T Nation

$600 Billion in Quantitative Easing


I haven't posted here before, but as a student of economics I thought it wouldn't be too terrible for me to start a thread about the quantitative easing the FED announced today.

The FED is planning to purchase another $600 billion worth of Treasuries over the next 8 months (by the end of 2nd quarter 2011). I believe about $1.7 trillion were purchased before this.

The stated goal of this is to lower long-term interest rates (since short-term interest rates are already at 0-25 bp, or 0-.25%), which is supposed to stimulate spending.

What do you think the effect of the quantitative easing will be? Will it actually lower long-term interest rates? By enough to make a difference? What about other effects on the economy? How will this affect politics? Or just discuss quantitative easing or the FED in general.


My professional opinion: It'll fuck shit up. It will keep us struggling economically for longer. It will allow the richer get richer and the poorer get poorer.

My professional alternative solution: Bite down on the towel while the people effectively amputate and cauterize the economy.


Not that I don't agree with you, but could you elaborate?

My opinion on the rich making money off this:
Most of the money pumped into the economy IS spent, just not on everyday "stuff." It's spent on assets, which cranks up asset prices (and most assets aren't very liquid, so it doesn't help increase the velocity of money either). And who owns assets? Rich people. So rich people get richer and then spend. But rich people spending doesn't seem to me like it would create an appreciable pick-up in the economy.

While I don't see how it makes the poor even poorer, I don't see it helping them either.

My general opinion:
The economy isn't picking up until consumer spending does and QE doesn't really help that. And consumer spending isn't going to pick up until consumers get de-levered, which could take a number of years.


enough with all the fancy talk, you know there just trying to set the rate now so they can spend the next 8 months jackin off.


It will cause inflation, and cause the left to blame the inflation on corporations.


There is a trade off involved. We are going to devalue the savings of people who are responsible in order to stimulate consumer spending to stimulate the economy. Now what is wrong with this picture? Hmmmmm. Oh I know! We don't make consumer goods anymore because we gave away those jobs to the Chinese.

All we are going to do is more damage to our economy while helping the Chinese overtake us.


Interest rates aren't the problem and everybody knows it!!!


interest rates are a problem.

when you have next to zero rates you are encouraging consumption and as someone above me said, devaluing savings. Try to open a CD now and tell me what kind of rates youre getting.

The fed has 3 tools at its disposal. Reserve requirements (imposing capital requirements on banks), setting the federal funds rate (which determines the rate at which banks can borrow from the fed) , and open market operations (the purchase or sale of government bonds).

A great portion of the problem in the fractional reserve system is that with a relatively intertwined corporate banking system and the federal reserve, you get too big to fail banks.

These banks care less about capital requirements when the federal funds rate is low, because they can then cheaply borrow money from the fed. See how easily paulson and geithner crossed between major investment banks and government positions and you will see the nepitism involved in this situation.

Purchasing government bonds in essence is akin to printing money.

These are the monetary tools to "stimulate to economy" . Theoretically, these are supposed to work in tandem with fiscal policy such as reduced taxes, or increased government expenditures to grow aggregate demand. This keynesian model assumes however that dollars will have a perfect velocity and transfer from the government/fed to intermediate lenders, then to main street. The current problem, evidenced by the TARP bailout is that these lenders (the banks) are shoring up their balance sheets and cash to compensate from over hedging in bad investments primarily driven by the same monetary policies of low interest rates and low capital requirements. Thus, businesses are not getting loans, and if they are it is at very high interest rates which make growth and increasing employment in the private sector unprofitable for the most part.

A real world example is my best friends step dad, a doctor who owns his own practice. He has impeccable business credit and was refused loans by major banks in my area. Not until a friend of his got in contact with the president of the bank did he get his loan. Extrapolate that out into the whole economy. Then you have the climate of uncertainty which prevails regarding government laws on healthcare requirements, tax rates on s-corporations and individuals such as doctors, dentists etc that have their own practice and they simply will not hire because of feared induced costs or fines. A great portion of the GDP growth was not real growth per se, but simply cost cutting measures of reducing the payrolls and working the remaining employees harder.

We are running into a similar situation as Japan where despite the increase in monetary supply, inflation is a long term concern, but deflation is a very worriesome short term concern. Simply put, with our budget exceedences combined with more fiscal stimulus, the dollar is losing value, combined with low rates of interest..peoples savings are being wiped out.

The ramifications will most likely excacerbate the income gap in the future. Compare purchasing power parity earlier in the 20th century to now. When the value of the dollar is falling people that rely on lesser income can purchase less goods with their money. Couple that with their meager savings being eroded and you have a real problem.

