QE3

[Foxpup]

Surprised nobody's posted this yet. I don't normally pay much attention to global finance news, but this really caught my attention:

Federal Reserve issues FOMC statement - September 13, 2012

Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. 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 Committee will closely monitor incoming information on economic and financial developments in coming months. 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 until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

TL;DR: The Fed is introducing a another round of QE of half a trillion dollars per year, which will be increased without limit if the economy doesn't improve. What. Has the U.S. economy officially imploded?

[WhiteStorm]

The beatings will continue until morale improves.



I'm not actually making any point here, it just reminded me of that and I like to use it.

[Kobuk]

The beatings will continue until morale improves.



I'm not actually making any point here, it just reminded me of that and I like to use it.

I fail to see how your post contributes anything to the thread at all.

[WhiteStorm]

To the thread, it contributes mockery of government (see: 'If the outlook for the labor market does not improve ... the Committee will continue its purchases ... until such improvement is achieved ...' vs 'The beatings will continue until morale improves.')

I don't really have a serious answer regarding the official imploded or unimploded state of the economy, though.

[RickTheRabid]

TL;DR: The Fed is introducing a another round of QE of half a trillion dollars per year, which will be increased without limit if the economy doesn't improve. What. Has the U.S. economy officially imploded?

Nah, we are trying to prolong and exacerbate the problem by pouring more money into lending.

I really think we should leave this alone and let the natural credit boom and bust cycles just take their course...

[Storm Fox]

My knowledge of what a “agency mortgage-backed security” actually is, is a bit sketchy.
But after looking it up on investopedia.com, and wikipedia, it seems like this is about the government buying large amounts of property/land etc.
Now unless I’m completely misunderstanding this, what does agency mortgage-backed securities have to do with economic growth, and labor markets?
It sounds more like the government taking things out of the equation, that’s not growth, it’s just shrinking the playing field.

Am I misunderstanding this, or is this as convoluted and confusing as it sounds?

[Foxpup]

My knowledge of what a “agency mortgage-backed security” actually is, is a bit sketchy.

Looks like you know more than you think. Mortgage-backed securities are a bit sketchy.

But after looking it up on investopedia.com, and wikipedia, it seems like this is about the government buying large amounts of property/land etc.

Yes. But no. See, when you or I "buy" something, money is deducted from our accounts, credited to someone else's account, and we get the goods. But when the governments buys something, they can do the same thing, but they also have another option. They can employ quantitative easing, which essentially just credits money to the seller's account without deducting it from the government's account. That is to say, they simply pull the money out of thin air, magically increasing the money supply and causing inflation. (In case you don't know, inflation and deflation is simply what happens when the law of supply and demand is applied to money: increased money supply + same demand for money = decreased value of money. This is the primary reason why stuff costs more than it used to.)

Now unless I’m completely misunderstanding this, what does agency mortgage-backed securities have to do with economic growth, and labor markets?
It sounds more like the government taking things out of the equation, that’s not growth, it’s just shrinking the playing field.

Am I misunderstanding this, or is this as convoluted and confusing as it sounds?

It's not confusing at all, if you remember one thing: Cui bono? When inflation sucks the true value out of your savings account, where do you think all that value goes? Inflation is an invisible tax on everyone who owns money. That's why the government will use every excuse they can come up with to justify increasing inflation. It's really that simple.

Okay, it's not really that simple, but the basic principle is.

[Storm Fox]

Based on what you said, it's like the government is trying to create a greater distinction between rich and poor…
Because that's what something like this would inevitably do, as the rich would not be effected as much by things like this.  :/

[Foxpup]

Well, that's not what they're trying to do, it's just one of the many side effects. The government's really just trying to fill their own pockets while telling the public it's for their own good. Actually, I don't really have a problem with the huge divide between the rich and the poor, since almost all rich people acquired their riches by providing something of value to the community (and it is my belief that the "almost" in that sentence would disappear in the absence of government interference, but that's a topic for another thread). What I am really worried about is the effect that this increased inflation will have on the U.S. economy, which I predict will be nothing short of catastrophic.

[Alsek]

Based on what you said, it's like the government is trying to create a greater distinction between rich and poor…
Because that's what something like this would inevitably do, as the rich would not be effected as much by things like this.  :/

Well,  they're actually effected quite a bit one way or another...  An honest rich person who got to where they are through intelligence and hard work and smart business practices has the value taken from their money the same as everyone else,  and they have a lot more money that will lose value than the average person.  They probably take the worst hit.  Them,  and seniors who have saved money their whole lives that is now worth a fraction of what it was when they put it into savings or social security...

However,  what i would consider to be corrupt or inept corporations benefit because they're the ones being bailed out.  They rather like it.



I'm with foxpup on this one,  i'm not at all happy about any inflation whatsoever.  Even one advocates for a large amount of government spending,  we should at least be able to agree that they should be honest about how much they're taxing.  The tax cuts the majority of republicans suggest would literally accomplish nothing,  and would not reduce spending.  All that would happen is they would print more money to make it up.  One has to watch the /spending./

[Foxpup]

UPDATE: QE4 was just announced a few days ago. The Fed wasn't kidding when they said they were going to increase QE without limit if the economy didn't improve. They're now doing another $45 billion a month of QE on top of the $40 billion a month they just started three months ago. I would have at least expected them to wait until after the fiscal cliff is sorted out, but clearly that would have been expecting too much.

[Arashi_Calunata]

We're spending money to make money and the government is isolating itself, as are the richer folks. God...


Isn't America great? /Sarcasm

Inflation, Grave-Digging in a desert, and bailouts for people who don't deserve it. No wonder China or some other nation hasn't fully eaten us yet, we don't seem to be the smartest nation.