Bernanke Goes All In: What It Means for You

In an unprecedented and controversial move, the Federal Reserve today announced the initiation of an open-ended round of Quantitative Easing (QE3) and extended the period for which it will keep rates between 0 and 1/4% to mid-2015.

Here is the paragraph from the FOMC statement that sums it up:

"....The Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions...should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."
Translating from Fed-Speak, the purchase of mortgage-backed securities is Quantitative Easing. Unlike QE1 and QE2, no dollar amount or time-limit was placed on the program. The Fed essentially announced it will be purchasing $40 billion in MBS per month until further notice.

This is a monster, huge, gargantuan change from prior operations. QE1 "cost" $1.7 trillion. QE2 was half a trillion, give or take. The new plan isn't really QE3, because it's never scheduled to end. It is an entirely different, frightening animal.

What makes it scary is contained in the next paragraph:

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. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

Employment is weak and is expected to be despite the Fed's best efforts. In response, the Fed is opening the spigots even further and vowing to continue to do so until this failed strategy starts working. There's a certain willful spunkiness to the plan, but in terms of economics it's little short of bizarre.

Bottom Line: The Fed has made up new rules by lifting all restraints on existing policies. Should they desire different stimulus, the Fed will need to invent a whole new policy. It's a bullish move in the sense that pouring more money into the system inflates values. Stocks, gold, oil... basically everything except the dollar "should" go up in value.

Longer term we're now way, way into unknown territory. As Bernanke himself often says, monetary policy isn't a panacea. Then again, the same man just gave the economy the biggest injection it's ever seen. How will it all end? Literally nobody knows, but for now stocks are higher, bears are furious and bulls are giddily confused.
Also, the president just got re-elected. But that's a for a different column

http://finance.yahoo.com/blogs/breakout/bernanke-goes-means-180402117.html 



They're trying to buy an election...see it for what it is!

if that's the case, they should have done this a few months ago. too late for this to have any real effect (other than see, we are doing something).



Agree that there is no real way to predict how much inflation this will cause over the next 10 years or so. If they have been unable to "stimulate" the economy by dumping trillions of dollars into the market, do they really think they will be able to prevent massive inflation by taking the money back?

Both parties are trying to buy the election, They're just approaching different sellers.

The only ONE party the Federal Reserve is supporting here.

Marc Faber: If I Were Bernanke, I Would Resign

Central bankers are “counterfeit money printers” and Federal Reserve Chairman Ben Bernanke should resign for messing up the U.S. economy so badly, Marc Faber, author of the Gloom, Doom and Boom, told CNBC on Friday.

He said Bernanke was one of the main proponents of an ultra-expansionist economic monetary policy that was to blame for the latest financial crisis.

“If I had messed up as badly as Bernanke I would for sure resign. The mandate of the Fed to boost asset prices and thereby create wealth is ludicrous — it doesn’t work that way. It’s a temporary boost followed by a crash,” Faber said.

Faber, who rose to prominence after predicting the 1987 financial crash report and dubbed "Dr Doom" for his negative predictions, said: “This unlimited QE (quantitative easing) , buying mortgage-backed securities (MBS) and continuing operation twist has the implication of simply having asset prices go up and the money flows down to the Mayfair economy,” Faber said.

A Mayfair economy is one which benefits the wealthier and better off in society. Faber said this latest round of QE would not help the “man on the street”.

“QE helps rich people whose asset prices go up and whose net worth then increases but it doesn’t flow to the man on the street who is faced with higher costs of living with price rises. You just have a small economy that is booming but the majority of the economy is damaged by QE,” he said.

Bernanke announced on Thursday that the Fed would buy $40 billion a month in MBS, giving the impression that this time around there would be no time limit to the program, which would only stop once a sustained uptick in employment is visible.

“The money printers are responsible for this crisis. If we continue with this expansionist monetary policy we won’t be facing a fiscal cliff it will be a fiscal grand canyon,” he added.

