$5 Triilion "QE" coming?

[Mega]

http://www.telegraph.co.uk/finance/e...y-falters.html

Schiff was right (although i wish he stop losing my money).

Why don't they just print $1 million for each American & hand it out....job done!

Mike

[ASH]

Re: $5 Triilion "QE" coming?

Sounds like the next dip will have to materialize first, to justify further QE. Just like fiscal stimulus. Things seem like they are getting gummed up politically here in the States. An extension of unemployment benefits recently failed for the third time in the Senate, on grounds of fiscal sustainability. So yeah -- additional QE is likely coming, as is additional stimulus spending -- but not until people are freaking out about the recovery stalling out and the economy going back into contraction.

[gnk]

Re: $5 Triilion "QE" coming?

Sounds like the next dip will have to materialize first, to justify further QE. Just like fiscal stimulus. Things seem like they are getting gummed up politically here in the States. An extension of unemployment benefits recently failed for the third time in the Senate, on grounds of fiscal sustainability. So yeah -- additional QE is likely coming, as is additional stimulus spending -- but not until people are freaking out about the recovery stalling out and the economy going back into contraction.

In a recent interview Felix Zulauf described an even more critical situation ocurring within 5-6 years or so:

"I think the deflationary pressure on our system will increase and intensify over the next few years and we will come to the point where we have Lehman, AIG, Citi, in one day happening. And then you have a banking system... I mean... I do not mean those particular companies, but entities of the same significance in our system. At that point of time, there is no way that the banking system can handle it. Our banking system in the US and in Europe has an equity capital of between 2 and 4%, the big money center banks. And in such a situation they will be bust.

And therefore, next time, the government cannot come in again because many of those governments are already perceived as bust too. And at that point of time, I think the Central Banks will come in big time and you will see that the balance sheets of the Central Banks will not expand by a factor of two or three, but probably by a factor of 50, or a 100, or something like that. And once that happens, then you have virtually in a matter of a few weeks, the situation where you make our currencies as we knew them invaluable [sic], you destroy them.

And I think, at that point of time you will see some activity on the side of the Central Banks and within a short period of time, we will have a currency reform due to the crisis.

That's the sort of events I see in the next let's say, five, six years..."

- Felix Zulaf http://kingworldnews.com/kingworldne...ix_Zulauf.html

My opinion: This is the sort of situation the Fed is worried about, hence the increase in bad assets re-allocation from private sector to public sector.

ASH, as you mention above, there are two reasons for money printing. One, deficit spending, to fuel the economy due to private credit growth issues, and two, QE -the banks are still insolvent - the recapitalization is far from over.

[ST]

Re: $5 Triilion "QE" coming?

5 to 6 years now seems optimistic

jobless benefits expire in the name of austerity - can the message be any more blatant? hardship is socialized, bailouts are for special interest

[globaleconomicollaps]

Re: $5 Triilion "QE" coming?

The fed is under pressure now to do something, but the tide has turned against additional bank bailouts and government programs. The next move will be for the Fed to stop paying interest on excess reserves.

http://www.financialsense.com/fsu/ed...2010/0622.html

Fed’s Next Move is to Ease
by Michael Pento, Delta Global Advisors, Inc. | June 22, 2010
Print

The FOMC meets today to discuss their record-low interest rate policy. The announcement of their decision will be released on Wednesday. While no increase in interest rates is expected, there is little doubt amongst investors that the future direction for the central bank’s target rate will be up. In fact, Kansas City Fed President Thomas Hoenig has repeatedly expressed his desire for an increase in overnight lending rates to 1 percent from the current zero-0.25 percent range by the end of summer.

However, recent economic data including; the Philly Fed Index, first time jobless claims, Non-farm payrolls and retail sales are already pointing to a probable double-dip recession. Therefore, the Fed’s next move is more likely an ease rather than a tightening of rates.

But the ease won’t come in any of the traditional forms. The Fed isn’t going to reduce rates to a negative level. Charging people to deposit their money into a bank just isn’t going to be politically palatable. Our central bank will also not seek to once again dramatically increase the size of the Fed’s balance sheet. Although the Fed bought another $7.34 billion in Mortgage Backed Securities last week, even Mr. Bernanke won’t be foolish enough to buy up another $1.5 trillion of assets that he will not be able to dispose of in the future.

