Fed: Quantitative easing now, quantitative easing tomorrow, quantitative easing forever

The Federal Reserve’s Open Market Committee today said it will keep trying to print money until the economy recovers. In short, the Fed said it will increase its purchases of mortgage-backed securities by $40 billion a month until employment improves. So, indefinitely. Combined with other maneuvers, the Fed said its asset holdings will increase by about $85 billion a month through the end of this year. And the money-printing may not end there; from the Fed’s statement:

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases. (emphasis added)

This is not what people mean when they talk about “wealth creation.” In fact, it’s very nearly the opposite of that: The inevitable devaluing of the dollar — the prices of gold, silver and several other commodities spiked in the minutes following the Fed’s 12:30 announcement — means our savings will lose value. This is the destruction of future wealth in the hopes of creating some current economic growth. In that respect, it is no different from increasing the budget deficit even further to fund even more Keynesian spending.

Will it work? Ask Japan; they’ve been trying such “quantitative easing” since 2001, without much positive effect. This is our third round of it in the past four years.

The Fed already had said it would keep short-term interest rates at or near zero until 2014. Today, it said that policy was likely to remain in place until mid-2015, which is three years from now and six years after the nominal end of the Great Recession. The new bond-buying comes on top of that.

Folks, this is what pushing the panic button looks like. It’s unclear what, if anything, comes between the panic button and the white flag.

– By Kyle Wingfield

Find me on Facebook or follow me on Twitter

402 comments Add your comment

md

September 13th, 2012
1:45 pm

Japan’s debt to gdp ratio? 200%

Even if they ever get the ship turned around, it will take them decades at super growth to finish paying their bills………I don’t think that is the recipe for success.

JohnnyReb

September 13th, 2012
1:51 pm

Come on November. Come on Romney.

There is a lot of chatter that the economy will collapse if Obama is reelected. While some state that is outrageous lunatic talk from the far right fringe, I’m not as sure as they. The first hint is, its illegal for you or I to print money.

bluecoat

September 13th, 2012
1:58 pm

It’s not Japan that concerns me.Our dollars are shrinking fast,and will continue to do so.Money in savings will vanish.Dollar trade status is vanishing.China top dog now.

Dusty

September 13th, 2012
2:00 pm

I think I will bury my green back assets in a can under the apple tree. The interest paid will be the same as now and the apple tree is safer.

Print print as we go, merrily down the stream.
Money now, as we know, is only just a dream…

iggy

September 13th, 2012
2:03 pm

More quantitative easing is just a confirmation that The Fed has zero confidence in ObamaNomics.

@@

September 13th, 2012
2:07 pm

Now this is when I would expect, even Democratic voters to be upset. Why? Because the “credit” goes to the financial sector when:

Released Wednesday, the study found that 821,000 households opted out of the banking system from 2009 to 2011 and that the so-called unbanked population grew to 8.2 percent of U.S. households.

That means that roughly 17 million adults are without a checking or savings account. Another 51 million adults have a bank account, but use pawnshops, payday lenders or rent-to-own services, the FDIC said. This underbanked population has grown from 18.2 percent to 20.1 percent of households nationwide.

That creaking sound you hear is our economy on the verge of collapse.

bluecoat

September 13th, 2012
2:08 pm

Inflation above 2%.Yes probably more like 50%.Think our gdp/debt ratio has passed the 100%.Obama/Romney which,results will be same.Wealth taken while we watch.Middle class gone.

@@

September 13th, 2012
2:09 pm

Democratic voters are their party’s pawns.

UnFRICKINbelievable!!!!!

JDW

September 13th, 2012
2:09 pm

@Kyle…”Folks, this is what pushing the panic button looks like. It’s unclear what, if anything, comes between the panic button and the white flag.”

I absolutely agree…your entire piece is nothing more than one big unfounded panic…when do you plan to bring out the white flag?

You do realize of course that the Fed is injecting money by buying assets…should inflation become an issue they then simply sell those very same assets to create the reverse effect if desired.

As for this bit of complete nonsense from JohnnyReb…”There is a lot of chatter that the economy will collapse if Obama is reelected.”

:roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll: :roll:

Ever hear of Chicken Little…you look just like him.

O’ look… Market roars DOW +170…Wall Street is preparing for collapse.

Scooter

September 13th, 2012
2:09 pm

” It’s unclear what, if anything, comes between the panic button and the white flag.”

Pretty sure it will be diminished purchasing power for all.

JF McNamara

September 13th, 2012
2:10 pm

The stock market disagrees with you.

Linda

September 13th, 2012
2:14 pm

Obama & his adm. have awaked every morning for the past 4 years & faced the same problems & have tried to deal with them with the same solutions & have come up with same results & woke up every morning & faced the same problems………………….at the same time quoting Scarlett O’Hara, “…After all, tomorrow is another day.” “…fiddle-dee-dee…”

Typical Dem

September 13th, 2012
2:15 pm

Who cares?

Obama will get my vote because he is cool and loves gay people and knows ScarJo and was sort of poor once and is not a yucky old white guy and can play basketball and golf at the same time and Clooney likes him and he will give me a free abortion and some food stamps!

Who is this mean Fed guy? I need to go register for Dinner with Obama! I hope I win…so dreamy!

Auntie Christ

September 13th, 2012
2:15 pm

“…The Fed said it will increase its purchases of mortgage-backed securities by $40 billion a month until employment improves.”

Then kyle adds his take on this:
The inevitable devaluing of the dollar — the prices of gold, silver and several other commodities spiked in the minutes following the Fed’s 12:30 announcement — means our savings will lose value. This is the destruction of future wealth in the hopes of creating some current economic growth.

“our savings” can mean several things, e.g. the value of our homes and our equity in them. By purchasing agency backed mortgages $ is being made available to buy vacant, foreclosed homes that are a blight on a neighborhood and drive down values, hence equity, hence savings.

kyle states: “Fed said its asset holdings will increase by about $85 billion a month through the end of this year. And the money-printing may not end there” This is kyle being disingenuous or worse just misleading. What he fails to point out is that half of the $85 is coming from the principal payments on the MBS the Fed already owns. In other words, it is like a stockholder who forgoes a dividend check every quarter, instead opting to reinvest the dividends. The money is not coming directly from the pocket of the investor. Finally, the Fed states that inflation is in check and not an immediate problem, thus the spike in precious meals is unfounded and will likely reverse.

kyle states: “In that respect, it is no different from increasing the budget deficit even further to fund even more Keynesian spending.”

As opposed to what? cutting taxes as the repubs desire won’t increase the budget deficit? We’ve cut taxes and the only result is jobs are created for Swiss bankers and not for Americans. The tax cuts have not gone into job creation or wealth creation, they have gone to Bahamian and Swiss banks and to purchase precious metals.

This reporting is lacking in so many aspects, but, what can you expect from the librul media.

Kyle Wingfield

September 13th, 2012
2:15 pm

JDW and JF: I like my portfolio to increase in value as much as the next person, but since when is the stock market an indication of the long-term good of the country? Btw, stocks are not the only things traded…check out the prices of gold and silver.

Oh, and: “You do realize of course the Fed is injecting money by buying worthless assets…”

FIFY

nelson

September 13th, 2012
2:16 pm

It is a losing proposition. The fact of the matter is, returning to the gold standard is the only option that would work, with this creating more money devalues all the money now in circulation. What will they think of next, I hope it is not devaluing free speech, our fundamental right What would we do, just keeping our opinions to ourselves?

Kyle Wingfield

September 13th, 2012
2:16 pm

Excuse me: essentially worthless

Typical Dem

September 13th, 2012
2:17 pm

“The stock market disagrees with you.”

The stock market was roaring on October 23, 1929 too.

I Report (-: You Whine )-: mmm, mmmm, mmmmm! Just sayin...

September 13th, 2012
2:18 pm

Buying an election using the money of future generations, nice, really nice.

Of course the markets are roaring, the greedy capitalists that the liberals were whining about yesterday are turning some coin on the free obozobucks being scattered about.

And even if this works, which is a really big if, how do we pay for it?

And if it doesn’t work? We are kaput.

