George Rebane
This is just a little stake in the ground so I can keep the audacious prognostication momentum going on RR (and put myself at your mercy if I’m wrong). The Fed under The Bernank has put out the message that there will be no QE3 as the previous two quantitative easings (aka printing faith-based money) have been known. Instead, the chairman today set a new record for clarity in stating that current interest rates have been chiseled into a two-year stone. And everyone is talking about that.
Dear readers, I’m asking you to look at the other hand, the one below the table. The to-be-anointed Divided Disciples are going to crash and burn, and this holiday season will have Santa Claus putting a lot of lumps of coal into stockings hung with care. Some time before the primary season ends next year, the Keynesians in the administration are going to demand more of that ol’ stimulation. But the kind that was misspent in the government directed projects of QE1 and QE2 won’t do any more. Both the Democrats and the Fed would then look as if the ‘do again, expect different’ insanity definition was written for them.
As a change, Bernanke will try to pump fresh cash into the other end of the economy – put more liquidity in the hands of people who actually know how to create jobs. It still fits the Keynesian mold, but from a distance doesn’t look leftwing Keynesian. And he can do that by quietly starting to buy securities (stocks, funds, hedge products, real estate, …) to ‘balance out’ the Fed’s asset accounts.
This QE3 will be a direct infusion of newly printed cash into the private sector that bypasses the dead hand of the US Treasury under Heckuva Job Geithner. Now I’m not sure how well spoon feeding the economy from this end will work. But sure as hell, the Fed’s pouring liquidity through the enema tube has not restored regularity to the beast.
[update] Sumbich, that was easier than I thought. Today’s WSJ came out with a piece – ‘More Fed Bond Buys HInge on Inflation, Indicators’ – that blithely had the following –
Four words in the central bank’s announcement Tuesday—the acknowledgment that policy makers discussed a “range of policy tools”—indicated to investors eager for a government fix to the economy that the Fed was willing to take further steps. More than anything, markets are expecting a new, third round of bond purchases known as quantitative easing, or QE3. (emphasis mine)
Nowhere was it mentioned (admitted?) that the Bernank had told Congress that no QE3 was required or planned. So now the only question remains as for what kinds of assets the Fed is willing to print new money. The market’s continued nosedive today provides some mighty attractive buys; the Fed may even make money on some of that stuff and be able to take cash out of the system. Now that’s a novel thought.
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