$5 Triilion "QE" coming?

[Jay]

Re: $5 Triilion "QE" coming?

I sense an implication in your comment here that the banks are independent profit seeking businesses who would readily withdraw their high powered money from the Fed and lend it out, if they only had willing and more profitable borrowers. You are apparently saying that it is just that 0.25% and the lack of borrowers that's holding back the banks from lending that money.

I wasn't making that implication, although I sense it is both factors at work: a willingness of the TBTF banks to work with their lifeblood the Fed, AND the fact that they are of course profit seeking centers with capitalistic motivations. That motivation at the moment is rewarded by making a safe 0.25% on money that if marked-to-market would have been a lot smaller.

I tend rather to think of the Fed and the major banks to be working more co-operatively than competitively, and the major ebb and flow of events to be determined more by larger, more powerful interests, economic realities and power struggles. That pile of high powered money that the Fed has created by monetizing lousy assets could disappear in a heart beat if JPMorgan, the NYFed, the Fed Chairman and the Sec. of the Treasury so wanted it. For example if the Fed were to force a bunch of the junk that they and the major banks hold to be suddenly marked to market, then this would be like detonating a neutron bomb on Wall Street, creating a giant hole which just such high powered cash could be useful in papering over.

If the Fed does this we have system reset. The papering over process could easily flow into unwanted areas. All bets are off at that point, except that there will be inflation in real things. An uncontrolled "neutron bomb" is the last thing I expect them to do. Seems like desperation to me, but maybe we will get there. My sense is that while the rest of the world wants austerity, the Helicopter Pilot has other ideas. A credit machine who he is and so we are on a one way street, no matter what the rest of the world, a few lower members of congress and the populace want. Remember that martial law was threatened prior to the TARP bailout. As I have said before, use your imagination when it comes to the security threat and concomitant response that an out-of-control monetary process presents, whether deflationary or inflationary. Zimbabwe doesn't have the means of the US. The world's reserve currency is used in every aspect of globalized life, it will not be easy to pull back from a poison that is needed for almost anything to get done. That doesn't even begin to broach potentials like the military and covert options.

Inflation (weakening of the Dollar due to too many Dollars in circulation) it may well be, perhaps for several years as EJ suggested in order to make the debt burden more manageable. But if such it be, that cash currently on hold at the Fed will not be the essential reason why.

I see all the potential black swan events that could transpire as linked fractal events and I doubt in hind sight anyone will be able to point to one essential reason for it all.

[ThePythonicCow]

Re: $5 Triilion "QE" coming?

I wasn't making that implication

OK. What you say makes sense, and I likely read unintended overly narrow implications into your earlier post.