4.5%, increases mortgage payments on a 30 year fixed rate mortgage payments by 13%. That will translate into a meaningful dent in housing prices. And where does the Fed go if a financial crisis or other shock occurs?

The Fed failed to see the crisis coming, failed to push for restructuring of consumer, particularly mortgage, debt, and is now in full bore “if the only tool you have is a hammer, every problem looks like a nail” mode.

5 comments:

Anonymous said...

$40B per month? If they're planning to spend that, why not just print each of the 300 million U.S. citizens a $133 check every month?

Sure, it's not exactly a huge windfall, but it would help more than buying up toxic mortgages.

And Granny and Gramps deserve to eat dog food. They've had 50+ years of voting age to stop this nonsense, and they've spit in their kids and grandkids' faces and voted themselves more and more benefits. Absolutely disgusting.

Doo Doo Econ said...

$133 per month is called Food Stamps. It is already done. This is just where the money comes from....thin air.

K T Cat said...

Link and post coming later, but this is not where the money comes from for food stamps, else they'd be buying Treasuries. That's the part that's just occurring to me. There's still $85B+ of new Treasuries being issued every month that needs to be sopped up by somebody.

W.C. Varones said...

MBSs and Treasuries are very close substitutes for fixed-income investors.

So if the Dirty Fed buys up enough MBSs, it drives their price up and yield down, making Treasuries look relatively more attractive even at today's puny yields.

So the Dirty Fed buying MBSs pushes banks, pension funds, old ladies, and foreign wealth into buying Treasuries.

It's just deficit monetization with a middleman.

Anonymous said...

By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
John Maynard Keynes

Riddle: When is a tax not a tax? Answer: When it's inflation. Ronald Reagan

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