Author
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Topic: Sigh... QE III
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YoursTrulyAlways Knowflake Posts: 3741 From: Registered: Oct 2011
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posted September 14, 2012 08:08 AM
Once again, the Fed is dabbling in quantitative easing, for the third time. The question is whether the US economy will really respond. Starting to sound like Japan's "lost decade." The dollar is so devalued that it is becoming worthless!Tell me that politics doesn't factor into this... sigh... ========================================== (BN) Fed Undertakes QE3 With $40 Billion in MBS Purchases Each Month +------------------------------------------------------------------------------+ Fed Undertakes QE3 With $40 Billion in MBS Purchases Each Month 2012-09-13 18:00:00.36 GMT By Joshua Zumbrun Sept. 13 (Bloomberg) -- 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.” Chairman Ben S. Bernanke is enlarging his supply of unconventional tools to attack unemployment stuck above 8 percent since February 2009, a situation he has called a “grave concern.” The decision risks provoking a renewed backlash from Republicans, including presidential nominee Mitt Romney, who say Bernanke’s policies threaten to ignite inflation while doing little to spur the economy. Stocks soared after the statement. The Standard & Poor’s 500 Index jumped 1.2 percent to 1,454.41 at 1:56 p.m. in New York. The yield on the 10-year Treasury note rose to 1.79 percent from as low as 1.71 percent.
‘Aggressive Commitment’ “This is definitely a significant shift in FOMC policy,” said Julia Coronado, chief economist for North America at BNP Paribas in New York and a former Fed economist. “This is a very aggressive commitment to success on its mandates.” The central bank released its economic forecasts for growth, inflation, unemployment and interest rates over the next three years. Twelve of the Fed’s 19 policy makers said interest rates should rise for the first time in 2015. The Fed now expects the job-market outlook to improve more swiftly by 2014, with unemployment forecast to fall to 6.7 percent to 7.3 percent, compared with 7 percent to 7.7 percent in their June projections. In 2015, unemployment will fall to 6 percent to 6.8 percent. 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. Press Conference Bernanke will further explain the Fed statement and forecasts at a press conference starting at 2:15 p.m. in Washington. 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. “The committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the statement said. Richmond Fed President Jeffrey Lacker dissented for the sixth consecutive meeting, saying he opposed additional asset purchases. Lacker opposed the FOMC’s June decision to extend Operation Twist through the end of the year and has said he expects interest rates will need to be raised in 2013. Jackson Hole Today’s Fed meeting comes less than two weeks after Bernanke’s Aug. 31 speech in Jackson Hole, Wyoming, when he lamented the state of the labor market and defended his “nontraditional policies,” saying “the costs, when considered carefully, appear manageable.” Growing expectations of additional stimulus have helped propel a rally in stocks and commodities. The Standard & Poor’s 500 Index rose 4.5 percent through yesterday since the Fed’s last statement on Aug. 1 to near the highest level in more than four years. The S&P GSCI Spot Index of 24 commodity prices has risen 7.1 percent. Weak employment data has increased pressure on the central bank to act. The Labor Department said Sept. 7 that the economy added 96,000 jobs in August, less than forecast by economists and down from a 141,000 increase in July. Average hourly earnings were little changed, and 368,000 Americans left the labor force. Manufacturing Cools Other reports have shown that manufacturing, one of the mainstays of the three-year expansion, has been weakening. The Institute for Supply Management’s factory index showed a third straight month of contraction in August as it fell to the lowest level since July 2009. “We have seen no net improvement in the unemployment rate since January,” Bernanke said in his Jackson Hole speech. “Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time.” Economic growth slowed to a 1.7 percent annual pace in the second quarter from 4.1 percent in the final three months of last year. Growth will average 2.1 percent next year, according to the median forecast in a Bloomberg News survey of economists, and the jobless rate will average 7.9 percent. Intel Corp., the world’s largest semiconductor maker, on Sept. 7 slashed its third-quarter sales forecast