Mike Konczal, fellow at the Roosevelt Institute disagreed claiming that this latest round of QE — aggressive as it was — would expand the scope of Federal Reserve policy and was “great for main street”. Crucially, he said, it tackles the issue of employment which would underpin future wealth.


“If anything, monetary policy has been too tight in recent years. We’ve seen a collapse in GDP growth, no wage growth and huge rises in unemployment. Wealth is collapsing because of a collapse in the housing market and prolonged, mass unemployment ,” Konczal said.

Faber poured scorn on the notion that QE helps the economy, declaring that commentators like Konczal would have said the same in 2001 when low interest rates led to the biggest housing bubble in the United States. That in turn led to the financial crisis of 2008.

“If we have an economic crisis in the Western world it’s because the government makes up 50 percent or more of the economy. This is a cancer that is taking away people’s freedom,” he said.

http://www.cnbc.com/id/49029923 


But hey...it's okay...EVERYONE is doing it! Riight?

http://www.zerohedge.com/news/bofa-sees-fed-assets-surpassing-5-trillion-2015-leading-3350-gold-and-190-crude 



More lighthearted reading...but hey...we're only talking about kids and grandkids that are slaves to debt. Oh, did I forget to mention that EVERYTHING goes up...food...fuel...clothes...education...everything except your paycheck. Those on Wall Street need to keep those down so you don't get uppity...besides...there's no crime being committed! If there was there would be a perp walk so long it would stretch from Wall Street all the way to California!

Buying mortgage backed securities is the answer to our economic woes... BWAAAAAAAHAHAHAHAHAHA!😂

What's next- negative interest rates??!!=p~

Not to get off too far from the topic, Doc, this sequestration business is killing a lot of businesses. It's a giant mausoleum out there.

Not from Wall Street it isn't. It's bidnezz as usual. Not for the Federal Reserve...it's BOOMTOWN! A virtual goldrush scenario.

An entity that is UNANSWERABLE to ANYONE in government is DESTROYING America and even on this thread...we have.."Uh...(removes finger from nose and wipes it on shirt), everyone is doin' it...what's the big deal? I'm gonna wait for the movie version...books make my head hurt"...look at them...ignoring the problem and still thinking this is some game to be won and lost like Checkers or Chess...as long as THEIR side wins. Little to the see the damage.

"I love my country, I fear my government" - Mark Scott, radio talkshow host...RIP

Oh, the real answer is spending an even higher % of GDP on the MIlitary/Industrial complex. That's a recipe for success too. Those are the sellers Mitt wants to buy the election from.

See..Bloody...the ol' US vs THEM...look at them with disgust. They want the same failed policies. They want the demise of America. They can't help themselves. The sugar high is too great. They really really want Hope and Change. They think if they buy him more time at the trough they'll get theirs.

There never was a democracy yet that did not commit suicide. It is in vain to say that democracy is less vain, less proud, less selfish, less ambitious, or less avaricious than aristocracy or monarchy. It is not true, in fact, and nowhere appears in history. Those passions are the same in all men, under all forms of simple government, and when unchecked, produce the same effects of fraud, violence, and cruelty. When clear prospects are opened before vanity, pride, avarice, or ambition, for their easy gratification, it is hard for the most considerate philosophers and the most conscientious moralists to resist the temptation. Individuals have conquered themselves. Nations and large bodies of men, never. John Adams, letter to John Taylor (15 April 1814).

End the Fed.

We had a man running that can quote the Constitution from memory. His record is one based off of it.

America turned their back on such a man. This man, despite his delegate count wasn't even allowed to speak at the RNC! Many know why he wasn't allowed to speak. He'd shake the establishment. The order must be preserved for the sake of the proles. Can't upset the apple cart.

