QE3 Announced Today?

It's been awhile since we've heard anything from Peter Schiff, and the following clip is the Schiffty one in top form. It's widely expected that Bernanke will say something about QE3 today, and might even announce that it's happening. But is that what the economy really needs? Schiff makes the (valid) point that zero interest rates are causing massive misallocations of capital, and he thinks Bernanke should do the right thing and tell everyone the party is over. It would lead to huge government spending cuts (which we all agree are necessary) and create a path to a real market. He even brings up Paul Volcker, who did just that when he was Fed chief in the '80s. Good stuff:

 

But.... But... But... The reliance on Fiscal Heroin is hard to break man! Why heal the economy with a bitter pill when you can pump it full of Dilaudid or Fentanyl instead?

In all seriousness, we've been in a ZIRP environment for the last few years. I don't know whether or not The Fed has explicitly stated that they are the reason why the market has stayed at these market highs, but we all know it's the case, at the cost of however many trillions have been monetized. This has been an easy way of transferring wealth and risk to the US Taxpayers from the banks. So what do we do? While I am all for raising interest rates, the big question is what do you do now when everyone sees interest rates go up and then the economy stalls and starts going into a recession? Does this mean Bernanke will go ahead and drop rates and pump more money into the system just to create the illusion of stability? I agree that Schiff is right (QE induces artificial growth and we need to fix the problem by giving the markets time to recover on their own with hire rates), but I think he made a good point in that all we have is the artificial high and we're contracting in real terms despite not having a recovery. The only way out is to stop giving the junkies their fix man.

 
Frieds:
But.... But... But... The reliance on Fiscal Heroin is hard to break man! Why heal the economy with a bitter pill when you can pump it full of Dilaudid or Fentanyl instead?

In all seriousness, we've been in a ZIRP environment for the last few years. I don't know whether or not The Fed has explicitly stated that they are the reason why the market has stayed at these market highs, but we all know it's the case, at the cost of however many trillions have been monetized. This has been an easy way of transferring wealth and risk to the US Taxpayers from the banks. So what do we do? While I am all for raising interest rates, the big question is what do you do now when everyone sees interest rates go up and then the economy stalls and starts going into a recession? Does this mean Bernanke will go ahead and drop rates and pump more money into the system just to create the illusion of stability? I agree that Schiff is right (QE induces artificial growth and we need to fix the problem by giving the markets time to recover on their own with hire rates), but I think he made a good point in that all we have is the artificial high and we're contracting in real terms despite not having a recovery. The only way out is to stop giving the junkies their fix man.

The Bernank has done what he needs to do. Now Congress needs to fulfill their obligation by engaging responsibly. I know...the moment I began to type Congress and responsible I started to twitch. You can only tell these people that they need to do their job so many times. They don't want to get down to the hard stuff though. They're too busy scheduling press conferences to tell you how outraged they are because no one has done their job for them.

Brutal...

"Now go get your f'n shinebox!"
 

There is this really strange and cool idea out there, that maybe it is time to step back and see if the kids can swim on their own without floaties. We all can see the diminished returns of QE and even Bernanke admitted as much in his last statement. Taking a wide view of the economy it is plain to see that we are slowly falling off the edge. GDP is slowing, PMI is lagging, even retail sales are beginning to soften and we are headed into a holiday season. Corporate guidance is flagging yet we are at market highs and seem to just keep on going. Prices are edging up and anyone who has filled up their car or gone to the grocery store is feeling the effects of inflation. Don't even bother quoting me any of this CPI ex adjusted whatever the fuck they feel like pegging the number at in a given time period. People aren't stupid. Or maybe they are, and that's the issue. I don't think people fully comprehend what the federal reserve is capable of doing with their dual mandate. I"d argue that the appointment of the next fed chairman is more important than the next president. Bernanke gives the federal government the ability to spend limitlessly, and if a fed chief were to come in and take that power away from them it would force changes pretty quickly. But, whatever. Why try to fix the problem when we can simple ease a little more and fill up the bowl again.