The next ease from the Fed will most likely be in the form of ceasing to pay interest on excess reserves. Since October 2008, the Fed has been paying interest on commercial bank deposits held at the central bank. But because of Bernanke’s fears of deflation, he will do whatever it takes to get the money supply to increase. With rates being near zero and the Fed’s balance sheet already at an intractable level, the only viable solution to fight Ben’s phantom deflation fear is for him to remove the impetus on the part of banks to keep their excess reserves laying fallow at the Fed.

If commercial banks stop being paid to keep their money dormant, they will find a way to get money out the door. They may even start shoving loans out through the drive-up window. Banks need to make money on their deposits (liabilities). If the don’t get paid by the Fed, they will be forced to take a chance on the consumer. After all, it has been made clear to them that the Fed and Treasury stand ready to bail out banks’ bad assets at any cost. So why not take the chance once again?

The statement from this month’s meeting of the FOMC will probably not indicate that interest will no longer be paid on deposits by the Fed to commercial banks. However, in the near future this strategy will be the most appealing method for the Fed to increase liquidity. Once Mr. Bernanke assents to the double-dip recession scenario, he will fight deflation by any means necessary.

Deflation is not a possible outcome if a central bank is willing to do whatever it takes to increase the money supply. The fed can buy every house on the market if it so desired and it could buy every dollar of our $13 trillion national debt. And while it is true Bernanke can’t force banks to lend, he can compel them to boost the money supply by removing any compensation involved from keeping the money multiplier in check. And even if there was no banking system or fractional reserve system in place, it would be a specious argument to make that inflation could not occur without having private banks involved.

According to Bernanke’s academic philosophy, expanding the money supply somehow equates to growing the economy. In order to grow the economy credit must be available, but much more importantly interest rates and the value of the dollar must be stable.

The current Federal Reserve Chairman is a student of the Great Depression. Although he will, unfortunately, most likely get a chance to study one first hand, this next one will be marked by inflation rather than deflation. Investors should be aware he will do whatever it takes to avoid a collapse of the money supply and a double dip in the economy. Part of his plan is to ensure there is not only plenty of money printed—that much he has already accomplished in spades—but that banks are also well incentivized to loan it out.

[ASH]

Re: $5 Triilion "QE" coming?

jobless benefits expire in the name of austerity - can the message be any more blatant? hardship is socialized, bailouts are for special interest

"They" -- the authorities -- have a sound rationale for this, backed by an assumption that is likely flawed. The flawed assumption is that bailing the special interests out will get the economy going again. The sound rationale is that economic growth is unlikely to result from paying subsistence benefits to individuals, and unless economic activity picks up, simply paying benefits to out-of-work people is an unsustainable dead end.

Of course, what they should have done is raze the parasitic part of FIRE that doesn't support the production/consumption economy, plow salt into the earth where it grew, get private debt discharged quickly through default rather than transfer to the public, and where necessary bail out the useful part of FIRE in order to get economic growth going again from a low-debt base. If they would just get it over with quickly, we could actually afford to carry out-of-work folks until the economy picks up. But failure to target the bailouts, and too much reliance on transfering debt rather than extinguishing it, is painting us into a corner.

[ST]

Re: $5 Triilion "QE" coming?

I suppose I'm getting more and more cynical. The straw that broke the camel's back was that conditional upon bailout money none of 'them' seemed to think it was a good idea to demand resignations from boards/CEOs. No prosecutions on the NINJA fiasco and the Frank / Dodd team keeps dancing it's jig to put on a show for the American people while winking to their funders.

[mesyn191]

Re: $5 Triilion "QE" coming?

Of course, what they should have done is raze the parasitic part of FIRE that doesn't support the production/consumption economy, plow salt into the earth where it grew, get private debt discharged quickly through default rather than transfer to the public, and where necessary bail out the useful part of FIRE in order to get economic growth going again from a low-debt base. If they would just get it over with quickly, we could actually afford to carry out-of-work folks until the economy picks up. But failure to target the bailouts, and too much reliance on transfering debt rather than extinguishing it, is painting us into a corner.

Couldn't agree more with this.

Their attempts to drag things out while trying to save the special interests at the expense of the public is what will screw up everything. If they just would've tried to get the pain over with quickly while actually reforming the system at the same time a recovery would've been in the bag within a year or 2. Now, I think the worst is yet to come. They're just too corrupt and in their own little bubbles to see how bad things are getting.

[ASH]

Re: $5 Triilion "QE" coming?