I demand to see Cheesy Grits Birth Certificate- Long Form Please

September 13th, 2012
2:20 pm

Just think how much better off we would be if we hadn’t wasted all that money in Iraq.

Linda

September 13th, 2012
2:20 pm

The stock market adores printing money out of thin air. According to George Will,

“Fed Chairman Ben Bernanke evidently thinks that driving up the stock market will quicken the animal spirits of the affluent 20 percent who own 93 percent of equities, and this “wealth effect” will spur economic activity, eventually benefiting others. So, the interest rates Barack Obama favors are a form of the trickle-down economics he execrates.”

http://www.washingtonpost.com/opinions/george-will-a-different-kind-of-inflation-problem/2012/09/12/fd87db5a-fc41-11e1-b153-218509a954e1_story.html

I demand to see Cheesy Grits Birth Certificate- Long Form Please

September 13th, 2012
2:21 pm

Obama will get my vote because he is cool and loves gay people and knows ScarJo and was sort of poor once and is not a yucky old white guy and can play basketball and golf at the same time and Clooney likes him and he will give me a free abortion and some food stamps!

Strawman

Brendan Jennings

September 13th, 2012
2:22 pm

JDW: To whom will the Fed sell those assets they are buying, especially considering that the future value of the dollar will likely dictate fewer and fewer buyers? Perhaps the Fed will magically sell it to themselves! And stock market (those eeevil Wall Streeters) reflect very short term thinking.

JDW

September 13th, 2012
2:24 pm

@Kyle…”Excuse me: essentially worthless”

Mortgage Backed Securties in today’s market are not worthless…in fact, given the potential for appreciation in real estate, they are likely at their prime buying opportunity.

I demand to see Cheesy Grits Birth Certificate- Long Form Please

September 13th, 2012
2:25 pm

When Obama took office the economy was losing 800,000 jobs a month.

We are now gaining 100,000 per month.

That is a fact.

We will not forget. We will never go back.

retiredds

September 13th, 2012
2:25 pm

I’ll make this short, Kyle. If you had any inkling of how micro and macro economics work you would not have written this article. If the economy were operating at 90+% of capacity this would be a rash move. It is not and it is the right move. You guys keep worrying (and fear mongering) about inflation. Inflation is not a problem and won’t be until the economy rises consistently above 3.5%. What was disastrous was cutting taxes while taking on two wars (called guns and butter) and the bozos who thought the housing bubble would last forever. We are still reeling from those.

Also if you know your economics, while the federal government was trying to stimulate the economy, state governments were working, by constitutional mandates to balance their budgets, in the opposite direction, GA being a good example. If the feds pumped a $billion in and the states took a $billion out you have a net zero, in other words no stimulus.

So I say to you the Federal Reserve has no other options but to pursue QE. And I also believe if this were happening under a Republican president you wouldn’t utter a peep.

JDW

September 13th, 2012
2:26 pm

@Brendan Jennings…they are Mortage backed they get paid off every month. You can sell them in the open market or just wait until they mature.

Kyle Wingfield

September 13th, 2012
2:28 pm

Auntie @ 2:15: What makes you think this money is going to go toward those houses? And, although I normally am loathe to destroy assets in this way, wouldn’t it be a whole lot cheaper and a lot more effective to raze the excess housing?

I’m not sure your dividend analogy is exactly correct, but I’ll humor you: Doesn’t that presuppose that the stock in question is likely to produce future dividends and/or increase in value? What about the MBS in question makes you think that’s going to happen with them? If they are related to housing stock that’s already been foreclosed on, aren’t the securities tied to the old loans pretty much worthless at this point?

Finally: When and where did Mitt Romney say he intends to reduce federal revenues?

Kyle Wingfield

September 13th, 2012
2:29 pm

JDW @ 2:24: Aren’t you assuming here the original mortgages are still in place and that the houses in question haven’t been foreclosed on? I will admit that the intricacies of these kinds of securities are not my specialty.

I demand to see Cheesy Grits Birth Certificate- Long Form Please

September 13th, 2012
2:29 pm

And I also believe if this were happening under a Republican president you wouldn’t utter a peep.

