QE 3 Revisited
America
is in a state of economic psychosis. The psychosis stems from the current polarized political
system. The political left states that the economy is back on track and headed
for prosperity for all. The political right states that the economy is waffling
and will eventually fall into second rate system.
My
goal is to summarize where QE-3 is now, and to include information from a blog
by Fabius Maximus (the name was taken from the Roman leader who saved Rome from
Hannibal). He outlines this very topic beautifully in this link. http://fabiusmaximus.com/2013/09/27/fed-qe-taper-55812/
Point
#1
Last year at this time, I
pointed out that the purpose of the QE3 was to inject $40 billion a
month into the marketplace to lift the spirits of investors and stimulate the economy. In December
of 2012 the Fed increased the amount to $85 billion/month...all with little impact. The stock market enjoyed the ride to new
highs, but true economic growth and jobs are stagnant. As Bernanke hoped, home buying increased.
Has the QE3
been a success? Yes and no.
Yes because a majority of home buying was by bankers and investors inside and outside the U.S.
No because, although the unemployment rate did drop, most of that is attributed to part-time work; additionally, more able bodied people are drawing food stamps, indicating adequate incomes are lacking. So it depends on who you are that makes it a success. However, the overall economy is still sluggish.
Point
#2
Chief economist of Nomura
Research Institute Richard Koo says that the QE3 that Bernanke instituted last
year is in a “QE trap” of the Fed’s own making. In other words, Bernanke wants
to ease up on dumping money into the market (otherwise known as tapering) but
backed off because just mentioning the idea causes interest rates to rise;
therefore, tapering would slow down the economy.
Koo explains that there is a vicious cycle.
"While rates might then
decline, reassuring the markets for a few months, talk of tapering would
probably re-emerge as soon as the data showed some improvements, pushing rates
higher and serving as a brake on the recovery."
Many
people, including me, feel that it was a bad idea from the start. It’s like a
drug addiction that at first seems wonderful and takes away the pain, but later
on has less effect, all the while encouraging the market to become more dependent upon it.
Point
#3
The
Fed has injected so much of its reserves into the system that the shock of
getting off of it will lead to negative effects, such as an increase in the national debt and
possibly hyperinflation or currency re-denomination
(not good for the average American).
Expectations.
Based
on the past several years, the current political forces complicate matters by producing
a foggy weather pattern with their polarized ideas, which only makes the economic future that much more difficult
to navigate through. However, if ruling powers (The Fed and polititians) use good sense to allow the business
sector to operate without additional bureaucratic conditions, I don’t foresee
hyperinflation or a dollar collapse, but rather a slow erratic growth.
Real
growth occurs when Americans feel optimistic, and at this juncture, there is
little chance for that to occur. However, I believe the economy stabilizes when the
people feel confident there are capable leaders at the helm working in unison.
That would mean the market may be revitalized after the next mid-term and presidential
election or a change in the Federal Reserve leadership. Only time will tell.
Understanding the QE3
Here
is a comical view of the QE2, but it still is relative to the QE3.
Other
sources:
