The Fed professes that QE 3 or as I call it, QE Infinity (QEI), will create jobs but I am not sure how they can expect anybody to buy their rationale. As we know, QE 1 and QE 2 did very little in the way of creating jobs. Might the Fed realize that QE Infinity could actually be counter-productive to economic growth?
So says Brian Paragamian (www.professionalstocktraderlive.com) in edited excerpts from his article* entitled QE 3 Will Actually Suppress the Economy.
Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Paragamian goes on to say, in part:
Might the Fed realize that QE Infinity could actually be counter-productive to economic growth? Absolutely, especially when they know Keynesian economics does not work as a debtor nation as we are; history proves this and Ben Bernanke knows this. However, I do think the Fed felt compelled and somewhat pressured to do QEI since Congress has been unwilling to do anything. Having said that, I don’t think Congress or the Fed actually cares if QEI is counter-productive. Both understand the need for keeping interest rates low for an extended period so we can refinance our National Debt with longer duration paper (bonds).
Stop and think about it, if the United States were to recover more rapidly than the Fed wanted, it would force interest rates higher and would derail the refinancing efforts. This itself would create a “fiscal cliff” by higher debt servicing costs. It sounds to me like the Feds actions are one of panic and hysteria to keep rates artificially low. Might the the Fed actually have an unspoken agenda?
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The reality is, Quantitative Easing is not the answer for jobs or real economic growth as we see by QE 1 and QE 2’s ineffectiveness. Whatever minor benefits you may have seen are artificial and the costs have certainly outweighed the benefits.
Why Mortgage Back Securities?
I question how serious the Fed is about creating jobs. Why did they choose to embark on buying Mortgage Backed Securities in this latest QE Infinity policy which underscores the housing aspect of the economy as opposed to concentrating on making Small Business Loans more available?
The answer is quite simple, they have no desire to create jobs. Banks and realtors might love the current Fed policy as they believe it will assist in more home buying but the reality is another quarter point drop in mortgage rates won’t do much of anything since rates are already extremely low.
Small businesses and new start-ups are responsible for about two-thirds of new hiring in the economy. However, past experiences have shown that unless the Fed addresses some persistent problems in lending markets for small businesses, the impact of QE Infinity on small businesses will be virtually nonexistent. Having said that, the Fed could loosen regulatory requirements if they choose to for small businesses but have elected not to. Does this really sound like a Fed interested in creating jobs? I think not.
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Now don’t get me wrong, I don’t believe Chairman Ben Bernanke and the FOMC (Federal Open Market Committee) actually want to harm the United States but by continuing to apply Keynesian economics in such a radical way, that’s exactly what they are doing. They know this kind of policy in reality inhibits our national recovery rather then helps it yet nobody ever calls Bernanke out on this at his news conferences.
Personally, it sounds like the Fed is hoping to get house prices up, stocks up and hope the wealth effect will get people to spend more. It sure sounds like a desperation effort for consumerism, not for innovation, not for manufacturing and certainly not for helping small business.
Impact on Stocks
The stock market loves this approach by Bernanke and the FOMC. Basically, what the Fed is doing is creating a stock market rally by a “doctrine” of low interest rates. This only further distances valuations from the projected revenues and earnings that are forecasted for the future; thus creating a dangerous bubble type atmosphere.
Stocks need to be valued on something, usually they have a connection to earnings, earnings growth, revenues or revenue growth; and not as a place to flee to escape low yields. What we currently have is money-printing rallies which distort financial reality and will cause negative unintended consequences. In addition, any rationalization for higher multiples are nonsense unless of course you get higher multiples due to stocks declining. Rarely do you get multiple expansion by stocks moving higher when you have a contraction in earnings.
I firmly believe you have a Fed that is engaging in extremely dangerous policy and creating a bubble in the stock market.
When I look at projected earnings for 2013, see where the Chinese market is (down some 65% from it’s highs), see where global growth is headed (down), and take into consideration other factors, I come to the conclusion stocks are overvalued. WouId a 30% drop from peak prices surprise me? Absolutely not. Another key aspect to all of this is, you have a feverish pitch of too many people including the Fed, telling you fundamentals don’t matter anymore; they do. My common sense tells me the division between stocks and the economy are unsustainable (stocks moving higher while the economy chugs along).
Lastly, a thought to ponder, does the Fed always take action for the reasons given or might they have hidden agendas? You decide for yourself. In my opinion, the end result of QEI will be a suppression of economic growth.