I suppose I'm getting more and more cynical. The straw that broke the camel's back was that conditional upon bailout money none of 'them' seemed to think it was a good idea to demand resignations from boards/CEOs. No prosecutions on the NINJA fiasco and the Frank / Dodd team keeps dancing it's jig to put on a show for the American people while winking to their funders.

Oh, I'm not disputing that the process is corrupt, and overly protective of special interests. Rather, I was suggesting that it would be sorta okay in a systemic sense (if not a moral sense) if only the bailouts were actually fixing the economy.

I hope that those responsible for letting the special interests skate feel the heat if/when this fails. A lot would have been forgiven politically if the economy had revived, but hopefully failure will force some sort of re-examination.

[ThePythonicCow]

Re: $5 Triilion "QE" coming?

too much reliance on transferring debt rather than extinguishing it, is painting us into a corner.

My cynical guess is that they're transferring debt into a different corner intentionally.

It's like watching an arsonist pile all the oily rags and combustibles he can find into one building; you can guess where the next big fire will be.

Two quite separate things are being piled into the Federal Reserve these days -- regulatory authority and debt. My guess is that they (the Anglo-American Banksters) intend to torch the debt, by way of replacing the Dollar (in its world reserve currency role) with some sort of SDR or Wocu as the reserve currency exchanged between central banks, whilst leaving in place the hammer lock regulatory grip the Federal Reserve is acquiring on the U.S. banks, as part of the overall control structure.

[ASH]

Re: $5 Triilion "QE" coming?

My cynical guess is that they're transferring debt into a different corner intentionally.

It's like watching an arsonist pile all the oily rags and combustibles he can find into one building; you can guess where the next big fire will be.

Two quite separate things are being piled into the Federal Reserve these days -- regulatory authority and debt. My guess is that they (the Anglo-American Banksters) intend to torch the debt, by way of replacing the Dollar (in its world reserve currency role) with some sort of SDR or Wocu as the reserve currency exchanged between central banks, whilst leaving in place the hammer lock regulatory grip the Federal Reserve is acquiring on the U.S. banks, as part of the overall control structure.

Some details of this scenario aren't quite right, but perhaps the gist is.

One quibble is that debt is being transferred to the US Treasury, but not to the Federal Reserve. When the US Treasury backstops the GSEs, the American tax-payer directly assumes the liabilities of the GSE... if the GSE can't pay its bills, we are on the hook to do so. That is debt transfer.

On the other hand, when the Federal Reserve buys MBS from a bank, it is printing money to buy an asset. The security held on the Federal Reserve's balance sheet is not a liability of the Federal Reserve -- it is an asset, paid for at no direct cost to the tax-payer (the indirect cost being debasement of the currency). The seller now has newly-created money with which to settle other debts, and the Fed is owed principal and interest by the debtor who originally owed money to the bank that sold the security. But the Fed has not assumed responsibility for paying anybody anything (*), nor has it expended taxpayer dollars. True, the security in question may be garbage, and the debtors to the Fed might default, making it difficult for the Fed to sell the asset later. But this is not debt transfer. Although this is certainly a good deal for the banks involved, it is also in many respects better for the public than if they directly assumed responsibility for paying private debts.

The part that I agree with is the idea that the Fed is, and will continue to be, instrumental in torching the pile of debt that's out there. If you transfer the debt to the Treasury, then debt service payments eat into the government's cash flow, crowding out other spending, and you steadily destroy the government's ability to borrow. If the Fed monetizes debt-backed securities, then the banks that held them are recapitalized, and the debtors can default or not without much immediate consequence. The long-term consequence is being unable to mop up excess reserves in the banking system, but to paraphrase Homer Simpson -- "the crippling balloon payment isn't until later, right?". And in that context, this is also something that will destroy the dollar's reserve currency status, if indulged in excess.

(*) Edit: Okay, technically the Fed has created liabilities for itself by creating the money to pay for the asset. But the liability is to redeem the money that it created in exchange for whatever assets the Fed has on its balance sheet -- at no fixed valuation in terms of real world purchasing power. So it's a circular definition: there's no way that an obligation to sell "whatever assets you happen to have for sale" in exchange for federal reserve notes can result in insolvency as a consequence of the real world value of those assets depreciating. All that can happen is that the real world value of the liability you issued can drop.

[ThePythonicCow]

Re: $5 Triilion "QE" coming?

Thanks for the corrections and clarifications, ASH. Good stuff.

[ThePythonicCow]

Re: $5 Triilion "QE" coming?