 

I couldn't be less excited about QE3. What are we looking at now? A 100 - 200 point pop in the S&P, that will slowly fade away as negative macro reports trickle in? It doesn't make sense anymore. Rates are already at historic lows. Nobody is thinking "I'd like to take out a loan, but I'm going to wait for the 10 year to hit 1.25%".

The market continues to rally, even as the EU teeters on the brink of dissolution, the Middle East is undergoing a series of revolutions, and China faces a potential slowdown. US economic indicators are not so positive that should override these macro events.

 

Do you think without QE, money market rates will skyrocket? And capital will flow in that direction? But my stock portfolio will get crushed!

Baby you're the perfect shape, baby you're the perfect weight. Treat me like my birthday, I want it this way and I want it that way. It makes a man feel good baby.
 
R0bin:
Do you think without QE, money market rates will skyrocket? And capital will flow in that direction? But my stock portfolio will get crushed!

Well, realize that operation twist is selling short and buying the long end forcing rates down. So, realistically, should they stop doing that type of operation you'll probably see the short end rates fall further.

 

The markets won't react favourably to this, and neither will the economy. Bernanke needs to get his shit together.

http://johnbtaylorsblog.blogspot.ca/2012/09/strong-push-back-at-jackson…

Check out John Taylor's summary of Michael Woodward's article on more LSAPs.

‎"Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to become the means by which men deal with one another, then men become the tools of other men. Blood, whips and guns or dollars."
 

Why inflation?

Your households are over-leveraged. Deflation is a bigger risk than inflation. Most of you seem to think that your government is over-leveraged as well. That only compounds the danger of deflation.

If your government starts to de-leverage (lower its deficits) while households and the financial sector are doing the same you will see a deepening of the depression and that will hit the corporate sector on the asset side. i.e. mass misery, unemployment and pain. All for what? So some ideologues can see their theory of unfettered markets come true without any real benefits to people.

I don't see how what Schiff is proposing is sound policy. Maybe I'm missing something.

 
Relinquis:
Why inflation?

Your households are over-leveraged. Deflation is a bigger risk than inflation. Most of you seem to think that your government is over-leveraged as well. That only compounds the danger of deflation.

If your government starts to de-leverage (lower its deficits) while households and the financial sector are doing the same you will see a deepening of the depression and that will hit the corporate sector on the asset side. i.e. mass misery, unemployment and pain. All for what? So some ideologues can see their theory of unfettered markets come true without any real benefits to people.

I don't see how what Schiff is proposing is sound policy. Maybe I'm missing something.

Rel, the whole point of this in inflation. Keep assets inflated that were overvalued to begin with when they were bought. So, now the idea is to stave off deflation at any cost to prop up everyone who is overleveraged as you say. To do that, Bernanke is now printing money to buy assets. That will devalue the dollar which in turn will slowly but surely erode purchasing power as time goes on. And that slowly and surely becomes faster and faster with each round of this madness. Our debt is catching up to us. You can't grow your way out of a debt and leverage issue by adding on more debt. It just doesn't work. That is why you nee deflation to bring assets back down and begin to pay down some of the debt and deleverage. Once you've accomplished that, you can actually achieve 'real' growth not this bullshit propped up by higher prices and inflation in commodities. Yes, it will suck for those who are over leveraged. It's time to be realistic about what is happening and what will happen going forward. Deflation is great if your a saver and have cash on hand.

 
Addinator:
Relinquis:
Why inflation?

Your households are over-leveraged. Deflation is a bigger risk than inflation. Most of you seem to think that your government is over-leveraged as well. That only compounds the danger of deflation.

If your government starts to de-leverage (lower its deficits) while households and the financial sector are doing the same you will see a deepening of the depression and that will hit the corporate sector on the asset side. i.e. mass misery, unemployment and pain. All for what? So some ideologues can see their theory of unfettered markets come true without any real benefits to people.

