QE3

About 30 minutes ago Fed Chairman Ben Bernanke, as expected, announced another round of quantitative easing (QE3) in a futile attempt to stimulate our moribund economy. This is simply throwing good money ($40 billion per month) after bad. In addition to the aforementioned bond buying program he guaranteed that rates will remain exceptionally low until at least 2015. While this is great for borrowers, it is punitive for the elderly and those living on fixed incomes. Worse, it will likely have little or no affect on the economy in the short run and will undoubtedly add to the growing fiscal crisis that we’re facing. The government, and by extention the Fed, should cease in it’s fruitless efforts to contravene market forces and allow the economy and the stock market to ebb and flow according to their normal market cycles. While the stock market liked the move today, which is good for me and my clients, especially those of us holding gold, I worry about the long term consequences.

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19 thoughts on “QE3

  1. Greg, I was amazed how fast you responded to this. I doubt QE3 alone would help the economy much as well. And on top of that, there will be very likely inflation in the next few years!

  2. I believe you’re correct about the prospects for inflation at some point, but it’s likely going to be a few more years. Right now, the bigger fear is deflation, which the Fed is fighting tooth and nail to avoid.

  3. I could not agree more, we need to let the free market system work. I see no way possible to pay off our 16 trillion in debt when we can’t balance the budget on the 1.8 a year the IRS now takes in!

  4. I get less frustrated when I think about my thoughts as a 6 yr old…I was sure by the time I was old (25) there would be world peace, and full bellies for everyone on earth. Now I’m old (25+) and the leaders I have voted for…drafted NAFTA, and have thus begun the long, painful prosses of creating world peace, and full bellies. I know all the manufacturing jobs lost to Poor, densly populated countries will lead to beter positions for thier people…Makes me feel beter about the fact that manufacturing ( Heart of our super power status) can’t return until wage differences decrease…Once 70% of the workforce earns under 10.00/hr…the only way to lower wages, is to print money!

    • Joe, thank you for the thoughtful response. If 70% of our national workforce were to make less than $10/hr, we would become a VERY different country, and not one I’d prefer to live in. But I’m all for world peace and full bellies.

      • Greg, I agree with your opinion that our job growth is in the service sector, I don’t understand how my local politicians can revel in the creation of these jobs…I can’t see how these wage earners benifit the economy, other than buying food, gas, utils, RENT, and insurance. with all of those costs on the rise, I bet that segment feels inflation. I also agree that we should motivate banks to get back into the lending business, and if printing money doesn’t work…Maybe re-enacting some of the laws Clinton repealed will!

      • Joe, any job is better than no job at all. Lower wage earners still benefit the economy because they pay taxes and spend money on goods and services. Plus if you have a job then you aren’t a drain on social service programs. And yes, lower wage earners are disproportionately hurt by inflation, especially in food and gas. I really don’t know what it’s going to take to force the banks to lend out the money other than the Fed no longer paying interest on the money that the banks have on deposit with them.

      • True about low wage earners, and the possibility exists not to want to work for the same amount of benifits doled out by the Govt. when not working, not so much in Michigan, but maybe other places. The programs meant to benifit the economy take so long to take effect, and are nearly impossible to measure the benifit of, making it hard for me to understand, However some local businesses are benifiting from passive energy programs… locally ( Energetx ) has created some descent jobs, as well as several spin offs of high paying jobs. I hope that if I don’t see todays benifits, or understand QEs…years from now I will.

  5. I agree – QEs are not going to solve the problem, but surely for the time being it is good for gold bugs like me. Since three years now I have kept 30% portfolio in Gold; 10% hike in gold over past one month is very pleasing.
    I read few of your posts; like minded. Am following.
    Thanks
    Rafiq

  6. QE3 Makes no sense to me. 40 billion a month. They can’t figure it out – cheaper money does not make it any easier to get funding for your needs as the banks are not easing there borrowing restrictions. A weaker dollar results in higher gas prices, higher gold, more inflation – Not in more jobs, it just puts more stress on people that are not getting raises.

    • Dead right Matt. You’d think these smart guys could figure that out. Wages are going nowhere. The only job growth is in low-paying service sectors. I think the real problem is that the banks refuse to lend out all the money given to them by the Fed. If Congress really wants to do something, that’s where to start.

      • Greg- I agree with you, enjoy you analysis. Why can’t those in power see that the incentive to lend is taken away by still paying banks to park their money with the Fed and then also giving them the near-zero borrowing cost. All of the money intended for stimulus doesn’t seem to leave the banks/financial sector.

      • Thanks Kurt. Check out some of the other posts and see what you think. And if you enjoy what I’ve said, please “follow” the blog so we can continue our conversation over future posts.

  7. Your blog was the first I heard about this decision by the federal reserve chairman. I could not agree more with your statements. I also worry about the long-term consequences, and the lack of accountabily on the part of the Fed.

  8. Jennifer, there is virtually no accountability at the Fed. We must simply hope they know what they’re doing and that they act in the best interests of the country. I worry that the long term consequences could be very dire indeed.

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