Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
Stock Market Happy Holidays - 27th Dec 14
Peace On Earth And Goodwill To All Men - 27th Dec 14
2015 Crude Oil Prices Won't Change the Emerging U.S. Dominance - 27th Dec 14
What’s Really Going on Inside the Latest GDP Number - 27th Dec 14
The Interview - 2014, The Year Propaganda Came Of Age - 27th Dec 14
Gold Miners Extremely Oversold as Tax Loss Selling Ends - 26th Dec 14 - Jordan_Roy_Byrne
Putin: It Is Time to Play Your Ace in the Hole - 26th Dec 14
A Gold Stocks Golden Opportunity On Hope’s Doorstep - 26th Dec 14
Russian Roulette: Taxpayers Could Be on the Hook for Trillions in Oil Derivatives - 26th Dec 14
Israeli Good Tidings for Palestinians - 26th Dec 14
Boxing Day Sales, Next, Debenhams... High Street Full List - 25th Dec 14
The Gold Price Target... Merry Christmas - 25th Dec 14
The Chinese Copper Elephant - 25th Dec 14
Santa Crushes Bears by Delivering Stock Market Rally to Dow 18,030 New Closing High - 24th Dec 14
Correcting Scrooge’s Economics - 24th Dec 14 - Ryan McMaken
Christmas Eve Online Sales, Boxing Day High Street Sales Full List - 24th Dec 14
Crude Oil, US GDP - You Thought The Saudis Were Kidding? - 24th Dec 14
Bank Capital Punishment and Other Nostrums - 24th Dec 14
The Biggest Unstoppable Market Trends - 24th Dec 14
In 2015 the U.S. Will Elbow OPEC Oil to the Sidelines - 24th Dec 14
U.S. Economic GDP Growth Revised Higher to 5% - 24th Dec 14
Crude Oil, US National Debt, and Silver - 23rd Dec 14
Make No Mistake, the Crude Oil Price Slump Is Going to Hurt the US Too - 23rd Dec 14
Twitter, the Only Social Media Stock Play I'm Recommending Right Now - 23rd Dec 14
Gold Price Outlook For 2015 - 23rd Dec 14
How to Prepare for the Super Convergence: the Bio-Info-Nano Singularity? - 23rd Dec 14
Stock Market Crash and High Yield Debt - 23rd Dec 14
Big Rally for Gold Junior Miners in January 2015 After Tax Loss Selling - 23rd Dec 14
Get Ready for the Gold Stocks Consolidation Wave 2015 - 23rd Dec 14
Could an Energy Bust Trigger QE4? - 23rd Dec 14
Will the Malaysian Economy Risk another Financial Crisis in 2015? - 23rd Dec 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Dramatic Stock Market Selloff

Why Printing Money Is So Easy for the Fed

Interest-Rates / Central Banks Dec 12, 2012 - 10:48 AM GMT

By: InvestmentContrarian

Interest-Rates

George Leong writes: The Federal Reserve is busy looking at what to do next to try to keep the economic renewal on track, as the central bank meets for the last time this year. The Fed also understands its impact will be hindered by the ongoing battle in Congress regarding the pending fiscal cliff.


The Federal Reserve is speculated to continue its third quantitative easing (QE3) program of buying mortgage bonds each month. The effect will see the Fed increase its holdings of mortgage bonds to nearly $4.0 trillion, according to a Bloomberg survey. (Source: “Fed Seen Pumping Up Assets to $4 Trillion in New Buying,” Yahoo! Finance via Bloomberg, December 11, 2012.)

The bond buying has helped to ease financing rates and drive the housing market higher.

The Fed has spent $40.0 billion a month to buy mortgage-backed securities and, in theory, lower the financing rates. The yield on the 10-year Treasury stands at 1.6% versus 1.8% prior to the establishment of QE3—so it’s working.

For the Fed, as the QE3 works its way through the system, job creation is expected to be a major benefactor.

The Federal Reserve recognizes that the jobs market continues to be problematic and needs to be addressed, despite the unemployment rate falling to 7.7% in November. There are still over 21 million Americans looking for work.

To date, the super-low interest rates at between zero and a quarter of a percent have helped to prevent the country from falling into the abyss. If not for the low rates, the carrying cost of the $16.0 trillion in national debt would be suffocating and making the situation worse, which is why there’s the fiscal cliff. Something needs to be done during President Obama’s second term.

As I said when QE3 was first announced, the plan put forth by the Fed should help in theory; but this is the real world, and there are other variables that come into play that could hamper the Federal Reserve’s plan.

“Strains in global financial markets continue to pose significant downside risks to the economic outlook,” says the Federal Reserve. This shouldn’t be a surprise. Europe and the eurozone are in a financial mess, and China and Asia are on fragile ground. In China, we are seeing multinational companies report slowing in China as consumers there cut spending.

So while I believe the Federal Reserve was correct in launching QE3, I question how effective it will be and feel the situation is far worse than they want you to know, given the massive debt load and the fragile financial situation of many states.

The bottom line is: the Federal Reserve will continue to print money to buy bonds. The question is: what will happen when the ink runs out?

Source: http://www.investmentcontrarians.com/recession/why-printing-money-is-so-easy-for-the-fed/1125/

By George Leong, BA, B. Comm.
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

George Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. See George Leong Article Archives

Copyright © 2012 Investment Contrarians- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Investment Contrarians Archive

© 2005-2014 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

Free Report - Financial Markets 2014