Technically it’s $850B to $900B since there will be an additional $250B to $300B from repurchases/reinvestments of QE1. And the objective of QE2 isn’t to prop up the capital markets (i.e., asset prices) but to stimulate borrowing/lending activities: hence increasing consumption/GDP. Asset price increase was just a byproduct (albeit a short-term one) that doesn’t have any leggings when it comes to the longer-term growth picture. It was a needed bonus, but not the main motivation of the Fed.
adalfu Wrote: ------------------------------------------------------- > And the objective of QE2 isn’t to prop up the > capital markets (i.e., asset prices) but to > stimulate borrowing/lending activities You’d think so huh? No, it actually is to prop up prices. The Fed wants to drive Treasury yields lower to increase demand for riskier assets like stocks, and investment grade and HY corporate bonds. Now, is it working? Of course not, nor will it. The stated goals of the Fed have been laughed off by the market since QE2 as yields have risen dramatically and the US dollar has strengthened! Yes, yes…it’s only been a week and Europe is going to hell again; of course that’s the reason. It couldn’t possibly be that QE2 will be a complete failure and only serve to destroy wealth in the long run. On a not completely unrelated note, anyone notice how mad the G-20 got at us, but then yesterday the indirect bidder take down of the 10 year was at an all time high? Today’s 30 year auction will be extremely interesting.
Sweep the Leg Wrote: ------------------------------------------------------- > adalfu Wrote: > -------------------------------------------------- > ----- > > And the objective of QE2 isn’t to prop up the > > capital markets (i.e., asset prices) but to > > stimulate borrowing/lending activities > > You’d think so huh? No, it actually is to prop up > prices. The Fed wants to drive Treasury yields > lower to increase demand for riskier assets like > stocks, and investment grade and HY corporate > bonds. yup, trying to inflate anything it can > Today’s 30 year auction will be extremely interesting. not going as well as Benny Boy would have liked
$105b over the next month - that seems pretty agressive
Sweep the Leg Wrote: ------------------------------------------------------- > adalfu Wrote: > -------------------------------------------------- > ----- > > And the objective of QE2 isn’t to prop up the > > capital markets (i.e., asset prices) but to > > stimulate borrowing/lending activities > > You’d think so huh? No, it actually is to prop up > prices. The Fed wants to drive Treasury yields > lower to increase demand for riskier assets like > stocks, and investment grade and HY corporate > bonds. > > Now, is it working? Of course not, nor will it. > The stated goals of the Fed have been laughed off > by the market since QE2 as yields have risen > dramatically and the US dollar has strengthened! > Yes, yes…it’s only been a week and Europe is > going to hell again; of course that’s the reason. > It couldn’t possibly be that QE2 will be a > complete failure and only serve to destroy wealth > in the long run. > > On a not completely unrelated note, anyone notice > how mad the G-20 got at us, but then yesterday the > indirect bidder take down of the 10 year was at an > all time high? Today’s 30 year auction will be > extremely interesting. Buy the rumor, sell the news. The market expected QE2 since Aug 27 when Ben said he would use “unconventional measures” to prop the economy.
mar350 Wrote: ------------------------------------------------------- > $105b over the next month - that seems pretty > agressive What $100B in one month? Geez, I agree with the one guy who said it does ring of desperation. But if the goal is just to inflate away the value of their massive debt it will do the trick. Risky game.
Sweep the Leg Wrote: ------------------------------------------------------- > adalfu Wrote: > -------------------------------------------------- > ----- > > And the objective of QE2 isn’t to prop up the > > capital markets (i.e., asset prices) but to > > stimulate borrowing/lending activities > > You’d think so huh? No, it actually is to prop up > prices. The Fed wants to drive Treasury yields > lower to increase demand for riskier assets like > stocks, and investment grade and HY corporate > bonds. > > Now, is it working? Of course not, nor will it. > The stated goals of the Fed have been laughed off > by the market since QE2 as yields have risen > dramatically and the US dollar has strengthened! > Yes, yes…it’s only been a week and Europe is > going to hell again; of course that’s the reason. > It couldn’t possibly be that QE2 will be a > complete failure and only serve to destroy wealth > in the long run. > > On a not completely unrelated note, anyone notice > how mad the G-20 got at us, but then yesterday the > indirect bidder take down of the 10 year was at an > all time high? Today’s 30 year auction will be > extremely interesting. I have to object to this: ask any economist out there and he’ll tell you that that wasn’t the INTENT of the QE2. I’m just saying that the purpose of the Fed isn’t to inflate prices (obviously it’s an added bonus, especially during this stage of our recovery since CPI is still reasonably low), but the INTENT is to stimulate GDP growth. You can have modest GDP growth w/o inflating prices, but in our current situation, I think it’s probably necessary now to add some inflation into the system for a healthy economy.
adalfu Wrote: ------------------------------------------------------- >ask any economist There’s your first problem. Second problem is confusing economic policy with monetary policy. No doubt the Fed has blurred the lines too, so it’s easily confused. Economists aren’t in any sort of agreement. Go to any financial website and you’ll see a plethora of opinions on why the Fed decided to create another $600B; keep mortgage rates low and encourage lending being the most popular and optimistic. Other reasons abound though. Inflate our way out of debt, weaken the dollar to increase exports, inflate asset prices (i.e. stocks) to create a wealth effect to get people to spend more, and/or to destroy the long-term wealth of the United States (ok maybe that’s not the intent). You really couldn’t be more wrong about the INTENT though. Read the Fed minutes. Annual inflation of 1% is below the target range of 2-3%. They explicitly stated their intent is to combat disinflation and deflation, and get inflation back to the target range. Their goal is exactly to inflate prices! Money supply (inflation control) is by definition the only thing the Fed does, and not very well mind you. How exactly would the Fed go about stimulating the economy without creating more money? Ask any economist that. Sure you can get GDP growth without inflation, or more accurately above and beyond the rate of inflation, but that’s not the Fed’s job…or INTENT.
I agree with Sweep the Leg Fed should only act if deflation is close - not to create economic growth (out of thin air aka printing press). They rely way too much on the FED to do the job. How about we let inflation be low, growth be low and try to put in place some good sound economic and fiscal policies to create something more sustainable than this hot air. And if we’re closer to deflation then you can get the big guns out, I have the feeling they’ve spent a lot of their bullets on nothing. Is 5 years of low or no growth worse than the FED acting? I think not unless if we go over the cliff.
plus I believe there is a lot of potential that people and their wealth will get hurt chasing the hot price of precious metals like gold and silver
The Fed has a dual mandate set by Congress: price stability (1.7%-2%) and full employment. The Fed stated it is failing on both mandates, hence the feeling that it has to do something.
$600b isnt enough. $6 Trillion isnt enough, because no amount of blanket liquidity is going to create jobs. The liquidity just flows to the assets that are set to benefit the most from a ridiculous pump job like this - commodities and emerging markets. The funny thing is, the Fed is trying to stimulate the economy by creating a wealth effect, when in reality, whatever psuedo wealth that is created by these programs is going to flow right out of the comsumers pockets on the other side in the form of food and energy costs. Check the price of grains and coffee in the last 3 months if you are in doubt. Trying to solve a fiscal problem with monetary stimulus = massive pain for the markets on the back end. Be nimble.