I don't see how what Schiff is proposing is sound policy. Maybe I'm missing something.

Rel, the whole point of this in inflation. Keep assets inflated that were overvalued to begin with when they were bought. So, now the idea is to stave off deflation at any cost to prop up everyone who is overleveraged as you say. To do that, Bernanke is now printing money to buy assets. That will devalue the dollar which in turn will slowly but surely erode purchasing power as time goes on. And that slowly and surely becomes faster and faster with each round of this madness. Our debt is catching up to us. You can't grow your way out of a debt and leverage issue by adding on more debt. It just doesn't work. That is why you nee deflation to bring assets back down and begin to pay down some of the debt and deleverage. Once you've accomplished that, you can actually achieve 'real' growth not this bullshit propped up by higher prices and inflation in commodities. Yes, it will suck for those who are over leveraged. It's time to be realistic about what is happening and what will happen going forward. Deflation is great if your a saver and have cash on hand.

Deflated asset prices and deflated revenues make it less likely that you will be able to pay down debt and de-leverage. You need bankruptcy / debt forgiveness in that case (on a corporate or household level). In terms of the government, the US national debt is denominated in dollars, not a foreign currency. There is no default risk only a risk of a reduction in purchasing power. So what? Pay the Chinese (and other debt holders) with dollars that are worth less. Big deal. I don't see how the dollar's purchasing power is somehow sacred or more important than other goals like unemployment and the government's ability to fund its programmes.
 
Relinquis:
Addinator:
Relinquis:
Why inflation?

Your households are over-leveraged. Deflation is a bigger risk than inflation. Most of you seem to think that your government is over-leveraged as well. That only compounds the danger of deflation.

If your government starts to de-leverage (lower its deficits) while households and the financial sector are doing the same you will see a deepening of the depression and that will hit the corporate sector on the asset side. i.e. mass misery, unemployment and pain. All for what? So some ideologues can see their theory of unfettered markets come true without any real benefits to people.

I don't see how what Schiff is proposing is sound policy. Maybe I'm missing something.

Rel, the whole point of this in inflation. Keep assets inflated that were overvalued to begin with when they were bought. So, now the idea is to stave off deflation at any cost to prop up everyone who is overleveraged as you say. To do that, Bernanke is now printing money to buy assets. That will devalue the dollar which in turn will slowly but surely erode purchasing power as time goes on. And that slowly and surely becomes faster and faster with each round of this madness. Our debt is catching up to us. You can't grow your way out of a debt and leverage issue by adding on more debt. It just doesn't work. That is why you nee deflation to bring assets back down and begin to pay down some of the debt and deleverage. Once you've accomplished that, you can actually achieve 'real' growth not this bullshit propped up by higher prices and inflation in commodities. Yes, it will suck for those who are over leveraged. It's time to be realistic about what is happening and what will happen going forward. Deflation is great if your a saver and have cash on hand.

Deflated asset prices and deflated revenues make it less likely that you will be able to pay down debt and de-leverage. You need bankruptcy / debt forgiveness in that case (on a corporate or household level). In terms of the government, the US national debt is denominated in dollars, not a foreign currency. There is no default risk only a risk of a reduction in purchasing power. So what? Pay the Chinese (and other debt holders) with dollars that are worth less. Big deal. I don't see how the dollar's purchasing power is somehow sacred or more important than other goals like unemployment and the government's ability to fund its programmes.

