The Last QE
If QE 3.0 appears, it will be the last QE. It must be at least $1 trillion because QE 2.0’s $600B was ineffective. Either it will work or it will provoke even more damage than QE 2.0 produced.
The central bankers, pundits and Street shills that cannot see or admit that QE 2.0 was an abject failure are hopeless. As we stated in yesterday’s missive, the cognitive dissonance of being wrong for most of their adult lives is intolerable. So hey cling to the risible belief that the only problem with QE 2.0 was it wasn’t big enough.
When presented with evidence that past episodes of QE were ineffective, central bankers, academics and Street-dependent on easy credit types, retort, “but the Fed/BoJ/etc. did not do enough QE”.
There is no evidence that quantitative easing resurrects an economy. But there is copious evidence that too much QE, or its equivalent, unleashes horror on a society. The US survived the Great Depression; Germany opted for Weimar.
There is $1.6 trillion in excess reserves in the system. What will another $1 trillion do? NOTHING!
This is like trying to rescue a drowning horse by opening another spigot of water on it.
The primary evidence that QE 2.0 ‘worked’, according to Bernanke and the usual suspects is: stock prices increased. Within 6 weeks of the end of QE 2.0, stocks rescinded all or most of their QE 2.0 gains.
Commodities, on the other hand kept most of their gains. Gold soared to a new all-time high. Grains are making new highs. Gasoline kept 45% of its gain. More importantly, commodities have soared closer to or above their QE 2.0 highs over the past two weeks on QE 3.0 braying.
The goal to reduce long rates failed. Long rates increased when QE 2.0 commenced. But they declined sharply AFTER QE 2.0 ended.
The Fed will destroy itself with QE 3.0. It could also destroy the dollar, the US economy, the US political system and the remaining fabric of American uniqueness and greatness – so some academics can try to prove that their life’s’ work is right…Perry will be elated with QE 3.0!!!
This is another extremely important issue concerning QE 3.0 that most people ignore.
How could the Fed possibly exit its holding if its balance sheet is in excess of $4 trillion?
There is no conceivable way for the Fed to reduce its holding if its balance sheet grows to $4 trillion without driving interest rates sharply higher, especially with US debt issuance needs. It would be onerous now, if not impossible for the Fed to reduce its holdings to a normal level. Another $ 1trillion+ is suicide.
We believe that the Fed knows and realizes much of the issues with QE 3.0 that we outline.
If we were the Fed, we would continue to play the Street and promise, but not deliver, QE 3.0 because there are still enough hope & hypesters to push stocks higher and keep jigginess glowing.
The King Report, September 1, 2011
Issue 4087 “Independent View of the News”
M. Ramsey King Securities, Inc.