QE2: Fed to spend $900B more to spur econ. This on top of $2T already spent. WTF?!

[JEDI]

http://money.cnn.com/2010/11/03/news/economy/fed_decision/index.htm?hpt=T1

"In its latest move to jump start the sluggish recovery, the Federal Reserve announced it will pump billions into the economy.

The central bank will buy $600 billion in long-term Treasuries over the next eight months, the Fed said Wednesday. The Fed also announced it will reinvest an additional $250 billion to $300 billion in Treasuries with the proceeds of its earlier investments.

The bond purchases aimed at stimulating the economy -- a policy known as quantitative easing (QE)."


During the first round of QE, which started in Nov 2008, they spent $2T to spur the econ!

It hasnt worked. The econ still sucks.
If $2T didnt work, i dont see how another $900B would.
It's just going to drive the dollar lower.

And when the Fed buys long-term government debt from the private market, it shifts interest rate risk from bondholders to taxpayers.

Time to buy commodities... Gold, oil, corn, etc

 

[bamacre]

Time to buy commodities... Gold, oil, corn, etc

http://www.apmex.com

 

[Dissipate]

It was obvious from the beginning that the money creation would keep on going. The system constantly needs new debt to keep going to begin with, so they either continue to add debt or let the system collapse.

 

[Jaskalas]

A government run economy needs this sort of money to keep it going.

They are either going to tax it, borrow it, or print it. As soon as they stop doing those things their Bernie Madoff pyramid scheme comes crashing down.

 

[theeedude]

With fiscal policy gridlock, Bernanke becomes king.
You can either have targeted fiscal stimulus, or helicopter Ben is just going to start dumping money.

 

[RbSX]

Hey champ, it's $600 billion, not $900 billion.

 

[MiniDoom]

Hey champ, it's $600 billion, not $900 billion.

whooo, damn we dodged a bullet. I feel so much better now... :-(

 

[bamacre]

Hey champ, it's $600 billion, not $900 billion.

http://www.newyorkfed.org/markets/opolicy/operating_policy_101103.html

Taken together, the Desk anticipates conducting $850 billion to $900 billion of purchases of longer-term Treasury securities through the end of the second quarter.

 

[yllus]

The benefits: You fight off deflation, make exports more competitive internationally (USD is down 4.4% against the yen, 9.7% against the euro), and it's a great time to get into the stock market.

 

[dali71]

 

[RbSX]

The benefits: You fight off deflation, make exports more competitive internationally (USD is down 4.4% against the yen, 9.7% against the euro), and it's a great time to get into the stock market.

Yeah, I still don't think it will work.

 

[shira]

http://money.cnn.com/2010/11/03/new...w does the latter statement prove the former?

 

[bamacre]

The benefits: You fight off deflation, make exports more competitive internationally (USD is down 4.4% against the yen, 9.7% against the euro), and it's a great time to get into the stock market.

"Fight off deflation" --> increase current amount of inflation.

"make exports more competitive internationally" ----> we work for less money so more foreigners can afford to pay us for our labor

"it's a great time to get into the stock market" ----> Yeah, so was 2002.

 

[theeedude]

The benefits: You fight off deflation, make exports more competitive internationally (USD is down 4.4% against the yen, 9.7% against the euro), and it's a great time to get into the stock market.

You gotta be picky. If dollar falls, producers who have to buy commodities on global markets for their inputs but sell mainly to Americans are going to get squeezed.

 

[CycloWizard]

First, the government told consumers to use up all their credit to keep the economy going. Then the debts got called in. Then the government told lenders they had to lend money to people that couldn't pay it back, shifting the burden to the banks, who then couldn't make their payments. The government then took on the banks' debts on top of its own. The funny thing is that the government can't pay its debts either, except by printing money and making consumers' money worthless. What could possibly go wrong?

 

[Gonad the Barbarian]

How does the latter statement prove the former?

That's what passes for common sense these days.

 

[halik]

"Fight off deflation" --> increase current amount of inflation.

"make exports more competitive internationally" ----> we work for less money so more foreigners can afford to pay us for our labor

"it's a great time to get into the stock market" ----> Yeah, so was 2002.

