Ugh. The Fed's New Stimulus
inlet13
Posts: 1,979
http://www.cnbc.com/id/49018964
The Federal Reserve fulfilled expectations of more stimulus for the faltering economy, taking aim now at driving down mortgage rates.
The Fed said it will buy $40 billion of mortgages per month in an attempt to foster a nascent recovery in the real estate market. The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve.
Enacting the third leg of quantitative easing will take the Fed's money creation past the $3 trillion level since it began the process in 2008.
"The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions," the Open Market Committee said in a statement.
In addition, the Fed said it will continue its program of selling shorter-dated government debt and buying longer-term securities, a mechanism known as Operation Twist. It also will continue its policy of reinvesting principal payments from agency debt and mortgage-backed securities back into mortgages.
The Fed left its funds rate unchanged at near-zero but offered one change in that regard, saying the rate would stay at "exceptionally low levels" until at least mid-2015.
"These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," the Fed statement said.
With a summertime rally pinned on hopes for aggressive central bank intervention — both in the U.S. and Europe — the Fed instead split the difference Thursday, offering a quantitative easing program the aggressiveness of which will depend on the strength of the recovery.
The stock market, which had been slightly positive prior to the decision, shortly after 12:30 p.m., advanced while bond yields edged lower.
"The language of its policy stimulus leaves us in little doubt that the central bank is trying hard to allay fears over the prospects for inflation, which it continues to see as a low likelihood, as well as its exit strategy," said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York. "The Fed is going all out to say that easy money is here for a very long time. Will markets warm to its latest actions? We think so."
Though the Fed is ostensibly politically independent, the decision comes at a ticklish time with the presidential election less than two months away.
Washington conservatives have been critical of the central bank's money creation, which has caused its balance sheet to swell to $2.8 trillion. They worry that the growing money supply will lead to inflation, which has reared its head in food and energy prices but has remained tame through the broader economy.
Bill Gross, who runs bond giant Pimco, said the new round of easing would take the Fed's balance sheet up to nearly $3.5 trillion if the purchases continue for a year.
"That potentially is reflationary," he told CNBC. "We're just to have to see if it works."
Faced with an unemployment rate stubbornly above 8 percent and other indicators showing only halting signs of recovery, the Fed was pressed into action by a market worried that the nascent recovery was on wobbly ground and needed more stimulus.
Two previous rounds of QE had uneven effects on economic growth though they did manage to levitate stock prices by more than 100 percent from their March 2009 lows.
The Federal Reserve fulfilled expectations of more stimulus for the faltering economy, taking aim now at driving down mortgage rates.
The Fed said it will buy $40 billion of mortgages per month in an attempt to foster a nascent recovery in the real estate market. The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve.
Enacting the third leg of quantitative easing will take the Fed's money creation past the $3 trillion level since it began the process in 2008.
"The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions," the Open Market Committee said in a statement.
In addition, the Fed said it will continue its program of selling shorter-dated government debt and buying longer-term securities, a mechanism known as Operation Twist. It also will continue its policy of reinvesting principal payments from agency debt and mortgage-backed securities back into mortgages.
The Fed left its funds rate unchanged at near-zero but offered one change in that regard, saying the rate would stay at "exceptionally low levels" until at least mid-2015.
"These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," the Fed statement said.
With a summertime rally pinned on hopes for aggressive central bank intervention — both in the U.S. and Europe — the Fed instead split the difference Thursday, offering a quantitative easing program the aggressiveness of which will depend on the strength of the recovery.
The stock market, which had been slightly positive prior to the decision, shortly after 12:30 p.m., advanced while bond yields edged lower.
"The language of its policy stimulus leaves us in little doubt that the central bank is trying hard to allay fears over the prospects for inflation, which it continues to see as a low likelihood, as well as its exit strategy," said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York. "The Fed is going all out to say that easy money is here for a very long time. Will markets warm to its latest actions? We think so."
Though the Fed is ostensibly politically independent, the decision comes at a ticklish time with the presidential election less than two months away.
Washington conservatives have been critical of the central bank's money creation, which has caused its balance sheet to swell to $2.8 trillion. They worry that the growing money supply will lead to inflation, which has reared its head in food and energy prices but has remained tame through the broader economy.
