US: QE3

Vitaliy_Kiselev

What more quantitative easing is likely to do is to pump up stock market values because a lot of the money from QE3 is going to end up being put into stocks and other investments.

This is going to help the wealthy get even wealthier, and it is going to make the "wealth gap" between the rich and the poor even larger in America.

QE3 is also probably going to cause commodity prices to rise just like QE1 and QE2 did. That means that you will be paying more for gasoline, food and other basic necessities.

So there may not be more jobs, but at least you will get the privilege of paying more for things.

The inflation that QE3 will cause will be particularly cruel for those on fixed incomes such as retirees. None of the extra money from QE3 is going to go into their pockets, but they will have to pay more to heat their homes and fill up their shopping carts.

And the "exceptionally low interest rate" policy of the Federal Reserve is absolutely devastating for those that have saved for retirement and that are relying on interest income for their living expenses.

In short, quantitative easing is very good for the wealthy and it is very bad for the average man and woman on the street.

Via: http://theeconomiccollapseblog.com/archives/qe3-helicopter-ben-bernanke-makes-it-rain-money

Small comments from me:

US had no other option (using current approach).
As we predicted, main target here is the debt rates. If debt rates go out of control, it'll be the end.
Countries push out of US debt market, so, leading banks need more money to buy more debt paper.
All this will add up with worst food prices hike you know in upcoming months.
Consequences are clear - normal people have less money remaining after paying for basic everyday stuff. Hence less sales and service sector stagnation, more jobs lost, etc, etc.

peternap

For someone not in the US, you seem to have a remarkably good grasp on the US economy Vitaliy. I pretty much agree with every point you made.

The increased food and gas prices will very likely be the final straw for people in the Burbs that were over extended before this mess started. Reality is just about to make it's debut.

chazzmoe

Everything is fine... Nothing to see here lol. Hey a new Football season and American idol just came on no worries. This makes total sense the only way to fix a recession caused by a housing bubble popping is a even bigger housing bubble. Ah well the investment banks needed to offload all these bad mortgages, nothing like dumping em on the American people. It's kinda hard to connect the dots between rising gas/food/energy prices and the fed buying Mortgage backed securities and zero interest rates though when you are too busy watching the Kardashian reality show.

kicap

The thing is, if the US economy went down, more will also follow for some sad reasons (currency tight up to USD).

I am not even sure how this whole fiasco is going to end this time around. Another world war or just massive famine and riots taking place all over the world. Very saddening fact to our kids' generation indeed.

ghkqn

At least for some time, Americans with 401k (those who have) will benefit from the rise in stock prices. On paper, a cheaper dollar will reduce the trade imbalance and make US labor looks cheaper.

brianluce

Yeah, QE is scary for a neophyte like me. Printing money and giving it to banks doesn't seem like a good idea. Yet the media reports it deep in the newscasts, if at all. They act like "No Biggie..."

TraumManufaktur

saddle people & countries with debt, you control them. Centuries old game.

Vitaliy_Kiselev

@TraumManufaktur

Nope, this time it is more complicated.

I have very unusual theory about it, but it requires some prior explanations, so I'll try to write post in blog af I'll have more time.

danabrams

I disagree. While the means of QE3 seem to help banks, the primary effect will be an increase in inflation, which will help the US economy because A) those with loads of capital will have a strong incentive to invest it early and B) it will help reduce debt overhang.

Many, many average americans are in debt and this will reduce the relative cost of that debt for them, allowing them to spend again. That is, inflation is good for borrowers and bad for lenders. The effect will be worse for the banks than the current regime (although inflation won't get that high, so it won't be devastating).

Inflation really hurts those with lots of cash-based assets, which is mostly the top 2%. Income tax rates are now adjusted for inflation, so unlike the terrible inflation of the 70s and 80s, this won't force less well off people into her tax brackets.

There's a reason it's always been the very wealthy and the very conservative who opposed fiat currency. Moderate amounts of inflation are good for average people and bad for the many among the very rich.

chazzmoe

@Danabrams your entire mouth is still red from the Bernanke Kool-aid. If you think the top 2% are going to take it in the ass and mainstreet is going to get bailed out you are insane. People in debt can walk away from most of their debt and start rebuilding their savings, that's what they need. The rich can buy hard assets I.E. Commodities like Gold/Oil/Agriculture/coal to maintain their wealth while the poor and middle class will get completely wiped out by inflation when they are paying $9 for gas, $14 for a happy meal, and their electric bill triples. The "Bernank" is a banker, if you think he cares about mainstreet then I got a deal for you! 1 trillion Zimbawee dollars for your gh2.

chazzmoe

@ghkqn if you have a 401k most of your gains will be offset by a increased cost of living so its sort of a wash. But anyone on a fixed income such as retirees or people on disability, pensioners... They are going to take a beating. The purchasing power of their fixed income goes down as prices are going up.

peternap

SAN FRANCISCO (MarketWatch) -- Egan-Jones Ratings Co. said Friday it downgraded its U.S. sovereign rating to AA- from AA on concerns that the Fed's new round of quantitative easing, or QE3, will hurt the U.S. economy. The ratings agency said the Fed's plan of buying $40 billion in mortgage-backed securities a month and keeping interest rates near zero does little to raise GDP, reduces the value of the dollar, and raises the price of commodities. "From 2006 to present, the US's debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8%," Egan-Jones said in a note. "In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5%."

spacewig

"Many, many average americans are in debt and this [inflation] will reduce the relative cost of that debt for them, allowing them to spend again."

Wow. I've just entered the economic twilight zone ....

jacdan

Mark my words, we´ll have another 2007 financial crisis on our hands end of this year or beginning of 2013. It will be huge, and will take 10+ years to recover from. During which time we will see inflation numbers in the area of 3-6%. Expect all asset classes to subtract. Uncertainty. And perhaps a new global monetary system?

You can look at QE3 as FED´s last bullet in the chamber, now they´re all out then what? It ain´t gonna be pretty my friends.

Vitaliy_Kiselev

@jacdan

Problem here is that fundamental, and not financial aspects also exist.

Like energy cost and consumption, food requirements. Problems with water supplies.
All new resources will cost more, as they will be harder to get.

We happened to live in unique time. For part of the world plenty of quite cheap resources became available. As cheap energy and resources will go away you'll see return of natural concurrency. With hard methods used to get all this things.

peternap

@Vitaliy_Kiselev Your one sentence sums it up:

"We happened to live in unique time."

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