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Posts Tagged ‘QE3’

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Dear Readers: Now that Team Obama has managed to fail so spectacularly in foreign policy, its time to turn and cause a little mayhem with domestic policy.

Before we begin, I want to do an opening rant. The left and its elite media minions have been have been having the vapors after Romney stated a bald-faced truth (i.e., he is not likely to win the approval of the entitlement-embracing voters).

Hey, elite media: I have some eye-popping news for you. Obama said this in 2008 about a good portion of the American electorate and STILL MANAGED TO GET HIS SORRY POSTERIOR ELECTED: And it’s not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.

I utterly defy the elite media to release the full speech that Romney made.

Now, back to the latest domestic policy chestnut from Team Obama: Quantitative Easing III – better known GRANDSON OF FED FISCAL FAIL. We will be having Doo Doo Economic’s fiscal guru, Charles Fettinger, on tonight’s CANTO TALK program to discuss the fine details (7 pm Pacific Time, 9 pm Central Time — click HERE).

To bring those of us who are NOT versed in the arcane wisdom of fianace, here is a summary:

Quantitative easing is a monetary policy under which a central bank tries to stimulate growth by lowering borrowing costs by buying up debt, thus pushing yields lower. It also puts a lot of money in the hands of people who otherwise had those securities it just bought, so they can go out and buy something else, which has included U.S. stocks.

In the U.S. this has been done through the Fed’s purchases of Treasury and mortgage-related debt (the latter specifically targeting housing finance, with the idea that lower borrowing costs would revive the battered and important housing sector.)

The first two rounds of quantitative easing — QE1 and QE2 — are a big part of what pushed mortgage rates and Treasury yields to record lows recently. So, in theory at least, QE3 would be good for bonds because you have a new, deep-pocketed buyer. (How it plays out in real life is more complicated because of lots of other influences, such as the European debt crisis.)

But it’s a fairly controversial policy, because having a central bank buy up a lot of securities is essentially the same as if it printed money.

The SLOBs economic experts are none too pleased, as I note below:

DOO DOO ECONOMICS: QE3 IS DOO DOO ECONOMICS

Workers take into account inflation when considering compensation. Government welfare programs act as an alternative to work and are adjusted for inflation. Crime is an increasingly viable alternative to work. When employment is high and interest rates are above inflation, additional money supplies can entice workers into participating to get a piece of the new wealth. When available workers cannot keep pace with inflation and fail to see wealth creation around themselves, there is no significant incentive.

It is my contention that because interest rates are below the level of inflation, there is a negative influence upon traditional asset investments, and worker’s investment in their own skills. It is not reasonable to invest money in an asset that does not generating wealth. It is not reasonable to invest in an asset that is paid through welfare and cannot increase its generation of wealth. Money supply does not influence this.

Lets call this what it is, an excuse to devalue the dollar in order to deal with the massive Obama deficits. It is a hidden tax. It has little to do with employment, and Ben Bernanke knows it.

Give me liberty or give me debt.

The Liberator Today: The Most Dangerous Easing Yet

And I don’t mean Obama’s mideast policy, whatever that is; I can’t figure it out. I am talking about the Fed’s latest Quantitative Easing (QE3) which was announced today. This is the most dangerous move yet by the Fed, as Bernanke has committed to buying up mortgage debt. From Reuters:

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.Mortgage debt? This seems a straight up political move designed to lift the stock market and prop up the housing market prior to the election. I summarized the futility of zero percent long term interest rates as explained by David Einhorn some time ago. The method by which the Fed pumps liquidity matter little.

A quick recap:

  • Low interest rates make it harder for retirement eligible to actually retire, they are getting little return for their money.
  • Interest rates are a measure of the time value of money. By setting it at zero, there is no urgency about investment decisions.
  • Because those who live on fixed savings, have less to spend, they spend less, harming the economic recovery.
  • Investment isn’t increasing at zero rates, because once rates fall below the rate of inflation, the only consideration is whether the principle can be paid back. If inflation is at 2.5%, then reducing interest rates from 2.5% to 1.5% or even zero percent will have no effect on investment, so there is no offset to the fact that savers have less to spend.
  • Zero rates allow otherwise worthless loans to appear to be performing, as the borrower can make nominal payments. But it delays the necessary economic unwinding necessary for real economic recovery.

WC VARONES: QE 3 : Zimbabwe Ben goes Full Retard

Translation: we will print $40 billion a month out of thin air because, despite the experience of the past three years, we still believe that printing money fixes the economy.

Translation: we will keep printing, and maybe even start printing faster, as long as the employment market sucks.

It’s going to be a LONG time before the outlook for the labor market improves “substantially.” Inflation will be a problem long before that. We’ll have $5 gasoline long before we have 5% unemployment and normal labor force participation rates.

Printing money doesn’t create jobs. So Bernanke has just committed to giving us stagflation for as long as he can until inflation gets too out of control.

A post at Left Coast Rebel sums it all up: ‘Whatever has been done, or not been done, in Washington over the past 4 years just ain’t working!’

I will give Team Obama credit — they have implemented at least one novel policy idea successfully. Debt as a Weapon of Mass Destruction.

As my good friend Captain Capitalism says: Sit back and enjoy the decline!

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