Relinquis,

I don't know about you, but I am pretty pissed that my savings are being eroded by inflation. It is not only the chinese that lose. A lot of americans will lose out. Not only will their savings be raped, but also the fact that their salaries have not gone up to keep up with inflation, they will most likely have to live with less real income. As the previous poster said, you can not get out of debt by printing money. Let's swallow the pill now rather than later. It will be painful, but the sooner it's done, the less pain we all feel. This QE3 business is just another way of wealth transfer. The only ones that benefit from it are the 1% at the expense of the majority of americans that don't even know what happened today. I want to be a 1% for obvious reason, but when I get there I will still think that governemt should have the majority of the people interest, not just the rich ones.

 
andres17:
Relinquis,

I don't know about you, but I am pretty pissed that my savings are being eroded by inflation. It is not only the chinese that lose. A lot of americans will lose out. Not only will their savings be raped, but also the fact that their salaries have not gone up to keep up with inflation, they will most likely have to live with less real income. As the previous poster said, you can not get out of debt by printing money. Let's swallow the pill now rather than later. It will be painful, but the sooner it's done, the less pain we all feel. This QE3 business is just another way of wealth transfer. The only ones that benefit from it are the 1% at the expense of the majority of americans that don't even know what happened today. I want to be a 1% for obvious reason, but when I get there I will still think that governemt should have the majority of the people interest, not just the rich ones.

Series I savings bonds to the rescue!
 
Best Response
andres17:
Relinquis,

I don't know about you, but I am pretty pissed that my savings are being eroded by inflation. It is not only the chinese that lose. A lot of americans will lose out. Not only will their savings be raped, but also the fact that their salaries have not gone up to keep up with inflation, they will most likely have to live with less real income. As the previous poster said, you can not get out of debt by printing money. Let's swallow the pill now rather than later. It will be painful, but the sooner it's done, the less pain we all feel. This QE3 business is just another way of wealth transfer. The only ones that benefit from it are the 1% at the expense of the majority of americans that don't even know what happened today. I want to be a 1% for obvious reason, but when I get there I will still think that governemt should have the majority of the people interest, not just the rich ones.

Personally, I don't feel much inflation at all in terms of consumption. Maybe some asset price inflation, but that's all. Anyway, my personal situation is irrelevant.

The real wages issue is a red herring i feel. It has more to do with neo-liberal economic policy (union busting, NAFTA in its current form, financial modernisation act, etc...) than short term central bank monetary policy or the US government deficit.

My key point is not to argue that bernanke's policy is good, rather that the contemplated solution of "swallowing the pill now" is probably worse and ineffective. You'll see households go bankrupt at an accelerating rate, a deepening of the recession and another financial crisis... And you will still have over-leveraged households, banks and government. So you will have not benefited anyone apart from maybe a few bond holders/creditors that see real interest rates rise due to deflation. I would hate to see the political consequences of this.

I don't think you realise how poor and over-leveraged most Americans are. They don't have "savings" to worry about. They've been losing the battle with neo-libralism since the 80s (or earlier).

My opinion (feel free to disagree):

This all seems a bit Japanese.

Any proposed solution needs to take into account that households are trying to de-leverage during a depression (high unemployment & weak economy). This is the real issue, not some fantasy about the purchasing power of the dollar or short term sustainability of government deficits. Any real solution has to deal with some kind of bank restructuring and reform and large scale debt forgiveness/restructuring for households. Personally, I think it should be accompanied by government deficit spending the the short term (on infrastructure, sciences, public works and other public goods). You don't have a short term fiscal issue in terms of your government debt. There is no risk of default.

Without addressing the real issue of private sector de-leveraging in a depression you won't be able to return to a more sane monetary policy. This isn't something bernanke can address. You need to be lobbying congress and the president to make the policy choices you need... Maybe you do need a deepening of the depression and another financial crisis to get these policies on the table...

 

Someone needs to get the legislative branch to get their asses in gear and do some f'n work. How is it up to Bernanke to solve all of this shit? How many times are they going to march his ass up on the Hill to ask him the same questions over and over and over and over again so that he can tell them they need to be responsible people and make some hard choices??? They would rather pass the buck and blame the Fed for what? not doing Congress' job too? Someone at some point has to address the fuckin elephant in the room.

"Now go get your f'n shinebox!"
 

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