We really are in the end times for this nation. It cannot stand against the debt racked up. The ponzi scheme has worn out it's welcome and the rich are getting richer. America will not have a rebellion. We're too lazy for that. The conditioning and response has been installed and there's no going back. The Romans had their Coliseum and games to distract it's citizenry. We have NASCAR and TV. The lowest common denominator now rules the roost. Forget critical thinking...you get laughed at or get looks of bewilderment from most. The system we know is crumbling. It's falling down.

The grand experiment our Founding Fathers created has been prostituted. We've whored out our beliefs for those of other nations so we could maintain a dominance. We have bases around the world and are stretched paper thin to the point that we cannot cover where we stand. Just like the Romans and their Great Britain outposts...they were put out there...they thought everyone wanted to be a Roman...just like we think Freedom and Democracy is what people want. We're in nations that don't even value human life...hell, we don't even value human life! Look no farther than the abortion mills that have done their deed to wreck havoc on the Ponzi scheme...a right to "choose" wiped out an entire generation that was supposed to keep the game afoot!

Sad.

Sad that this once great nation, so much promise will be extinguished. The world won't be a better place with us not in it. Freedom had it's time. People didn't choose wisely. They put blind faith in thier leadership to do the right thing. Instead we got sold out for a quick buck. NAFTA treaties...buyouts/bailouts...everyone in a clamor to get aboard the lifeboats with as much loot as they can carry. Look around. The signs are all there. We're not better off from 4 years ago...we're not better off than 10 years ago. It's been a rapid decline down the death spiral. Debt vs GDP, add in a bloated military that's being stretched further than any other nation's military and we're paying rogue nations BILLIONS of dollars for what?

Our Founding Fathers would shoot the leadership on the White House lawn for the treasonous acts that have been allowed to pervade our nation. We're weaken now than when we were under any crown. We did it to ourselves. I'm reminded of Charleston Heston in "Planet of the Apes" at the very end of the movie.

Yeah.

We had a candidate that wanted that.

Instead we get to choose between that man that shot Bin Laden or the guy with 13 wives.

One guy as a record of sheer utter failure and came in with a sugar high of Hope and Change...and in this corner we have the man that saved the Olympics...yea!

Oh what joy.

I'm not thrilled at all. THESE are our choices? THEM?

There's a part of me that actually would enjoy seeing the Kenyan King get his blessed second crack at transforming America. Just to put us out of our misery faster!

Good laughs to be had at sycophant apologists.

Someone wiser than I said "it's just a big schit sandwich and we're all gonna take a bite."

White bread and marbled rye.

Bite or nibble...it's still the same sammich!

[ram27bat]

NAFTA, the great whoooooooshing sound and all the jobs that were either outsourced or taken over by foreigners who immigrated here & were willing to work for less... Oh well, afterall we ARE lazy, arrogant, xenophobic, unwilling to work hard yada yada yada. Sounds like the litany of scum elitists & self-serving apologists who got their steady teat.

Doc, the military industrial complex is certainly bloated and unpatriotic in that if our Government doesn't feed the beast with wars it'll sell it's wares to the highest bidder. Having said that, it IS necessary provided it is put to defending domestic borders, protecting citizens abroad, even allies when our national interests are served as well but NOT European oil needs, waterways/routes we rarely use, nation building for opportunist religious zealots who hate us, etc..

The left is the left. They will always argue as one-worlders against the interests of this country but even a broken clock is right twice day.

One thing that I'm sure about, is that if the incumbent gets a second term, we will be irreparably damaged.
With a viable electable alternative such as Romney we can at least stall for time & delay the inevitable.
Paul/Johnson/3rd party voters mean well but are only securing our quicker demise. That's it. Well at least they'll have their memories of the "good principled fight" as they are ****ting in coffee cans and going down to the river to wash up before feasting on rat.

My apologies if I came across as a sarcastic drama queen in the previous post. Old habits are hard to break I suppose.😊

Of one thing I'm sure, the professional political bureaucracy which has ruled us for at least the last 8 years has had NO clue! They are bleeding us dry and we are running out of reserves, ie. credit lines.🍺