That you can be assured of.

When Republicans are ruining the economy while in power.

There is an excuse around every corner.

Wanna know why Republicans hate the Government.

Because they suck so bad at running it.

JDW

September 13th, 2012
2:31 pm

@Kyle…”Btw, stocks are not the only things traded…check out the prices of gold and silver.”

You and I have had this discussion before. Market prices are simply a function of supply and demand. The higher the demand (buyers) the higher the price irrespective of any fundamental reasons. What is driving the price of stocks is professional investors buying undervalued assets. What is driving the price of gold and silver is Chicken Little’s worried the sky is falling with no basis in fact.

Typical Dem

September 13th, 2012
2:32 pm

You guys are making my head hurt! Can’t we talk about how pretty Michelle’s dress was last week instead? And how she inspired me to eat only free-range spinach?

JDW

September 13th, 2012
2:32 pm

@Kyle…”Aren’t you assuming here the original mortgages are still in place and that the houses in question haven’t been foreclosed on? I will admit that the intricacies of these kinds of securities are not my specialty.”

They are…all the others have been blown out. Thats what got us into this mess and they are gone. Anything that is remaining is either performing or new and pristine.

Kyle Wingfield

September 13th, 2012
2:32 pm

retiredds @ 2:25: “if this were happening under a Republican president you wouldn’t utter a peep.”

Surely you recall the public outrage about the bailouts that occurred late in the Bush administration, and surely you understand that Democrats weren’t the only ones who were outraged.

But your mentality does explain why the liberals on here, so far, are in lockstep agreement with this move.

I demand to see Cheesy Grits Birth Certificate- Long Form Please

September 13th, 2012
2:32 pm

This coming from a guy who voted for Newt Gingrich.

If he fell for the 2.50 a gallon gas and the moon base song and dance.

Have to take him with a grain of salt.

murph

September 13th, 2012
2:34 pm

Whiney says…”Buying an election using the money of future generations, nice, really nice.”

You’re absolutely correct. When Bush gave us all $600 a piece to vote for him I thought that was despicable. Especially since that was all funded by a loan to be paid for by future generations.

That’s certainly NOT the same as buying Mortgage Backed Securities.

Sister Sarah

September 13th, 2012
2:34 pm

Sure does my metals portfolio good! Screw all you suckers who WORSHIP the dollar so, so much that you look down your noses at others and clutch and value them more than life itself. Miilionaire today, paper tycoon tomorrow. Good for you.

JDW

September 13th, 2012
2:35 pm

@Kyle, what this really amounts to is the Fed sucking up safer investment vehicles and forcing other investors toward “riskier” ones. i.e. business loans, car loans, home improvement etc…

If and when (we hope) those markets overheat you simply turn around and flood the market with “safer investments” maybe at a slight discount.

Kind of like hitting the gas or the brake.

George P. Burdell

September 13th, 2012
2:36 pm

JDW,

The Fed wouldn’t be stepping in and buying them if they were such a great deal. There is plenty of cash sitting on the sidelines that could purchase those assets and they have chosen not to.

An easier comparison to show the point is in Operation Twist, where the Fed bought long-term Treasuries and sold offsetting short-term Treasuries. That drove up the price of long-term Treasuries, thus lowering long-term interest rates, in the hopes that would lead to investment. The problem is, if the Fed is sucessful, money will start moving out of Treasuries, making the Feds investment worth less, and that loss goes directly to the government and eventually to taxpayers.

Another sad comment on this whole business is that it will impact low-income families much more than the wealthy. It leads to higher prices on commodities which has a regressive impact. I find it very interesting that the Dems on here want to tout the stock market rally. Stocks are disproportionately owned by the wealthy, so who is it really helping? Companies have plenty of cash on the balance sheet to hire, they see no demand. Making the average person pay more for the same good or service does not increase demand, it decreases it.

Kyle Wingfield

September 13th, 2012
2:37 pm

JDW @ 2:32: “Anything that is remaining is either performing or new and pristine.”

