Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Unlimited QE3", Federal Reserve Attacks US Dollar, Risks Currency Warfare

Interest-Rates / Quantitative Easing Sep 14, 2012 - 04:05 AM GMT

By: Dan_Amerman

Interest-Rates

Best Financial Markets Analysis ArticleQE3 Summary

The Federal Reserve has just announced that it would launch the so-called "QE3", or "Quantitative Easing Three" program.  Key components are:

         1) The creation of $40 billion a month out of thin air to purchase agency mortgage-backed securities at artificially low interest rates;


         2) The continuation of Twist 2, and the shifting of Federal Reserve holdings of US Treasury Bonds into longer-term bonds;

         3) Combined purchases of long-term securities between QE3 & Twist 2 of approximately $85 billion per month through the end of the year;

         4) Quantitative easing without any pre-defined limit, meaning an open-ended commitment to keep purchasing securities at whatever level is judged necessary until the labor market improves "substantially";

         5) The potential purchase of additional assets and the deployment of other policy tools as needed;

         6) An extension of the 0.0% to 0.25% target range for the Fed Funds rate until at least mid 2015.

Link to full text of Federal Reserve statement.

ANALYSIS:  No Sterilization Means Radically Increased Inflationary Danger

The most important part of the Fed statement was the word that wasn't mentioned:  "sterilization".  This means that there was no promise to "contain" the newly created money, as was the case with QE1 and previous mortgage security purchases, but instead it appears that the newly created money will be going directly into the economy - and on a potentially unlimited basis.

The promise to create money out of thin air and inject it into the economy at a rate of $40 billion a month on an unlimited basis is the single most inflationary act the Federal Reserve has taken to date.  While the dollar volume on a monthly basis is somewhat less than prior "easings" (aka monetary creations), the non-sterilized and potentially multiyear nature of QE3 takes it to an entirely different level than QE1, QE2 or either of the Twists.

For a background reading on how sterilization works and why central banks usually sterilize, there are several articles in my "Money Creation Primer", linked below:

http://danielamerman.com/resources/SumMoney.html

ANALYSIS:  An Attack On Unemployment Through An Attack On The Dollar

The Federal Reserve is indeed using QE3 to attack the problem of unemployment - but not through the method stated. 

The cover story is that QE3 will be used to increase the money available for lending and to lower interest rates.  It is a credit to Mr. Bernanke that he was able to read this statement with a straight face, for the assertion that the economy is being held down by too high of interest rates and tight money is ludicrous.  Interest rates are already at historic lows, and banks are awash in available cash.  Moreover, QE3 is likely to have very little effect when it comes to expanding corporate lending, just as QE2 had very little effect - because that was never the intended route to rebooting employment in the United States.

As described in detail in my article "Bullets In The Back: How Boomers & Retirees Will Become Bailout, Stimulus & Currency War Casualties" (linked below) the United States has a structural problem with unemployment that is essentially unsolvable so long as the dollar remains high in value relative to other global currencies.  This problem was exacerbated by the rise in the US dollar caused by the Euro crisis - and it is no coincidence that the unemployment crisis in the United States is now getting rapidly worse even as the dollar soared this past spring and summer.

http://danielamerman.com/articles/Bullets.htm

The Federal Reserve is, of course, well aware that the unemployment situation is far, far worse than what is being captured in the official headline unemployment rate of 8.1%.  The government knows full well that the true unemployment rate, once workforce participation rate manipulations are netted out, is closer to 19% - and getting worse, as explored in detail in my article linked below, "Making 9 Million Jobless "Vanish": How The Government Manipulates Unemployment Statistics". 

http://danielamerman.com/articles/2012/WorkC.html

This building crisis of a strengthening dollar and rising unemployment called for emergency action, and that is exactly what Bernanke is doing.  He is effectively calling in a B-52 strike on the US dollar, monetizing for the world to see, and pledging to monetize for as long as it takes - until the US dollar is driven down to a level where American workers can once again be globally competitive. 

If the rest of the world sits back and lets the United States drive down the value of the dollar, then US employment is indeed likely to rise - at the cost of falling employment elsewhere.  But if the rest of the world is not willing to sit back and watch jobs flow to the US, then there is likelihood of counterstrikes, and even the danger of all-out currency warfare.

ANALYSIS:  Increased Financial Repression, Increased Hidden Taxes & A Devastating Blow To Retirement Investors

Consider two promises the Federal Reserve just made:

1) That it will create money out of thin air on a massive scale for as long as it takes until substantial improvements in the labor market occur; and

2) That near zero short term interest rates will continue until at least mid-2015, even as interventions in the long term bond market will also hold long term interest rates down.

In other words, inflation goes up (whether officially captured in inflation statistics or not), and interest rates are forced even lower, for a longer period of time.  There is a term economists use for this process: "Financial Repression".

Continue Reading The Article

Daniel R. Amerman, CFA

Website: http://danielamerman.com/

E-mail:  mail@the-great-retirement-experiment.com

Daniel R. Amerman, Chartered Financial Analyst with MBA and BSBA degrees in finance, is a former investment banker who developed sophisticated new financial products for institutional investors (in the 1980s), and was the author of McGraw-Hill's lead reference book on mortgage derivatives in the mid-1990s. An outspoken critic of the conventional wisdom about long-term investing and retirement planning, Mr. Amerman has spent more than a decade creating a radically different set of individual investor solutions designed to prosper in an environment of economic turmoil, broken government promises, repressive government taxation and collapsing conventional retirement portfolios

© 2012 Copyright Dan Amerman - All Rights Reserved

Disclaimer: This article contains the ideas and opinions of the author.  It is a conceptual exploration of financial and general economic principles.  As with any financial discussion of the future, there cannot be any absolute certainty.  What this article does not contain is specific investment, legal, tax or any other form of professional advice.  If specific advice is needed, it should be sought from an appropriate professional.  Any liability, responsibility or warranty for the results of the application of principles contained in the article, website, readings, videos, DVDs, books and related materials, either directly or indirectly, are expressly disclaimed by the author.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in