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

[halik]

And they're working hard to make it happen.



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.

Cop out answer for someone that's was screaming OMGZZZHYPERFLATION!!! in 2008. Wall street is concerned because of the trend:

(this is the basket that includes commodities and energy)

 

[ElFenix]

the fed is buying $600 billion in bonds that are just now being issued. the fed isn't buying old bonds on the open market. (iirc how this works)

 

[halik]

Yeah, might want to look up how the CPI basket is formulated (hint it includes all the commodities shown in the amount they're used by a representative consumer)

 

[bamacre]

Cop out answer for someone that's was screaming OMGZZZHYPERFLATION!!! in 2008. Wall street is concerned because of the trend:
http://img573.imageshack.us/img573/6910/infl.gif

(this is the basket that includes commodities and energy)

Wall Street is unhappy it wasn't double.

 

[halik]

Wall Street is unhappy it wasn't double.

No, we're not happy because it's trending down again (despite the monetary and fiscal expansion). That is the bad juju.

If we end up in a deflation, shit will hit the fan very hard. See what happens to consumer spending when they think that their $$ will buy more in the future than now.

 

[Acanthus]

LOL, yes it does.



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



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?



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

How does QE = Printing money? Explain. (I'm an economics major, so be detailed.)

If you dont know what a derivative is (the math term) then i guess you can say there is no concern about deflation. You can easily see that the tangent line is a huge negative slope.

 

[yllus]

Or are they simply inventing $600B that previously didn't exist

AFAIK that is exactly what occurs.

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.

It also means the USD slumps and stuff that you're forced to import like gas is going to become more expensive.

You might start a currency war as other countries also engage in QE so their local markets don't get pummeled by U.S. exports.

You might inflate and pop bubbles in other countries if they don't engage in QE leaving the world with one more messed up economy and one less buyer.

You may overinflate your own currency (the Fed can take corrective action against this sort of thing so it's not a huge deal from what I've read).

The money might just get gobbled up by the banks and not lent out to actual businesses, meaning you did all of that for nothing.

Lots of downsides.

 

[jman19]

"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.

He's right, it is a good time to get in the stock market. But only if you are going in a little bit or for the long haul, I think people who want to jump in for just a few years might get toasted.

 

[bamacre]

How does QE = Printing money? Explain. (I'm an economics major, so be detailed.)

Well, it's not "printing" as in actually producing new physical paper money. Are you suggesting QE doesn't expand the money supply? Where does the Fed get the money to buy these T-bills?

 

[bamacre]

See what happens to consumer spending when they think that their $$ will buy more in the future than now.

You should visit the technical forums, and perhaps "Hot Deals." People are always buying things they know will be cheaper tomorrow.

 

[juiio]

Yeah, might want to look up how the CPI basket is formulated (hint it includes all the commodities shown in the amount they're used by a representative consumer)

The way it is formulated is completely bogus and doesn't represent what actually occurs in the real world. That is the point.

 

[Narmer]

So the government is lending money to itself? This won't end well, folks.

 

[Fern]

I was gonna make a post about this not being "spending", but:

Yes, the monetary supply will be increasing, and for all practical purposes looks to be the same a just 'printing more money'.

The term quantitative easing (QE) describes a form of monetary policy used by central banks to increase the supply of money in an economy when the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.

A central bank does this by first crediting its own account with money it has created ex nihilo ("out of nothing").[1] It then purchases financial assets, including government bonds and corporate bonds, from banks and other financial institutions in a process referred to as open market operations. The purchases, by way of account deposits, give banks the excess reserves required for them to create new money by the process of deposit multiplication from increased lending in the fractional reserve banking system. The increase in the money supply thus stimulates the economy. Risks include the policy being more effective than intended, spurring hyperinflation, or the risk of not being effective enough, if banks opt simply to pocket the additional cash in order to increase their capital reserves in a climate of increasing defaults in their present loan portfolio.[1]

"Quantitative" refers to the fact that a specific quantity of money is being created; "easing" refers to reducing the pressure on banks.[2] However, another explanation is that the name comes from the Japanese-language expression for "stimulatory monetary policy", which uses the term "easing".[3] Quantitative easing is sometimes colloquially described as "printing money" although in reality the money is simply created by electronically adding a number to an account. Examples of economies where this policy has been used include Japan during the early 2000s, and the United States and United Kingdom during the global financial crisis of 2008–2009.

http://www.businessinsider.com/what-is-quantitative-easing-2010-8

Fern

 

[Narmer]

Cop out answer for someone that's was screaming OMGZZZHYPERFLATION!!! in 2008. Wall street is concerned because of the trend:

(this is the basket that includes commodities and energy)

Read this book
http://www.amazon.com/This-Time-Diff.../dp/0691142165

No, we're not happy because it's trending down again (despite the monetary and fiscal expansion). That is the bad juju.

If we end up in a deflation, shit will hit the fan very hard. See what happens to consumer spending when they think that their $$ will buy more in the future than now.

No it won't.

 

[halik]

How does QE = Printing money? Explain. (I'm an economics major, so be detailed.)

If you dont know what a derivative is (the math term) then i guess you can say there is no concern about deflation. You can easily see that the tangent line is a huge negative slope.

Well it's not that they print money, but they expand credit/money supply by freeing up lender's balance sheet. There's no money created, the FED just takes the depository balances they keep on their balance sheet and buy stuff with them.

 

[GTaudiophile]

Sitting here watching the Dollar plunge against the Euro.