citing declining demand for personal computers from corporate customers in a weakening economy. Profit Forecast FedEx Corp., operator of the world’s largest cargo airline, said Sept. 4 that earnings for the quarter ended Aug. 31 will be short of its forecast after a weak global economy damped revenue. Some companies are planning to reduce staff. Printer maker Lexmark International Inc. on Aug. 28 announced plans to eliminate 1,700 jobs globally. Hewlett-Packard Co., the world’s largest personal-computer maker, said Sept. 10 that it would cut 29,000 jobs, an expansion of a reorganization plan first announced in May. Bernanke, a scholar of the Great Depression, has deployed the most aggressive monetary policies since the Fed’s founding nearly a century ago as he battled the 2007-2009 financial crisis, helped pull the nation out of the worst recession since the 1930s and then sought to keep the expansion going. The Fed lowered its target interest rate to zero in December 2008 and undertook two rounds of large-scale asset purchases that swelled its balance sheet to almost $3 trillion from less than $900 billion in December 2007, when the recession began. Second Round After the second round of asset purchases started in November 2010, Republican congressional leaders, including Congressman John Boehner of Ohio and Senator Mitch McConnell of Kentucky, the head of the party in their respective chambers, wrote a letter to Bernanke saying the action could ignite inflation, weaken the dollar and generate speculative bubbles. 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. “I don’t think that another round of quantitative easing is going to have a material effect on the recovery,” Hubbard said in an Aug. 31 interview on Bloomberg Television. “Lowering the 10-year yield by another handful of basis points isn’t going to move the needle.” ‘Failed’ Policy Representative Paul Ryan of Wisconsin, Romney’s vice presidential running mate, yesterday said the Fed is “trying to make up for failed fiscal policy.” The central bank is “trying to bail out the fact that the president hasn’t led, that the Senate hasn’t passed a budget, that we have a horrible economic policy coming from our regulations and from our tax policy,” Ryan said at a campaign event in Wisconsin. Fed district bank presidents, including Richmond’s Lacker, Philadelphia’s Charles Plosser and Dennis Lockhart of Atlanta, have also raised concerns about inflation or whether more Fed action would help fuel growth. Bernanke, in his Jackson Hole speech, cited a Fed study showing that large-scale asset purchases may have raised the level of economic output by almost 3 percent and boosted private payroll employment by more than 2 million jobs. What’s more, Bernanke said, Fed the purchases have created “few if any” disruptions to market functioning, and there are no signs the expanding balance sheet has “materially affected inflation expectations.” No Panacea Still, Bernanke said monetary policy is “not a panacea” and his remarks have highlighted “two main sources of risk” facing the U.S. economy: Europe’s sovereign debt crisis and the prospect of abrupt fiscal tightening in the U.S. Europe cleared a hurdle in its debt crisis yesterday when Germany’s top constitutional court rejected efforts to block the European Stability Mechanism, a 500 billion-euro ($645 billion) bailout fund. The U.S. is also vulnerable to the so-called fiscal cliff, the $600 billion of tax increases and spending cuts that will kick in automatically at the end of the year unless Congress acts. The Congressional Budget Office said in an Aug. 22 economic report that fiscal tightening of that magnitude could cause a recession. “We’ve got a U.S. economy where we have looming tax increases that are quite significant, we have looming spending cuts in the government which are quite significant,” Michael DeWalt, the director of investor relations for Peoria, Illinois- based Caterpillar Inc., said in a Sept. 6 presentation. A lot of customers are “unsure about what to do, highly uncertain about where it’s going to go at the end of the year.” For Related News and Information: Federal Reserve rates, data, news: FED <GO> Federal funds rate: FDTR INDEX GP M <GO> Fed balance-sheet graph: FARBAST INDEX GP M <GO> Central bank portal: CENB <GO> Central bank monetary-policy rates: CBRT <GO> Global economy watch: GEW <GO> U.S. economic snapshot: ESNP US <GO> U.S. economic forecasts: ECFC US <GO> --Editors: Christopher Wellisz, James Tyson To contact the reporter on this story: Joshua Zumbrun in Washington at +1-202-624-1984 or jzumbrun@bloomberg.net To contact the editor responsible for this story: Chris Wellisz at +1-202-624-1862 or cwellisz@bloomberg.net IP: Logged |