Editor’s Note: The above posts may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The articles’ views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
The latest round of quantitative easing (an additional $40 billion a month until conditions improve) has been dubbed as “QEternity” or “QE-Infinity” by its critics but it will end much before that. We are witnessing a massive bubble in US government debt, and we’ve reached the point where no one in charge believes it will ever end – an excellent contra-indicator. [Let me explain.] Words: 720
The analysis of current Fed policy has included the usual parade of mistaken pundits [whose views have] been obscured by… an agenda based upon their politics or their business models [and then there]…are the correct answers which are pretty obvious to anyone with any training in economics. Here is that reality. Words: 734
The choice facing the leaders of the world’s largest economies is a simple one: Either they engage in massive money printing, or they let the world slip into another great depression. This article examines why they have no choice but to print money, something which will have significant consequences for everyone. Words: 560
I keep wondering to myself, do our money-printing central banks and their cheerleaders understand the full consequences of the monetary debasement they continue to engineer? [Below is what I think awaits us.] Words: 1013
While the Fed’s third round of quantitative easing is fairly aggressive it is unlikely to have a significant impact on the economy – especially if policymakers in Washington lead us over the fiscal cliff. Where QE3 may have an impact, however, is in the commodities market, and in particular gold. Here’s why. Words: 400
This short video – on the sustainability of government spending – should be watched by everyone, including those not yet old enough to vote. It should be shown in every high school and college classroom.
Our civilization would not be able to handle such a transition from an expansionary credit based economy where goods and services were readily available into a paradigm of credit contraction, supply shortages and destitution and this is what is coming. There is no way to prevent it – only to defer it until a later date – and that day will soon be upon us. Words: 590
The outcome of the election of 2012 will [only] determine the rate of speed at which we approach the [financial] cliff [because] neither political alternative is willing to change course, to steer away from the cliff. The cliff is so high that whether we go over it at 200 mph (Obama) or whether we merely slip over the edge (Romney), the end result is the same — fatal for the economy and perhaps our entire political system. It is the fall that will kill us. [This article explains why that is going to be the case.] Words: 1135
The deficits aren’t going to stop anytime soon. The debt mountain will keep growing…Obviously, the debt can’t keep growing faster than the economy forever, but the people in charge do seem determined to find out just how far they can push things….The only way for the politicians to buy time will be through price inflation, to reduce the real burden of the debt, and whether they admit it or not, inflation is what they will be praying for….[and] the Federal Reserve will hear their prayer. When will the economy reach the wall toward which it is headed? Not soon, I believe, but in the meantime there will be plenty of excitement. [Let me explain what I expect to unfold.] Words: 1833
…The US Government and its catastrophic fiscal morass are now viewed by the world as a ‘safe haven’. This would easily qualify for a comedy shtick if it weren’t so serious….[but] the establishment is thrilled with these developments because it helps maintain the status quo of the dollar standard era. However, there are some serious ramifications that few are paying attention to and are getting almost zero coverage from traditional media. [Let me explain what they are.] Words: 1150
With the U.S. election just months off, political pressures will mount to favor fiscal stimulus measures instead of restraint. Such action can only accelerate higher domestic inflation and intensified dollar debasement culminating in a Great Collapse – a hyperinflationary great depression – by 2014. [Let me explain why that is the inevitable outcome.] Words: 2766
Whether our current economic crisis will end with massive inflation or in a deflationary spiral (ultimately, either one results in a Depression) is more than an academic one. It is the single most important variable for near and intermediate term investing success. It is also important in regard to taking actions which can prepare and protect you and your family. [Here is my assessment of what the future outcome will likely be and why.] Words: 1441
Daniel Thornton, an economist at the Federal Reserve Bank of St. Louis, argues that the Fed’s policy of providing liquidity has “enormous potential to increase the money supply,” resulting in what The Wall Street Journal’s Real Time Economics blog calls “an inflation inferno.” [Personally,] I think it’s too soon to make significant changes to a portfolio based on inflation fears. Here’s why. Words: 550
The developed economies of the world have opened the money spigots…[and this] massive money and credit creation is sitting in the banking system like dry tinder just waiting for a spark to set it ablaze. How quickly it happens is anyone’s guess, but once it does we are likely to be enveloped in a worldwide inflation unlike anything before ever witnessed. [Let me explain further.] Words: 625
Evidence shows that the U.S. money supply trend is in the early stages of hyperbolic growth coupled with a similar move in the price of gold. All sign point to a further escalation of money-printing in 2012…followed by unexpected and accelerating price inflation, followed by a rise in nominal interest rates that will bring a sovereign debt crisis for the U. S. dollar with it as the cost of borrowing for the government escalates…[Let me show you the evidence.] Words: 660
The U.S. already has more government debt per capita than the PIIGS (Portugal, Italy, Ireland, Greece and Spain) do and it just keeps getting worse and worse thanks to both political parties. We are on the road to national financial oblivion yet most Americans don’t seem to care. They don’t realize that we have enjoyed the greatest prosperity we will ever see…and that when the debt bubble bursts there is going to be an immense amount of pain. That is a very painful truth, but it is better to come to grips with it now than be blindsided by it later. [Let me explain.] Words: 1140
“Even with the prospect of no QE, if you believe the Fed, gold has not made a new low [since December] so, in my opinion, the absence of QE is priced into gold. On the other hand, if market conditions hit emergency levels, the central banks will be forced to their knees and they will be doing QE by whatever name it’s called. I think at that stage you are going to see gold go ballistic because it will be an admission of failure on the part of policymakers….If investors don’t do something now and take advantage of this funky period we are in, this daily grind of back and forth, they are going to be paralyzed. They will just be bystanders when gold finally takes off.”