Certain REITS are using the period of extremely low interest rates to purchase prime property, real tangible assets being sold at fire sale prices. This is common among wealther individuals and entities that have the disposable income to do this. When inflation does finally kick off again, they will profit ahead of it and leave a great majority of the populace behind in the dust. They are not evil for doing this, they are simply reacting to the nonsense imposed by washington and the fed.

The chinese own so many dollars that they have a vested interest in keeping it afloat to a degree. A strong dollar would be good for the american consumer and the global economy. Most ideas to stimulate the economy are fairly farcical and short sighted on both ends of the politcal spectrum as well. Sure cutting taxes would help, but we have a spending problem from the government first and foremost. A great deal of that comes from our lovely military industrial complex and the no bid contracts within that. This is rapidly becoming a nation of serfs and corporate fascist kings, and the interest rate is directly intertwined within that.


I'm not opposed to the idea of loosening credit to get you out of a depression. It worked during the last one, but the money itself is not going where it needs to be. This is why Ben Bernake got the nickname, "Helicopter Ben". He was throwing literally trillions of dollars on bankers front lawns who would then use this "hot" money and send it to foreign markets, especially emerging ones in the 3rd world, that would pay a nice return and in the process asset strip and ruin the emerging economy and put the burden of who was paying for this zero interest loan in the first place on the backs of American taxpayers.

What we need to do is invest in our own crumbling infrastructure, not give me money to the zombie bankers. You have to understand that these people running the financial institutions in this country and in London are completely insane psychopaths. They just can't wrap their heads around the idea that in order to make an economy sound and growing you have to actually build and produce things. Things like cars, bridges, tunnels, railroads, tv's, high tech electronics. Derivatives have no value.

Let's use what capital we do have to growing our economy again. Based in real industry. Not derivatives, collateralized debt obligations, and flash trading.

Unfortunately I only forsee more the same. Fascism has come to America my friends and the finance oligarchs are in charge.


Interest rates CAN'T get much lower. It doesn't matter anyway, the fucking banks don't want to lend any money. The lending standards are so high right now, I had to delay a closing by TWO WEEKS for an 800 credit score borrower with a 450K income and over a million dollars in the bank. He was buying a 730K house and putting 20% down. I got him a Jumbo/Conforming 30 year fixed at 4.25%... The fucking underwriter kept stipping me for the STUPIDEST shit to the point where it almost put the whole transaction in jeopardy.

The interest rates could be 2%, but if no one can qualify for a loan, who the fuck cares?

At a time when a large percentage of people have been hit hard with layoffs, dipping into savings and carrying the burdens of family members who are unemployed, the banks in their infinite wisdom are LOWERING the acceptable DTI (debt to income ratios), INCREASING the asset requirements, and slapping on lender overlays on GOV'T loans such as FHA or VA. Most of my Streamline refinances are taking an average of two months to close because of turn times and overlays (asking for assets and credit scores which ARE NOT REQUIRED for this particular Gov't insured loan). It's just STUPID.

On top of this, the BANKS are responding to GOV'T regulation by holding onto all of the properties they've foreclosed on instead of releasing them onto the market. They don't want to realize the loss, because it would impact the capital reserves they are now required to maintain... It's all a big cluster fuck.


Bernanke is in a Keynesian Liquidity Trap. At these levels of interest rates, people simply pay off debt or hold riskless cash. There is no real rate of return on just about anything and the PE of the SP 500 is 22 (Schiller), so 100/22 means the return there is below 5%.

The QE will simply flow into China and India to develop their economies.

We need a world government that will drain the strong (them) to keep us alive! Afterall, aren't we all 'our brother's keeper'?


The Great Collapse of the 21st century is fully underway. We will soon have a National Socialist state, to preserve order. Let us hope that our new state resembles China so we will have economic growth. Being like North Korea would suck.


With today's news of Russia and China going after us...we have driven this car effectively off the cliff.
The world economic war against the US has begun.


Print $1 trillion and what will it be spent on? Newly produced goods or just traded to different creditors?

Money is not wealth. Money does not in itself create prosperity. Money is a result of prosperity. It cannot be created from nothing and be expected to do anything positive for "the economy".

"Quantitative easing" amounts as nothing more than a transfer of wealth from the poor to the already super wealthy.


Not against the US. Against the US Federal Reserve!

US citizens are also a victims of FED theft.


I agree. I should have said high interest rates are not the problem. We do not need to keep lowering them.


It is a hidden tax. Our dollars are worth less and the government spends the difference.


and thus a wealth transfer....or were you not disagreeing with me?


Yep, and this should be a bi-partison issue. The left can be pissed they are stealing their money to spend on wars, and the right can be pissed they are stealing their money to give to other people. Seems like everyone should be up in arms over this.


..and the worst part about it is that the politically connected, wealthy elite will usually be able to get their hands on the money and spend it before the lower classes, and take advantage of the old prices (before the prices respond to the increased supply of money).