Thursday, September 13, 2012

Chairman Bernanke Strikes, QE3 Is On, Just in Time for November Presidential Election

So much for the "independence" of the Federal Reserve.

Helicopter Bazooka Ben (aka Chairsatan at Zero Hedge) thinks buying up MBS (mortgage-backed securities, which by the way are probably made the same way as before - i.e. without properly (legally) transferring mortgages into trusts in order to securitize) at a furious pace will improve the employment situation in the US.


From Bloomberg News (9/13/2012):

Fed Undertakes QE3 With $40 Billion MBS Purchases Per Month

The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment.

“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said today in a statement at the end of a two-day meeting in Washington.

The FOMC said it would probably hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

Chairman Ben S. Bernanke is enlarging his supply of unconventional tools to attack unemployment stuck above 8 percent since February 2009, a situation he has called a “grave concern.” The decision provoked a renewed backlash from Republicans, including Senator Bob Corker of Tennessee, who said Bernanke’s policies damage the Fed’s credibility while doing little to spur the economy.

Stocks soared after the Fed’s statement. The Standard & Poor’s 500 Index jumped 1.6 percent to 1,459.92 at 2:24 p.m. in New York. The yield on the 10-year Treasury note rose to 1.78 percent from as low as 1.71 percent.

“This is definitely a significant shift in FOMC policy,” said Julia Coronado, chief economist for North America at BNP Paribas in New York and a former Fed economist. “This is a very aggressive commitment to success on its mandates.”

The central bank released its economic forecasts for growth, inflation, unemployment and interest rates over the next three years. Twelve of the Fed’s 19 policy makers said interest rates should rise for the first time in 2015.

The Fed now expects the job-market outlook to improve more swiftly by 2014, with unemployment forecast to fall to 6.7 percent to 7.3 percent, compared with 7 percent to 7.7 percent in their June projections. In 2015, unemployment will fall to 6 percent to 6.8 percent.

Growth will improve to as much as 3 percent next year and as much as 3.8 percent in 2014, up from upper estimates of 2.8 percent and 3.5 percent in their previous forecasts. The so- called central tendency forecasts exclude the three highest and three lowest of 19 estimates.

(Full article at the link)

In the press conference, Mr. Bernanke emphasized the importance of keeping the mortgage rate low so that people can buy houses or refinance. Never mind that people need good-paying job to afford a house, regardless of the mortgage rate. By endlessly pumping money into the financial market by purchasing mortgage securities and selling short-term Treasuries and buying up long-term Treasuries (Operation Twist), what is he going to achieve, other than an extremely artificially inflated stock (risk) market?

Oh I forgot. For Mr. Bernanke, the stock market is the economy.

One funny thing about the US Fed - it wins admiration from the Japanese who firmly believe it's the duty of the central bank to print and inflate at all costs, and that Japan's 2 decades of doldrums are the result of Bank of Japan doing hardly anything. Never mind that just about the only thing BOJ is not buying at this point is gold.


Anonymous said...

Can buying MBS be called quantitative easing?
If so, I have some Lehman stock I would like Bernanke to purchase.

Anonymous said...

He really is desperate to retun to the good old days economy-at any cost. This is all he knows.
Buying MBS is tantamount to eating ones own steaming dumps. Still it's really about keeping his job and Obamas.
I sure wish I could print my own cash.

Anonymous said...

thanks for sharing.

wren said...

QE is a Japanese invention, I believe.

Bernanke must admire the Japanese.

epicresearch5 said...

this is good news.

Equity Tips

Anonymous said...

the good part is that dollars can be "translated" into other currencies, but if the guy borrowing can't pay back and you get the "collateral", well the "house" is on American soil and protected my the biggest army in the world ... t-hehehe have fun collecting : >

pro-forma collateral

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