A key concept is that we don't have Zimbabwe fiat currency (limited only by the number and speed of the printing press.) We have debt-based money.

Money comes into existence as a pair of matching bookkeeping entries; one of those entries represents a claim on some collateral property or future productivity.

When the total of these claims on our future wealth exceeds our future wealth, we've got a problem. When that imbalance is enormous, we have an enormous problem. Most of those claims will fail and many who thought they "owned" some wealth will find its value is gone. Their rents are up, their wages are down and their property is repossessed.

We're now leveraged up ten or fifty to one, meaning that each unit of actual wealth (property or productivity) is backing ten or fifty units of debt. What happens next could be quite interesting.

[vinoveri]

Re: $5 Triilion "QE" coming?

Oh, I'm not disputing that the process is corrupt, and overly protective of special interests. Rather, I was suggesting that it would be sorta okay in a systemic sense (if not a moral sense) if only the bailouts were actually fixing the economy.

I hope that those responsible for letting the special interests skate feel the heat if/when this fails. A lot would have been forgiven politically if the economy had revived, but hopefully failure will force some sort of re-examination.

I would suggest that the economy will get 'fixed' one way or another over the next decade or so, but how so, the equity of how it works out, and whether the new system is better or worse than before is yet to be determined. I would also suggest that however it plays out, the "government" as a whole will not receive the blame by the public, but rather will be portrayed in the history books as responsible actors. Look at how the Great Depression is portrayed to the masses for instance and FDR's legacy. I for one cannot imagine the mindest of a population that would willing allow its gold to be confiscated, and its savings immeditately and dramatically devalued (notwithstanding the hardship that was being endured by a large minority of the population), and the government assuming the role as head of a "command and control" economy. A decade later, radical devaluation of currency, and WWII finally to stimuate demand, the USA becomes and economic power house and a generation of real growth and advancement of the middle class ensues.

The gov will single out and sacrifice rogue individuals and even 'rogue' administrative sections of the gov for the hides the public demands over time, but will come our smelling like a rose (at least to those who read the popular press and future generations who will be fed the revisionist history).

The more things change, the more they stay the same. I for one have spent the last 3 years becoming increasingly cynical of the system, but have come to realise that life is way to short to feed on the angst driven recognition of the systemic corruption that is our gov and system. We must regain our high-mindedness, tell the truth with levity, and fear no more our roles as hamsters on treadmill in gilded cages. Time to put up or shut up, for me anyway.

[ASH]

Re: $5 Triilion "QE" coming?

Good stuff.

... Or maybe I'm about to get schooled by someone who understands the mechanics of central banking better than I.

I have often seen is asserted that expansion of a central bank's balance sheet with bum assets risks "insolvency" of the Fed, and "puts tax-payer dollars at risk." I have never understood these assertions. I always assumed that the people making these claims had a misunderstanding about how central banks work, or were conflating the Treasury with the Federal Reserve, but I have also wondered if instead it is I who misunderstand something.

The way I see it, a regular bank is insolvent if it can't meet its obligations to pay back depositers when they seek to withdraw funds, or to pay creditors. To the extent that the Fed creates money to buy assets, rather than borrowing money or paying for assets out of income, it is hard to envision a scenario where the Fed can't pay its bills. In theory, federal reserve notes are liabilities of both the Federal Reserve and Treasury... but liabilities for what? "Lawful money". And what is "lawful money"? Fiat. And what can you get from the Federal Reserve in exchange for US dollars? Whatever securities the Fed is offering for sale from its balance sheet. What can you get from Treasury in exchange for US dollars? The notes are "legal tender" to settle any debts you might owe the Treasury. It's a rather circuitous path, but to the extent that the liabilities of the Federal Reserve are limited to the assets on its balance sheet, I don't see how degradation of those assets affects the solvency of the Fed (rather, it is the real world value of the federal reserve notes that degrades!). Likewise, the Fed's issuance of liabilities against those assets creates instruments which can be used to settle debts owed the Treasury, but that doesn't really incur debts owed by the Treasury.

As far as I can tell, the problem with the Fed printing money to buy sketchy assets is really just the inflationary impact, and the difficulty introduced managing the money supply if those assets can't later be sold. And those problems are considerable -- taken to an extreme, the inflationary impact is hyperinflationary. But if anyone understands how the Fed can 'go broke' or put the US tax-payer deeper in debt by printing money, please let me know. A lot of people seem sure about this, and I might be missing something.