The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months.
A few hundred billion? What happened to the $2 trillion that Goldman thinks might be the result? To prove that Bernanke is having second thoughts on a major expansion of QE he gave this quote to the WSJ:
Mr. Bernanke has used the analogy of a golfer with a new putter: Unsure how it will work, he finds best strategy is to tap lightly at first and keep tapping until the golfer figures out how best to use the putter.
A putter? Does Mr. Bernanke think this is a game he is playing? He is saying that he has never putted before, has no clue how to do it, so it it is best to tap lightly? What kind of monetary policy is that? "Learn as you go", does not make me feel that there is much hope.
I warned of a possible QE-2 Mini recently. The opposition to a broader program from other Fed members and the huge public outcry against currency manipulation (QE is currency manipulation) has forced Ben to back off.
The market will be very disappointed should we get a QE Mini. A program that says, “We’re going to buy 200b in two months and then see”, will do nothing favorable to the markets. I would argue that the markets could be sadly disappointed by this.
The Fed has tried to manipulate both markets and public sentiment with its leaks of strategy. They got the world to believe that something massive was coming and now we will learn that it’s a “No big deal”. They Fed should shut up. They should not leak more disinformation. They set us up for a monetary program that would have tipped the scales. Now they have to back up because they realize the scales would not be tipped, but broken. The consequence is going to be for a bursting of expectations. Risk Off.
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Good 'un. Thanks.
ReplyDeleteGL
Surely Bernanke could come up with a better analogy than a golfer with a new putter. Only someone who has never played golf might 'tap lightly at first'. A more apt analogy would be his first drive at the wheel of a Ferari, where he'd damn well better tap lightly at first. Jeez, Ben seems such an amateur both in actions and in words. And this amateur controls the financial world!
ReplyDeleteHa, ha ha haha! Thanks for making my day!
ReplyDeleteGL, Tks. Coming from you, it made my day.
ReplyDeleteThis is hardly even news. See the fed paper published by that upcoming fed:ite (can't remember name right now). In that paper he proposed exactly what the Fed is going to do right now. A small mini followed by a massive.
ReplyDeleteIf you were Bernanke contemplating a QE of, say, $2 trillion you would want to get the maximum market response. So what would you do? Well you would go to the journalist with whom you have built up a relationship of trust, and cold-bloodedly burn that relationship by using the hapless journalist to spread disinformation. As in, "Oh it will just be a few billion." To reduce the expectations.
ReplyDeleteOf course it may be a mistake to assume such ability to plan and obfuscate.
If the primary purpose of this round of QE will be to help soak up the enormous coming supply of government debt, which IMO is the case (as opposed to MBS purchases last time), then there is not really a good reason to 1) announce the total amount of planned purchases beforehand (they may not even know, i.e. they may have planned all along to do it gradually, per a kind of rolling assessment of need), or 2) do the QEing all at once (?), which makes no sense actually, since the government is constantly rolling old debt/issuing new debt.
ReplyDeleteNo idea what the market reaction will be.
BK:
ReplyDeleteA compliment from ME made your day?
Brother, you're taking harder drugs than I am!
(So, uh, could I have some of that good stuff you're taking?)
Cheers,
GL
Hey
ReplyDeletethe Fed has no real power anymore, this is all just a psychological ploy to milk another few months of hope out of us dumb dipsh*ts
there's simply too much debt in the system already, anywhere from 60 TRILLION of US debt and 600T of debt denominated in US dollars worldwide. how can the Fed's measly 2-3 trillion balance sheet cover this? it won't
also QE just monetises part of this existing debt, which increases the amount of money in the system while reducing the same dollar amount of credit. Since asset prices are based on total money and credit, there's no net increase in the system. That's why QE1 didn't work and why QE2 will also not work. the Fed should just go away and the gov should default on all it's debt, then we can start over without all of this BS
October 28, 2010 8:27 PM
I meant "the gov should default on all its debt, then we can start over without all of this BS" I used "it's" instead of "its" I hate when other people do that so I had to correct myself!
ReplyDeletebut seriously, does everyone think the gov and Fed are all-powerful that they can prevent another recession/depression from ever occurring? just like in 2008-9? or how about 1929-32? yes the Fed existed then too.
The fact is the Fed can only buy time by borrowing from the future, but at some point the future arrives, and all the corrections that should have taken place along the way happen at once. The next few years should be a prime example
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