Umm no, we work for the same amount of money, but widgets cost less to foreigners. You have the same purchasing power in dollars, just not in other currency... which isn't that big an issue given the size of our economy.

The only really issue will be the inflation of commodity prices (oil specifically), but netted with Exports we still come out on top ($200bn in oil imports in 09 vs $1.xT exports).

 

[bamacre]

What could possibly go wrong?

 

[halik]

Dude you had the same line about Wiemar hyperinflation 2 years ago after the TARP and all the unprecedented FED moves. CPI is flat/negative... cognitive dissonance should be setting in about now.

 

[yllus]

"Fight off deflation" --> increase current amount of inflation.

"make exports more competitive internationally" ----> we work for less money so more foreigners can afford to pay us for our labor

"it's a great time to get into the stock market" ----> Yeah, so was 2002.

Sure, but this isn't a decision where you have one good choice and one bad one. Here it's a bad choice and a worse choice. IMO they went with the former. And you're working for the same money, though some things will cost more. Be interesting actually if someone could do up a chart of the effect this will have on the average household.

I think most investing bibles like The Intelligent Investor advocate buying when times are bad. Might as well make the best of a crappy situation.

You gotta be picky. If dollar falls, producers who have to buy commodities on global markets for their inputs but sell mainly to Americans are going to get squeezed.

True. I'm looking at major U.S. exporters to invest in right now that wouldn't see their increased profits eroded because they're in that situation. (Though I'll almost certainly not do so and just buy a U.S. index fund.)

Funny thing is it's because of the Fed's unique "arms-length" setup that they were able to take such a controversial action but instead they'll take only criticism and calls for their disbandment. Yeah, disband the only U.S. government organization that has any balls, great idea.

 

[Acanthus]

QE does not equal printing money.

We need it to avoid deflation.

When inflation rears its head, interest rates will rise to keep it under control.

Right now we are fighting a hard deflation battle. Middle class wages have fallen an average of 7% in a year. Prices are going to want to fall, hard.

 

[bamacre]

Dude you had the same line about Wiemar hyperinflation 2 years ago after the TARP and all the unprecedented FED moves.

And they're working hard to make it happen.

CPI is flat/negative

http://www.bls.gov/news.release/pdf/cpi.pdf

Not flat, not negative, in fact for this year, it's positive (barely). But not enough to make wall street happy, I suppose.

 

[juiio]

Dude you had the same line about Wiemar hyperinflation 2 years ago after the TARP and all the unprecedented FED moves. CPI is flat/negative... cognitive dissonance should be setting in about now.

 

[McWatt]

I don't know how government credit-backed spending works, but it seems like "this costs $600B" is sort of misleading. The government is buying $600B in bonds, which means it's paying off $600B it already owed.

Presumably it's doing so with some higher interest rate source credit, right? That would mean the cost will end up being the difference between the low rates it paid out on the bonds and the probably higher rate it's paying to fund this purchase. Or are they simply inventing $600B that previously didn't exist and using it to cancel out the better part of a trillion dollars in debt?

If this is just newly conjured money, is the only downside the risk of significant inflation? Considering the very flat recent history of the dollar's buying power in the face of Bush's bailout and Obama's stimulus, that doesn't seem like a very significant risk.

I know clever people sometimes post in this forum and I'd appreciate some useful explication to go with the one-liner flames I'll probably receive for asking questions.

 

[bamacre]

QE does not equal printing money.

LOL, yes it does.

We need it to avoid deflation.

What deflation? The CPI for this year is not negative.

When inflation rears its head, interest rates will rise to keep it under control.

But they have no idea when to turn the valve, until it is too late. Look what Volcker had to do at the Fed to protect the dollar, raise interest rates to 20%. What do you think that would do to our economy? More importantly, what would that do to the interest payments on the gov't debt?

Right now we are fighting a hard deflation battle. Middle class wages have fallen an average of 7% in a year. Prices are going to want to fall, hard.

Yeah, so lower the value of the dollar more, and what do you think that'll do to middle class incomes?