 

[werepossum]

"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.

It's amazing that so many people seem to think the only problem with the race to the bottom is that we aren't winning.

 

[halik]

The way it is formulated is completely bogus and doesn't represent what actually occurs in the real world. That is the point.

Ah yes, because we all use equal amount of those commodities you had in that picture.

BLS spends a ton of time coming up an average consumer basket and they even account for things like the income and substitution effect (ie keeping your utility constant as the prices change). But sure, list of stuff trading on CBOT is far better way to judge inflation...

 

[halik]

So the government is lending money to itself? This won't end well, folks.

http://www.frbsf.org/education/activities/drecon/2010/0310.html

The FED is using the member bank deposit accounts to buy stuff.

 

[JEDI]

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

hey idiot...

 

[Zebo]

Benny the B is destroying your savings and anyone who believes FED's inflation numbers is a GD fool. They purposely lie on that to keep SS payment down look at the commodities... 50-70% across the board and will just get worse as dollar is destroyed. Buy brass is my advice you'll need it with the complete societal collapse coming.

I find it hilarious fighting about Democrats and Republicans or about taxes when nothing effects us like Federal Reserve's monetary policy and quantitative easing. They decide who gets the loans, it's wall street to prop their fortunes not you, at nothing rates. They decide what happens with your savings, can your investments even beat inflation? Hard very hard, I am doing investment in silver call options ATM.

 

[sunzt]

Some more detail about the reasoning behind QE2:

http://finance.yahoo.com/news/Feds-...asset=f392f7afd246c487f1363b2e4f12e456&ccode=

For much of the last year, there were three basic camps on what the Federal Reserve should be doing.

One focused on the risks of the Fed’s taking more action to help the economy. This camp — known as the hawks, because of their vigilance against inflation — worried that the Fed could be sowing the seeds of future inflation and that any further action might cause global investors to panic.

Another camp — the doves — argued instead that the Fed had not done enough: inflation remained near zero, and unemployment near a 30-year high.

In the middle were Ben Bernanke and other top Fed officials, who struggled to make up their minds about who was correct. For months, they came down closer to the hawks and did little to help the economy. On Wednesday, they effectively acknowledged that they had made the wrong choice.

The risks of inaction have turned out to be the real problem.

The recovery has not been as strong as the Fed forecast. Businesses became more cautious about hiring after the European debt crisis in the spring. State governments began cutting workers around the same time, and the flow of federal stimulus money began to slow. Since May, the economy has lost 400,000 jobs.

What’s striking about the last six months, however, is how much more accurate the doves’ diagnosis of the economy has looked than the hawks’.

Early this year, for example, Thomas Hoenig, president of the Kansas City Fed and probably the most prominent hawk, gave a speech in Washington warning about the risks of an overheated economy and inflation. Mr. Hoenig suggested that the kind of severe inflation that the United States experienced in the 1970s or even that Germany did in the 1920s was a real possibility.

When he gave the speech, annual inflation was 2.7 percent. Today, it’s 1.1 percent.

The doves, on the other hand, pointed out that recoveries from financial crises tended to be weak because consumers and businesses were slow to resume spending. Around the world over the last century, the typical crisis caused the jobless rate to rise for almost five years, according to research by the economists Carmen Reinhart and Kenneth Rogoff. By that timetable, the unemployment rate would rise for a year and a half more.

Perhaps the clearest case for more action came from within the Fed itself. In June, an economist at the San Francisco Fed published a report analyzing how aggressive monetary policy should be, based on past policy and on the current levels of unemployment and inflation.

As a benchmark, it looked at the Fed’s effective interest rate, taking into account the actual short-term rate as well as any bond purchases to reduce long-term rates. Because the short-term rate was zero and the Fed bought bonds in 2009, the report judged the effective interest rate to be below zero — about negative 2 percent.

And what should the effective rate have been, based on the economy’s condition? Negative 5 percent, the analysis concluded. In other words, the Fed wasn’t buying enough bonds.

All the while, global investors have continued to show no signs of panicking. If anything, as the economy weakened over the summer, investors became more willing to lend money to the United States, viewing its economy as a safer bet than most others.

 

[bamacre]

Benny the B is destroying your savings and anyone who believes FED's inflation numbers is a GD fool. They purposely lie on that to keep SS payment down look at the commodities... 50-70% across the board and will just get worse as dollar is destroyed. Buy brass is my advice you'll need it with the complete societal collapse coming.

I find it hilarious fighting about Democrats and Republicans or about taxes when nothing effects us like Federal Reserve's monetary policy and quantitative easing. They decide who gets the loans, it's wall street to prop their fortunes not you, at nothing rates. They decide what happens with your savings, can your investments even beat inflation? Hard very hard, I am doing investment in silver call options ATM.

If you're buying silver, I'd get physical. "They" have been playing with the silver market. They can't do it forever, eventually the market will beat them.

http://www.marketwatch.com/story/jp...-manipulation-2010-10-27?reflink=MW_news_stmp

 

[soccerballtux]

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

On your "Weaker Dollar" point, we have to have this (a weaker dollar, that is), otherwise our export business is going to continue to dwindle and be shipped overseas and give us even higher unemployment.

 

[soccerballtux]

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.)

Not a good idea IMO. Both China and Japan are trying to maintain their export economies, a game which I think they can beat us at. If they export, the deficit has to come from somewhere. If we become a net exporter, we're going to be battling with them. Where are the buyers going to come from? Everyone's trying to export and there's not enough consumption.