Bill Gross, who runs bond giant Pimco, said the new round of easing would take the Fed's balance sheet up to nearly $3.5 trillion if the purchases continue for a year.
"That potentially is reflationary," he told CNBC. "We're just to have to see if it works."
Faced with an unemployment rate stubbornly above 8 percent and other indicators showing only halting signs of recovery, the Fed was pressed into action by a market worried that the nascent recovery was on wobbly ground and needed more stimulus.
Two previous rounds of QE had uneven effects on economic growth though they did manage to levitate stock prices by more than 100 percent from their March 2009 lows.
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A third round of this shit, all to make the economy look healthier than it is thru November...
Then the inflation bomb explodes....
But who cares, as long as Moochelle gets to keep her free jet.
http://www.youtube.com/watch?v=PTUY16CkS-k
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People debate dumb stuff on here constantly. Stupid shit. Stuff that doesn't matter.
When it comes to the Fed, most just say - ahh - that's Ron Paul stuff. Conspiracy-driven stuff. Huh? You don't have to be a Ron Paul fan to say this is fucked up or at least look at it. You can be a Obama or Romney supporter and say enough already. They tried this twice. Why a third time? It's devaluing our dollar.
Discussing this is discussing "inflation" (we're fine talking gas prices or food prices) and "stimulus" (we're fine arguing Obama stimulus or Bush tax cuts) stuff. It's currency stuff (we are ok talking about Greece or Spain and the EU). But, the Fed... QE? Nah.
Ugh. It's probably more important than every single thing that Bush and Obama have done combined at least economically. Yet, ... crickets.
No one cares. Here or elsewhere. Everyone just casts a blind eye. Oh they did that again,... hmmmm back to the Kardashians. :fp:
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I care... for what it's worth....
I think it's like someone said in another thread (was it you?). We agree. So, what's to comment on?
This is an unmitigated disaster waiting to happen on the scale of Clinton's forced Fannie Mae and Freddie Mae loans to people that can't afford them that led to the last bubble that destroyed the economy.
There, I helped you out. I named someone from a political party to get the conversation going. You can thank me later.
You know what I am saying though, right? It's like a lot of folks get scared off by the topic. They shouldn't. These idiots are no smarter than the common man. They use fancy words, but with a bit of curiosity one can get passed that and form an opinion.
It just bothers me that these guys can do this with no understanding by the public whatsoever.
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Well, I don't need everyone to agree with me - I guess I just get frustrated because this stuff matters - regardless of the viewpoint, yet I feel some don't agree with "that". Some think Obama or Bush or Romney matter. Democrats Republicans matter. But, Fed... boring... doesn't do anything.
I sincerely think it matters much more than the economic programs debated here frequently. Yet, most don't or for some reason don't comment and to me - that seems they don't care.
It's scary. These guys actions "could" cause serious consequences. Their actions are not meaningless. If you agree with their actions, fine. If you don't - like me - great. But, anyone sitting there typing away about political parties and stuff, but unaware or uncaring in totality of this stuff really bothers me. That's all.
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Certainly. The terms can definitely deflect from a good conversation ( thanks for putting up the video). I think most of us are simply not versed in Economics... Social issues, while important, are not the only thing that needs to be discussed... Social issues are just wayyyy easier to talk about.
What Bernanke is doing doesn't work... you can't stimulate an economy with fake value. You can't stimulate something when you don't even have a surplus (money) to stimulate with....
How can you put something in motion with imaginary funds? What would happen if other countries didn't buy our debt? It's making a bad situation worse.
I know you don't need it. I'm just saying we do. There's really nothing anyone who's educated on the subject on either side can say except - Ugh. And you said it. So, we don't need to.
I do agree with you if you think this should be bumped so hopefully more folks read it and understand what's really going on.
(Though if Obama had the economy humming along like he should have by now, they wouldn't feel the need to do this. So, not that it's his direct doing, indirectly it is. Personally, I don't see their real need to "double down" on the bad policies when you could have a new President with different (read: not necessarily better, but different) ideas. There. I helped you again. I'm trying.)
