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Get Ready For QE3: FOMC Signals Another Round of Bond Buys Soon

MarketWatch: Top officials of the Federal Reserve are leaning strongly toward a third round of bond buying by the Fed, known colloquially as QE3, according to the minutes of the Aug. 1 meeting of the Federal Open Market Committee.

Here’s the money quote from the FOMC minutes: “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”

C o n t i n u e . . .



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So Operation Twist and the first two QE's failed ....

.... do it again obviously!

QE1&2 and Op Twist Failed

Yes. Beatings to continue until morale improves!

Ed Rombach

Keep buying silver folks..

I know I am.

www.youtube.com/truefictions

I try to change people every day. Do You?

Will QE3 Stoke Inflation or Deflation?

Here's my take on this subject in a video I recorded for Reuters over a year ago.

06/06/11 Inflation Alert: QE2 May Be Stoking Deflation, Rombach Says... http://reut.rs/ieLqhn

If you are unable to click on the link, just copy/paste it into the address bar of your browser and hit return. If you are prompted for a USER ID & PASSWORD, copy/paste the link into into the address bar of your browser a second time and hit return and it should then play for you.

Ed Rombach

fireant's picture

Good report.

The fact inflated dollars are not circulating in the economy is a crucial investment factor imo. That's not to say it can't or won't change overnight, but with unemployment as it is, fewer dollars are circulating. Econ 101; low supply = higher price.
Question for you Ed, and thanks for posting: Will this eventually create a "coming home" of manufacturing? Considering we lead the world in natural gas production and infrastructure, plentiful fuel, coupled with greater expense of overseas production, not to mention political considerations, it seems the stage is being set for a re-bound of U.S. manufacturing (even despite what OBarry can do to stop it).

Undo what Wilson did

Will U.S. Manufacturing Come Home?

Hard to say. Right now every industrialized and emerging market economy is in a mercantile race to the bottom with regard to competitive currency devaluations in an attempt to gain export advantage. Very much like the 1930s. Point to recognize is is that the whole world cannot run a trade surplus with itself. Of course you could have a perfectly balanced global trade account if no country exported or imported, but if you think unemployment is a problem now, just contemplate what a collapse of global trade would mean. Growing output of domestic natural gas and oil will help the U.S. economy and minimize the potential for us to become embroiled in Mid-East wars over oil.

Ed Rombach

Deflation?

Without reading (I cant right now), deflation seems out of the question as prices are on the rise without a doubt. However, disregarding all that since I didn't read, I absolutely agree that inflation is not nearly as bad as it could be if banks holding those dollars started loaning them out. People still are Leary about loans and investments right now and banks are hesitant to make loans as well. So those dollars just sitting there are limiting inflation, but are not stopping it. I think it will continue to be this way until the crash and recovery. Provided there isn't absolute governmental take over and it's allowed to recover. Once recovery comes, more and more of those dollars will start to be loaned out as people see marked economic improvement and actually experience that improvement rather than just listening to government fudged numbers. Once people begin investing amd requesting loans and more dollars start circulating, i believe you will see much more inflation and maybe another economic situation inflation or bubble wise. Banks might make risky loans again due to excess funds in relation to the fractional reserve system. Anyway! It's just a theory and I'm just a nobody!

Is QE Inflationary or Deflationary?

Quantitative Easing is nothing more than the Fed doing a rain dance. At best it may have a temporary placebo effect when enough market participants believe it will help. However, QE has probably reached the point of diminishing returns which may create an opportunity to sell equities, commodities, credit and risk assets in general if, as or when the fed decides to launch QE3. I suspect the fed is nervous about this possibility and would therefore like to delay as much as possible. Kind of like bluffing an adversary with a gun they know is not loaded with ammunition. The fed acknowledged that QE only works when accompanied by fiscal expansion in a paper that Bernanke published with Reinhart & Sack in 2004.

http://www.federalreserve.gov/pubs/feds/2004/200448/200448pa...

Japan was the first country to use Quantitative Easing and if QE was inflationary how does it explain why Japanese interest rates are the lowest in the world, Japan is still in deflation and the Yen is the strongest currency in the world? Fed economists are fond of saying that monetary policy is supposed to work with a lag, but two decades is a bit much..... no?

Here are some additional QE related videos from when I worked at Thomson Reuters

04/27/11 PIMCO Makes a Gross Miscalculation... http://bit.ly/glYxgF

05/13/11 QE2 End Will Send Long-Bond Yields Down.... http://reut.rs/iSgCfl

07/21/11 U.S. downgrade would be bullish for Treasuries, says Rombach.... http://reut.rs/oauYJS

08/05/11 US economic path more like Japan than Greece, Rombach says… http://reut.rs/qWH59r

If you are unable to view the video in the URL, copy/paste it into the address bar of your browser and hit the return key. If you get a login/password request, just try again once or twice and you should be able to view it.

Ed Rombach