Bernanke says that the new announced round of money printing ( QE3 plus more Twist)) is intended to reduce unemployment. Does he believe that? It is possible that Bernanke really drinks his own Cool Aid, but I doubt it. Does he think that stock market gains will boost confidence and somehow help employment indirectly? Perhaps. He has in the past claimed credit for spiking the stock market, although he must know that the empirical evidence does not show a link to employment gains.
Why then this dramatic move only two months before a presidential election? Is it intended to spite Romney who said he would not reappoint Bernanke? I doubt that too.
The most likely explanation is that Bernanke is worried about the treasury auction market. He wants to be able to use his printed money at will to support it. The new printing and bond buying program is open ended by date. It can continue indefinitely. Ostensibly the QE3 purchases will be mortgages. That will help the banks, will help treasuries indirectly, and the program can always shift into treasuries at any time. The next step will be to remove the monthly limit and then, presto, the Fed will be able to print and monetize debt at will.
This is also a good time to start the process because other major currencies are committing their own forms of hari-kari. At least for the moment global bond buyers won’t be exiting the dollar in favor of the Euro or Yen– or even the Swiss franc, since the Swiss authorities are madly printing money too.
At some point, however, Bernanke will go too far and spook the foreign buyers. Then his game will be up.
Follow Circle Bastiat
As I understand it, ‘QE3′ isn’t targeting sovereign bonds, but private bonds — mortgage backed securities (presumably, toxic ones, otherwise what would be the point).
Unless the emphasis on buying agency MBS’, which could mean those held by the U.S. Treasury (not sure how much this amounts to now) rather than the various GSEs, is meant to provide greater fiscal space to issue sovereign debt. Comments? I’m having a hard time figuring out what ‘QE3′ is really meant to accomplish and by what process it will loosen the credit freeze.
Follow the money. He is probably just buying a good job for himself when his Fed job expires. That would be unequivocally corrupt. As Lord Acton said, “Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men.” Bernanke is close to if not the most powerful man in America with his ability as Fed chairman to enrich or impoverish others with a few words or strokes of his pen.
Maybe he suddenly realizes he can’t do anything to help the “economy”, so he’ll just help out his friends before the inevitable crash. They can unload their worthless pieces of paper on the Fed balance sheet. It’s sort of a pre-bailout bailout. Why wait until later? Why not just do it now while it can still be called a “monetary policy decision”, as opposed to later when it will so obviously be called what it really is – a bailout?
Po-Boy. . and others:
Bernanke did display some recessive traits 8-31 and following the FOMC meeting. He should have!
Regardless of his role in the decision process, He appears set on living up to the “Helicopter” label he inherited (or appropriated) from Greenspan.
His intent is clear and not at all laudable: he will support the stock markets and banks regardless of the cost to the real economy. If any of you here have doubts about his proposed path and/or the consequences we’ll all suffer, read Andrew Dickson White’s (former President of Cornell, LL.D, Ph.D., former US Ambassador to Germany, historian) recount of the “Fiat Money Inflation in France”, post-Revolution.
It’s not pretty, nor is it new. Nor was the French experience of the 1790′s the last time hyperinflation ruined an economy. It occurred in the US in the New England combine of banks in 1737 llinked together at the time in the first attempt to provide insurance and financial support to a regional banking system; again during the post Civil War Greenback debacle; with a few other incidents tossed in here and abroad to verify that more than one culture believed they were immune to the disaster brought on by mistaken diagnoses and ill-advised practices and misinterpreted results and just threw money around like chaff because one or another sector of the economy thought it advisable..
One indication of trouble: the total committed monthly amount is not $40 billion solely for MBS’s QE, it includes another $45 Billion for the “twist”, totaling $85 billion per month.
To the August 31, 2012 date (the Jackson Hole speech), Bernanke reported $3.350 trillion in Fed balance sheet additions since August, 2007. This of course is all for the purchase of questionable paper, value extremely doubtful. It will do no good in the declared war on unemployment; has no bearing whatsoever on consumer demand; and production will not gear up simply because inflation is being induced. There will be a spike in activity noticed on distribution which is misleading. It will subside within a month or so. and we’ll be back to where we were prior to the distribution. Then, demand for another boost – Not enough was distributed will be the cry with the same results. Each time, when the slight wave subsides, we’ll be at a lower lever, the dollar will be worth less. This wont be apparent until we re addicted to the ever larger distributions ruin the value of our currency. Its the same as John Law’s crisis in 1720 France – and all the similar experiences world-wide.
It’s discouraging to see a supposed learned man struggling to recall what he learned which might serve the situation while all about him are roiled in tumultuous disconnect.
Please, do yourself a favor and read that andrew Dickson White book – it’s only 68 pages.The copy is available for download from the Mises Library. That issue is from 1912. White’s last sentence of the book is solid advice in my opinion -
“There is a lesson in all this which it behooves every thinking man to ponder.”
I’d point out that White was an educator not a huckster for the trades or industries. Without axes to grind.
I should have added, about the debasement of the US dollar – after “it’s the same as John Law’s crisis in 1720 France – and all the similar experiences world-wide” -
- including the current credit and liquidity crisis resulting from the wholesale distribution of more than a Quadrillion dollars worth of derivatives with no intrinsic value! -
It’s funny, Keynesians were calling for creating another housing bubble and here is Bernanke actually doing it! It’s scary. Glad we at least have Ron Paul as a high profile defender against such lunacy:
http://economiccollapsenews.com/2012/09/17/ron-paul-fed-qe3-announcement-shows-disastrous-detachment-from-reality/
When too much money is printed, it is uncertain where the money will go. Yes, Krugman said that Greenspan should create a housing bubble, and the money printed by Greenspan and then Bernanke did flow into housing. This of course had a lot of help from Congress and government agencies. But even so the new money could have flowed in another direction, creating a different bubble.
The one thing that history definitely suggests is that an old bubble, once popped, cannot be resuscitated, no matter how much money is printed. The new money will go into something else, creating some new bubble. It generally takes at least a decade for speculation to return to a busted bubble sector.
So whatever Bernanke is doing with the QE’s, I think it is safe to say that there won’t be Housing Bubble II, at least not for a long time.
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