They are printing money. Again. This is the third time. QE3. This time they promise to QE but not as a one time thing (like the first two) - but kinda continually. Jokingly it's being refereed to as QEinfinity.
They are trying to "stimulate" the economy and now - I think it's pretty fair to say they will have little to no more stimulative bullets.
Also, they are doing it two months before the Presidential election - which is kinda odd - since they say they are not political (that should help with the political folks). Look at what it does to stocks today. Why? Well they are assets that are priced in dollars. Also, it's devaluing our dollar - the EUR/$ jumped today.
The question is what's the real problem? Why didn't this policy work in the first two times? Why another? When does it end? Why a continual one? Should we just print to infinity? If not, why not? Are there consequences to constantly increasing the money supply?
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If someone doesn't care about what the fed does it is one of three things IMO,
1. they don't understand or are confused by the subject (very likely to be the case as it is a confusing subject)
2 they don't want to understand the consequences of the decisions---some don't care that much about money and think that this is only a 1% issue. To them short term benefits outweigh the long term negatives (of which they may or may not understand).
3. They support the decision but don't want to get into an argument about it.
I care, am trying to educate myself on this stuff and have been for quite some time...But with this mortgage interest deal...I just don't understand how this is going to do anything but re-inflate the real estate bubble, am I missing something? How is this going to put more money in pockets and into circulation?
It is terrifying when you are too stupid to know who is dumb
- Joe Rogan
This always comes back to the Keynesian multiplier effect and it's (in my opinion - faulty) logic.
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I am working on a refinance right now actually. So they believe that the money I save every month on my payment is going to go back into the economy right?
If this program works, how long before mortgage rates go down further? I don't quite understand what affect this will have on them and how quickly the market will see the affects
It is terrifying when you are too stupid to know who is dumb
- Joe Rogan
Dude here is saying this pretty much seals the deal for Obama. I am hesitantly leaning in that direction too... now saying Obama's more than 50/50 change to be the winner in November. Said it past couple days here three things need to go in Obama's direction: jobs(unemployment), Fed (QE) and or EU.
I still see jobs/unemployment and EU being the risks for him. But, QE forever helps no doubt.
Barry O and Benny Helicopter best buds forever.
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2- what are we supposed to do about it ..
Where is the protest so i can be there ...No sarcasm intended
Good question. I suppose for now - just being active in discussing this to those who don't know much about it can at least expose more people think about it. The truth is, as is, the voice of opposition to this sort of thing is no where near loud enough. Ron Paul is pretty much the only public voice. Not really though, I think Kucinich is the Dems main public voice. These two guys couldn't further from each other on some issues, but on this one they kinda come together. We need more of each.
People laughed at Ron Paul's presidential run. But, that dude knew he wouldn't win the Presidency. Truth be told, I don't think he cares at all. He knows, in a lot of ways, The President is a puppet to the Fed. The Fed's authority needs to be challenged and he tried to get more people behind that notion. It worked... a little.
The protests will follow if first more people learn about the problem. Truth is a lot of this info is convoluted and the semantics/lingo are tough to grasp if the interest isn't there. Even someone like Ron Paul does a horrible job of breaking this stuff down into layman's terms. But, I'd argue, the underlying issue is pretty damn simple. Expand the money supply or not. Inflate or not. Print money or not. Keep interest rates well below their natural rate or not. What are the problems with each - there's always a cost. AND... when should this stop? Even if one's on board with this stuff, they have to have a time to stop. Even Keynes knew that. The Fed, apparently doesn't.
I think once people learn about what they are doing in high enough numbers, which doesn't take more than a few minutes, the heavy majority (in my opinion) will come down against it. I just saw a poll that said 75% of people support a Fed audit. This is all of our money/currency - not just theirs. We should have a bit of a say in what they do to it. The fact that they sit in a black room making these enormous decisions with pretty much no check on them is pretty fucking scary. At least to me...
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I think it should have been, but no I don't.
In my opinion, it was more about fiscal policy - not monetary policy.... the tax the 1% stuff is what I remember most.
I do agree though elements of it were close when protestors discussed banks. OWS had a lot of potential for uniting a lot of people. If it stuck to monetary policy, I think it would have.
