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February 23, 2011

What happens when Quantitative Easing (QE2) ends in June?

Filed under: Uncategorized — bigcapital @ 1:12 am
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What happens when Quantitative Easing (QE2) ends in June?

Wednesday, February 23, 2011 – http://marketpin.blogspot.com/

The Congress : “There is no need for us to support Quantitative Easing Part 3” confirmed by the Senate last week.

I remain surprised that in the business press there is little if any discussion about what will happen when Quantitative Easing II expires in June.

From a congressional standpoint, there has been discussion designed to force an early end to the program. Others have gone in the opposite direction mentioning a possible QE3.

In my view, the economy is slowly picking up. Deflation is less an issue, manufacturing activity is up, and consumers are spending a bit more. Corporate profits have exceeded expectations for Q4 2010.

On the downside, the housing market shows no signs of improving and might not have yet bottomed. Trouble in the middle East could disrupt oil shipments. China appears to be experiencing uncontrolled inflation and an asset bubble that is about to burst. Europe is experiencing continued sovereign debt issues. Some analysts believe that the UK is in stagflation. Commodity prices are increasing rapidly. Corporations have no pricing power. The US labor market will take years to repair. And finally, US Budget deficit is out of control!!!

This all points to a tenuous financial environment at the time of QE2 expiration. For 2011, YTD stock prices might be negative.

Any yet the business press seems quiet on this issue …

Read more: Count Down to Quantitative Easing Removal ends in June.

For 2011, YTD stock prices might be negative.

Which would be unlike the quantitative easing that the CABAL (Fed) have been subjecting our economy to… The CABAL chairman told us when he implemented QE1 and Q2, that it was for the good of the economy, to spur economic growth, job creation, and keep interest rates down… Well… That’s strike one, two and three… Go grab some bench, Mr. CABAL Chairman! And that’s all I can say about that right here, right now, as this is the kinder

Since the CABAL introduced quantitative easing in March of 2009, inflation has taken off, just as I told you back almost two years ago that it would… No, we’re not seeing wage inflation, or housing inflation… But get a load of these things that have increased phenomenally since March 2009.

The average price of gas is up 69%… The price of oil is up 135%… Corn is up 78%… Sugar is up 164%… And I could go on, but I think you get the picture. Now, on the other side of the employment that was supposed to improve with QE, the number of unemployed people is up 25%… The number of food stamps recipients is up 35%… The national debt is up 32%… And then the last thing they told us would improve or remain steady was interest rates… Hmmm… Well, the 10-year Treasury is up 100 basis points in the past three months alone! Sorry to be the one that had to tell you these things, but if you only watched cable media, you wouldn’t know about these things, and when the Conference Board called to survey you about how confident you were about the economy, you would be singing the praises of the CABAL for all they had done for you!

October 19, 2010

The Federal Reserve has talked itself into a corner QE2

Filed under: Uncategorized — bigcapital @ 12:21 pm
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The Federal Reserve has talked itself into a corner QE2

By making it clear the next step for monetary policy will be further quantitative easing, the Fed has ignited a frenzy of market activity. Investors’ experience was that the original round of QE triggered a massive rally in risk markets from their lows in the spring of 2009. So another round of QE justifies yet more speculative demand for assets. Speculative demand begets speculative demand.

Which brings us to where we are now–market expectations for something in the region of $1 trillion to $1.5 trillion of additional quantitative easing by the Fed. It’s also worth noting that the Fed’s QE is expected to be followed by yet more Bank of England and Bank of Japan action as well.

This raises two not inconsequential problems for investors: what if the Fed fails to deliver as much QE as the market demands; or what if it does and either it doesn’t work or works too well.

Fed Chairman Ben Bernanke hinted at some of the reasons the central bank might be reluctant to do as much as the market expects in his speech last week. He accepted that “nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used.”

Other central bankers, including the Bank of England’s Paul Fisher, have begun to think publicly about the mechanics of how, when the time comes, to extract central banks from the vast amounts of quantitative easing they have done.

The more QE central banks do, the more of a dominant position they take in the markets in which they operate. The Fed, for instance, has an overwhelming position in U.S. securitized mortgages, while in the U.K., the Bank of England owns more than half of some gilt issues outstanding and at least 20% of the majority of the rest.

There should be no problems getting more sovereign debt onto central bank books, after all, the U.S., the U.K. and Japan will be running large deficits for a long time, so supply isn’t an issue. But what happens a few years down the line when governments continue to pump out supply but central banks also need to sell their holdings? If they do, they run the risk of creating disorderly markets. If they don’t they run the risk of inflationary consequences of debt monetization.

So central banks are likely to be cautious about what they do. But even if they fulfil market expectations, there’s the risk they fail to ignite underlying aggregate demand because the problem with economies isn’t the lack of liquidity but rather the need to deleverage from a debt binge. In which case, more QE could fail in its intention. Indeed, it could more than fail, but actually be damaging by stimulating speculative demand for commodities. This jump in commodity prices then eats into consumers’ pocketbooks, dragging demand down even further.

On one or other count, investors seem destined to suffer disappointment with QE2. And there’s not a lot central banks can do about it

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