QE3 reflects a colossal failure to address our predicament
by Chris Martenson
Tuesday, September 18, 2012, 7:04
For a while now, I have been expecting a coordinated, global central bank action that would seek to print more money out of thin air, or "QE" (quantitative easing), as it is now called. Now we have two of the most important central banks, that of the U.S. (the Federal Reserve) and in Europe (the ECB) having committed to open-ended, limitless QE.
In Part I of this report, we analyze the actions themselves, and then in Part II we discuss the implications to individuals and those with responsibilities to manage money.
The most recent announcement came from the Fed, and it had these features:
1. The creation of $40 billion a month out of thin air to purchase agency mortgage-backed securities (MBS)
2. The continuation of Operation Twist, which uses short-term Treasury bills and notes on its books to purchase long-term Treasury paper (that's 10- and 30- year bonds)
3. When MBS payments come in – the Fed holds over $840 billion dollars of those – they will buy still more MBS paper ('rolling' the payments into new MBS, as it were).
4. Taken together, the Fed will expand its balance sheet holdings of long-term assets (i.e., "debt") by ~$85 billion per month through the end of the year...but wait! There's more...
5. This time, unlike the prior two QE efforts, the actions will be taken without any pre-defined limit.
6. QE will continue until the labor market improves "substantially," whatever that means. But wait...there's even more!
7. If deemed necessary, the Fed will "purchase additional assets" and "employ other policy tools."
8. As if all that weren't enough, for good measure, the Fed committed to a six-month extension of the 0.0% to 0.25% target range for the Fed Funds rate until at least mid 2015.
That laundry list can be summarized as 'we will do whatever it takes.' If anyone was still wondering if the Fed would 'allow' deflation to happen on its watch under Bernanke, perhaps the above points in combination with QE 1 and QE 2 will settle their minds.
But will it work?
Well, that all depends on what your definition of 'work' is.
Without context, I really don't know how to explain the importance of these recent actions. In order to address the implications of this historic move – remember, now is the time to keep a journal, as your future relatives will want to know all about what happened 'back then' – I'm going to rewind this story back a few years.
http://www.peakprosperity.com/blog/79694/trouble-printing-money