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but it boils down to the same thing doesn't it? ... who's controlling the policy decisions and what are their motivations? ... the fed is just like any other corporation ... their interests are solely self-serving ...
I too support an audit (by a third/totally separate party). Anyone, whether in the public or private sector, should be responsible and held accountable - by themselves, first and foremost. In this instance, there's more than just themselves to answer to.
Do a half-assed (no-assed?) job and be prepared to be called on it.
I agree i'm trying to learn and you and a few others here allways provide good info ...
It seems like we'll have to (at least I am) keep an eye on the euro, among other things. It hit $1.30 today for the first time in months (April? May?). (I didn't catch the uptick, unfortunately, but I did jump n the gold train today
I'm not really sure what to make of this. I'm not in the camp that says any move the Fed makes will be disastrous, but I do understand the risks of manipulating currency. Is there any change, as far as implementaition, form QE1 & QE2; according to a Fin Times article, this could be seen as a positive for the housing market????
Obviously, an audit is necessary and will happen.
And, once there is (if there is) some type of return to "normalcy" for the housing market, can't the Fed just do what Volcker did in '81, and what Greenspan should have done (and what China did) in the mid 2000s? Wouldn't raising rates once housing and unemployment come down to a healthy level stave off the inflation that some/many are worried about?
Just shooting my mouth off.
Maybe these boys know a bit more than we do. I do not agree that they are only as smart as the common man; let's be serious.
Shit, America's Got [No] Talent is on. (Oh, Howard, say it ain't so, say it ain't so!)
p.s. I'm gonna go read what Krugman has to say.......
Also, if banks have more collectibles taken off their books and mortgate rates go down, loans become more available and (in theory, but not reality) become more affordable. So, loans go up creating more "fake" money in the economy. By the time folks realize they really couldn't afford these mortgages - oops!!! Now we have to bail them out and dollars start to flow back to the banks to pay back the loans these folks shouldn't have taken in the first place. Which is EXACTLY the mess that started all this (despite what the left would have you believe). So, now more homes are back under water, more cash is sent to the banks by the Fed (money they don't really have b/c they have no authority to collect money, only to print it). Then, prices need to go up b/c the value of said dollar goes down.
Meanwhile, everyone screams at the banks because they want the money they loaned back. :?
Think of it this way - you get money from somewhere (not the Fed, but imagine some magic money fairy drops money in your lap) and decide it'd be a nice thing to lend some to your buddy, but he can't afford a 10% interest rate from you. Somehow, he believes he can afford 5% b/c it makes the current payments lower. For a short time, he can afford it b/c he can borrow elsewhere (credit cards, etc.). But, eventually that dries up and he shows up to pay you with a shrug of his shoulders. You are SOL. The difference is, you can't PRINT money when he can't pay it back. All you can do is kick his ass and go to jail. I guess we can allow the banks to not collect on said mortgages, but while folks scream about that, that's not what we really want. If banks go insolvent, we'd really be done for. (and btw, these excess loans allow the banks to make short term profits which "justify" large CEO bonuses that folks only really care about once the bubble bursts. Though the reality is, the bonuses don't actually effect anything b/c in the scheme of things while abhorrent, they are a drop in the monetary bucket. They just look REALLY bad.).
It is a terribly vicious cycle caused by the fact that a non-elected body gets to PRINT MONEY!!!!!!! And a President will get re-elected b/c of its (very) short term impact!!!!! One man is basically tipping this election, making the hole even bigger to dig out of (which is the most important part of this rant) and everybody's busy worrying about whether some social policy that's never going to get overturned gets overturned, or how one candidate's dog travels.
And let the President print his own money? Egad!!! How much would Obama have printed already? His whole platform would be a Doritos commercial - "Don't worry. We'll make more."
The problem isn't where the Fed lies. It lies with what they do and have the power to do and the fact that folks are more concerned about their individual picadilloes then things that actually affect, you know, the daily life of everyone.
the president wouldn't be able to enact anything without congress's approval ...
i find it confusing that in one sentence you claim it isn't who is in charge of the fed ... but then in the next you list what they do, have the power to do and the fact they are self-serving as the problem ... aren't they one in the same?
-Eddie Vedder, "Smile"
Stop it with that hippie, liberal, treehugger propaganda!