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.”Â These prediction usually go hand in hand whenever there is an upcoming Federal Open Market Committee meeting.Â 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.Â 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.Â In order to maintain these anorexic interest rates, Bernanke and Dudley have to enter the market to suppress rates by purchasing bonds.Â 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.Â Quantitative easing hasn’t ever ended, such proclamations for a new round are just attempts to goose the stock market so Americans feel “richer.”Â And by Americans, I am of course referring to those who believe that money itself equals wealth.Â 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.