iQ Moderator Posts: 4022 From: Chennai, India Registered: Apr 2009
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posted September 14, 2012 09:04 AM
I agree with you about the devaluation but the funny thing is no matter how devalued the dollar is mathematically, the other currencies suck so much that the dollar is still near to being number one. Theoretically, the Fed can do a QE4, 5, 6, 7, 8, 9 and 10. It just will not matter, the other countries will devalue accordingly. Yes, Precious Metals will hit the roof as the extra dollars get transferred into Gold, Silver, Platinum and Palladium. IP: Logged |
YoursTrulyAlways Knowflake Posts: 3741 From: Registered: Oct 2011
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posted September 14, 2012 09:08 AM
We can only kick the can down the street for a little bit. After that, fundamental issues need to be addressed.The only reason why the dollar is being pegged is because the Euro is even weaker. My worry is the ascension of China and God forbid we start seeing the RMB as a benchmark. IP: Logged |
iQ Moderator Posts: 4022 From: Chennai, India Registered: Apr 2009
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posted September 14, 2012 09:27 AM
Excellent point. IP: Logged |
jwhop Knowflake Posts: 5833 From: Madeira Beach, FL USA Registered: Apr 2009
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posted September 14, 2012 09:53 AM
Yeah, but in the meantime, devaluing the dollar causes commodity prices to rise...and prices are rising..inflation. Statistical information shows household incomes are declining and have already declined. This is just the kind of squeeze which hurts the middle class worst. The poor are already protected, somewhat, through a variety of government programs...food stamps, home heating and electricity support or outright payment, section 8 housing and other welfare transfer payments.Later, when the Fed attempts to withdraw all those excess dollars from circulation, they walk on the edge of knife. Too much, too fast and they risk crashing the ecomony all over again. Your point about Japan's Lost Decade is an excellent one YTA and following that model is economic folly. Bernanke says there's nothing political about the decision to go forward with QEIII NOW. I say bullshiiit! ![](http://www.linda-goodman.com/ubb/laugh.gif) Oh, and projections are that this will reduce unemployment to 6% by 2015. I doubt that too. IP: Logged |
juniperb Moderator Posts: 4805 From: Blue Star Kachina Registered: Apr 2009
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posted September 14, 2012 10:09 AM
Aw, come on guys. It will buy dinner and dessert tonight.Air soup and wind pudding ![](http://www.linda-goodman.com/ubb/laugh.gif) ------------------ We dance around the ring and suppose, but the secret sits in the middle and Knows Robert Frost IP: Logged |
jwhop Knowflake Posts: 5833 From: Madeira Beach, FL USA Registered: Apr 2009
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posted September 14, 2012 10:40 AM
Air soup and wind pudding! Yummm juniThe O'Bomber Special. #1 on the menu ![](http://www.linda-goodman.com/ubb/laugh.gif) IP: Logged |
YoursTrulyAlways Knowflake Posts: 3741 From: Registered: Oct 2011
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posted September 14, 2012 11:33 AM
They are hoping that buying but MBS, especially RMBS, will spur real estate valuations and drive up hype about the housing market.You can see that it is so incredibly short sighted. Simple reality is that consumer credit remains tight and banks are unwilling to lend. For every dollar that is lost, it takes $20 in new business just to recover the dollar lost. Banks are not suckers. You not only need to have a job, but you need to have kept your job for at least 3 years. Even then, banks aren't handing out jumbo mortgages anymore. People with good credit cannot even get re-fi-ed at a decent rate these days because credit is so tight. Plus Fed Funds are close to zero. Who wants to lend in the Fed Funds market anyway? Taking big bets in Treasuries (and big losses) seems the way to go to earn spreads on excess liquidity... aka JP Morgan. IP: Logged |
katatonic Knowflake Posts: 8817 From: Registered: Apr 2009
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posted September 14, 2012 12:01 PM
i was asking some questions about this yesterday.. http://www.linda-goodman.com/ubb/Forum26/HTML/001395.html it seems they are not talking floating more actual money, but buying up real estate assets...not my province but i wonder whether this is better or worse than floating currency? i have heard that the housing market is actually improving, prices and sales having gone up last month? so is this speculation on their part that they will be in possession of some great investments? seems so...? but it doesn't seem helpful to the rest of us! IP: Logged |