Then why is it up to the Fed to buy them? If these are such great buys, at a time when there aren’t a whole lot of other places to put one’s money and get a significant return, and when there’s a whole lot of capital parked on the sidelines, why aren’t private investors buying these up before the Fed can get to them?

I think you’re way too sanguine about the long- and even medium-term consequences of this. About the short-term benefits, too. QE2 did little to get the economy in gear…I see little reason to be confident QE3 will be any more successful.

Which brings us to the panic button comment: It’s the panic button because there are few, if any, options left if it doesn’t work. Perhaps you would like “last resort” better. But if this doesn’t work — and clearly, I’ve indicated my doubts — what do we try next? What else can the Fed do at this point to keep pumping fumes into the gas tank?

Kyle Wingfield

September 13th, 2012
2:38 pm

Cheesy @ 2:32: This coming from a guy who voted for Barack Obama.

JDW

September 13th, 2012
2:38 pm

@Kyle…if this were to start to become a problem what you would see is the $ depreciating against foreign currencies which is not happening…in fact it is appreciating.

Li'l Aynie

September 13th, 2012
2:38 pm

The dollar is not “de-valuing”, and inflation is not rampant. We should rejoice, not panic.

The Fed is doing what Congress has refused to do: put some of the excess capital to work creating jobs. It would be better to obtain the capital by taxing the rich, instead of borrowing from them at the current interest rate and passing the debt forward. But, those who caused the Great Recession obstruct every sensible recovery effort.

Road Scholar

September 13th, 2012
2:39 pm

I wonder what Mitt would do? Today? tomorrow? The next day? None of the 3 would be the same! And that would be after no details were provided!

Kyle Wingfield

September 13th, 2012
2:39 pm

JDW @ 2:35: OK, let’s say you’re right. How well did pushing risky MBS and other CDOs on investors worked out last time?

Just because the Fed is doing it instead of Goldman doesn’t make it a great idea.

I demand to see Cheesy Grits Birth Certificate- Long Form Please

September 13th, 2012
2:41 pm

I wonder what Mitt would do? Today? tomorrow? The next day? None of the 3 would be the same! And that would be after no details were provided!

Would depend on his etch a sketch that day.

On Fridays he would consult the magic 8 ball.

Kyle Wingfield

September 13th, 2012
2:42 pm

Li’L Aynie @ 2:38: “The dollar is not ‘de-valuing’ ”

What are you paying for gas these days? Food? Remember, the headline inflation rate does not count volatile prices like food and energy. But that’s what a whole lot of people spend a large proportion of their income on.

I demand to see Cheesy Grits Birth Certificate- Long Form Please

September 13th, 2012
2:42 pm

Cheesy @ 2:32: This coming from a guy who voted for Barack Obama.

And damn proud of it.

JDW

September 13th, 2012
2:43 pm

@Kyle…

“Then why is it up to the Fed to buy them? If these are such great buys, at a time when there aren’t a whole lot of other places to put one’s money and get a significant return, and when there’s a whole lot of capital parked on the sidelines, why aren’t private investors buying these up before the Fed can get to them?”

See my 2:35…it is all about forcing money off the sidelines and into play.

“I think you’re way too sanguine about the long- and even medium-term consequences of this. About the short-term benefits, too. QE2 did little to get the economy in gear…I see little reason to be confident QE3 will be any more successful.”

QE2 was very small and undefined…this has more definition and should elicit more stable data points for long term planning and thus create more impact.

“Which brings us to the panic button comment: It’s the panic button because there are few, if any, options left if it doesn’t work. Perhaps you would like “last resort” better. But if this doesn’t work — and clearly, I’ve indicated my doubts — what do we try next? What else can the Fed do at this point to keep pumping fumes into the gas tank?”

This is the Fed’s only real option…controlling the money supply is always their only option. Usually the do it via interest rates but when those are already at zero and there is still unused capacity you do this to pump money in.

I demand to see Cheesy Grits Birth Certificate- Long Form Please

September 13th, 2012
2:43 pm

What are you paying for gas these days?

Dont you think that has a little to do with cars getting MUCH better gas mileage ?

Nah that couldn’t be it.

Drill baby Drill !!!!