Is Quantitative Easing 3 Coming in U.S.?

Is Quantitative Easing 3 Coming in U.S.?
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Within the past few months, many financial commentators and pundits have speculated that the Federal Reserve could soon announce a renewed push at “quantitative easing.”  These prediction usually go hand in hand whenever there is an upcoming Federal Open Market Committee meeting.  With the Fed and other central banks announcing a new push to lower the cost of dollar swaps amongst themselves last Wednesday some, such as Gavyn Davies recently at the Financial Times, have contemplated that this maneuver itself is QE3 as it is unlikely for Bernanke (actually William Dudley who heads the New York branch of the Federal Reserve System) to sterilize these purchases and not expand the central bank’s balance sheet.

While it may be true that the dollar floodgates have been opened just a bit wider, it’s irrelevant to call this new policy QE3.  When Bernanke made it clear last August that he plans to keep short term interest rates near zero for the next two years, he insured that quantitative easing will continue indefinitely.  In order to maintain these anorexic interest rates, Bernanke and Dudley have to enter the market to suppress rates by purchasing bonds.  Investor Brandon Smith explains:

Though most Americans now understand the basics of bailouts and quantitative easing, including many of the risks, most still think that these programs are somehow limited, or exclusive. In reality, there is no QE1, QE2, TARP, etc. These are not separate stimulus efforts that actually started and concluded independent of one another. They are all a part of one long fiat injection into our economy that never ended. The insanity is that a large percentage of investors actually believe that because Bernanke did not yet announce QE3, there is no stimulus going on today! The Fed is ALWAYS creating fiat. Some of it is reported, most of it is not. Ask yourself this: Are interest rates still at near zero? If the answer is yes, then the fiat still flows.

One look at the rate for 3 month Treasuries alone demonstrates the type of risk Bernanke and company are taking to keep borrowing costs low:

According to the Fed’s own statistical releases, the M2 money stock has been growing at roughly a 15% annual rate over the past 6 months.

So while the speculation continues on whether or not the big QE3 announcement is coming, keep in mind that such talk is meaningless.  Quantitative easing hasn’t ever ended, such proclamations for a new round are just attempts to goose the stock market so Americans feel “richer.”  And by Americans, I am of course referring to those who believe that money itself equals wealth.  The real beneficiaries of the Fed’s policies will always be the first receivers of the newly printed “wealth” i.e. Wall Street and the NY Fed’s primary dealers.

  • Logan Albright

    It's coming alright. See my article on the subject:

    QE3 a Recipe for Inflation

  • Martin

    QE3 has already started, but to bail out Eurozone risk. This week, over $52 billion were "lent" to EU banks via swaps with the ECB. Had this not taken place, these banks would have had to sell USD loans to raise funds = Capital from outside the EU zone would have had to enter and USD rates would have had to rise. But this way, USDs have been printed and the EU zone can enjoy them, without Americans having to increase their savings rate. However, purchasing power was taken from them, as the Euro increased 2 cents vs. the USD. Who voted for this tax? Exactly!

    The point here is whether or not, the Fed will keep rollin' them swaps over! I would not like to bet against it….

  • lemoutongris

    Of course it's coming. Unless Ron Paul wins in 2012, there is no way an election can change the present situation. Most republicans also want their welfare program (the army), and since they (rightfully) don't want to increase taxes, printing is the only solution left…

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James E. Miller is editor-in-chief of Mises Canada and a regular contributor to the Mitrailleuse . Send him mail

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