jwhop Knowflake Posts: 5833 From: Madeira Beach, FL USA Registered: Apr 2009
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posted September 14, 2012 12:05 PM
But, there's also a relationship between price and demand and it's an inverse relationship.All things being equal, higher prices take segments of buyers out of the market for several reasons including one you mentioned. Inability to qualify for a loan. I do not believe pumping up the money supply is the answer. There's plenty of money in the system but it's sitting on the sidelines and offshore and until the risk/reward ratio is favorable for investment in the US and the uncertainty is removed about future government actions, I think most of that capital is going to stay put. IP: Logged |
juniperb Moderator Posts: 4805 From: Blue Star Kachina Registered: Apr 2009
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posted September 14, 2012 04:26 PM
Well jwhop, that air soup and wind pudding comes in handy when I`m spending that fake dollar. Just about can`t have one without the other. ![](http://www.linda-goodman.com/ubb/flower.gif) ------------------ We dance around the ring and suppose, but the secret sits in the middle and Knows Robert Frost IP: Logged |
YoursTrulyAlways Knowflake Posts: 3741 From: Registered: Oct 2011
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posted September 14, 2012 04:27 PM
quote: Originally posted by katatonic: i was asking some questions about this yesterday.. http://www.linda-goodman.com/ubb/Forum26/HTML/001395.html it seems they are not talking floating more actual money, but buying up real estate assets...not my province but i wonder whether this is better or worse than floating currency? i have heard that the housing market is actually improving, prices and sales having gone up last month? so is this speculation on their part that they will be in possession of some great investments? seems so...? but it doesn't seem helpful to the rest of us!
Kat, No, they aren't buying defunct mortgages. These are not even real estate assets, per se. These are Collateralized Mortgage Obligations and Residential Mortgage Backed Securities. The Federal Housing Agency sets the standards of what constitutes a Conforming Loan. At present time, a Conforming Loan in a High Cost Housing Area (as defined by the FHA) is $729,250. That means for a standard 30-year mortgage for a family with a medium to low risk (i.e., FICO of 680 or better) below $729,250, it would be considered a "Conforming Loan." Mortgages are initiated by mortgage brokers or directly by banks. These loans are then sold to investment banks to be securitized into instruments such as RMBSes, and stacks of RMBes and CMBS (commercial real estate) are then securitized into financial instruments. For example, $100 MM of RMBes can then be floated into the financial markets as commoditized items for purchase by institutional investors. The market value of these instruments depends on the synthetic yield to maturity, the tenor and average default rates across the credit spectrum. Anyway, instead of buying individual mortgages from the Smiths, the Jones and the Ryans, the banks will back large stacks of mortgages. Tomorrow, if they feel like it, they can turn around and re-sell, or they can even hold it for the full 30 years if they like. The Fed said it will buy $40 BN of RMBS per month. Each time the Fed buys RMBS, they pay for it and thus increase liquidity across the financial markets. It pumps money into the system, but it also inflates the economy. AND it makes very rich bankers even more rich. Note that most of Wall Street is made up of Centerist Democrats and Centrist Republicans. They love supporting both parties and ride the fence. AND make a LOT of money. Talk about tax breaks for the wealthy. Here we go again. Who gets suckered? The middle class. IP: Logged |
katatonic Knowflake Posts: 8817 From: Registered: Apr 2009
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posted September 14, 2012 05:54 PM
yes, the very rich profit at all turns, and this is one of the reasons those in the middle and lower classes are loth to give them more "breaks"...they are generally always in the right position to profit from good or bad economies.IP: Logged |
iQ Moderator Posts: 4022 From: Chennai, India Registered: Apr 2009
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posted September 15, 2012 08:35 AM
Thanks for this explanation YTA. You should make Youtube Videos on Economics ![](http://www.linda-goodman.com/ubb/smile.gif) IP: Logged | |