Thursday, October 28, 2010

Federal Reserve Asks Primary Dealers How Much QE2 They Would Like

The Federal Reserve's claim of "independence" is sorely tested, I think, with the latest revelation by Bloomberg that the NY Fed sent a questionnaire to the primary dealers (including both domestic and foreign banks) asking how much QE2 they would like in the next 6 months.

From Bloomberg:

The Federal Reserve asked bond dealers and investors for projections of central bank asset purchases over the next six months, along with the likely effect on yields, as it seeks to gauge the possible impact of new efforts to spur growth.

...The New York Fed survey, obtained by Bloomberg News, asks about expectations for the initial size of any new program of debt purchases and the time over which it would be completed. It also asks firms how often they anticipate the Fed will re- evaluate the program, and to estimate its ultimate size.

...In the survey, dealers assigned percent chances to the Fed easing through communications changes in the FOMC statement, additional purchases, or some other means. They were also asked how communications might change, and how the Fed might carry out new purchases.

Another question asked dealers to estimate changes in nominal and real 10-year Treasury yields “if the purchases were announced and completed over a six-month period.” The amounts dealers chose from were zero, $250 billion, $500 billion and $1 trillion.

According to Zero Hedge, 4 dealers answered $1 trillion.

On an annual basis, that translates into $2 trillion, exactly the amount predicted by Goldman Sachs, as I reported on this blog.

So, the Federal Reserve will decide on probably the most important monetary policy that will affect not just the US but entire world with a handful of its member banks. It makes sense, doesn't it? It makes it clear whom the Federal Reserve serves.

Here's the list of the primary dealers (info from - notice it's not .gov):

BNP Paribas Securities Corp. (French)
Banc of America Securities LLC (USA)
Barclays Capital Inc. (UK)
Cantor Fitzgerald & Co. (USA)
Citigroup Global Markets Inc. (USA)
Credit Suisse Securities (USA) LLC (Parent is Swiss)
Daiwa Capital Markets America Inc. (Parent is Japanese)
Deutsche Bank Securities Inc. (Germany)
Goldman, Sachs & Co. (USA)
HSBC Securities (USA) Inc. (Parent is UK)
Jefferies & Company, Inc. (USA)
J.P. Morgan Securities LLC (USA)
Mizuho Securities USA Inc. (Japanese)
Morgan Stanley & Co. Incorporated (USA)
Nomura Securities International, Inc. (Japanese)
RBC Capital Markets Corporation (Canada)
RBS Securities Inc. (UK)
UBS Securities LLC. (Switzerland)


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