do you think the FED will do QE3 sometime this year?

Bernanke to Cue QE3 in April?
http://www.wealthwire.com/news/finance/2914?r=1

 

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gulp... I hope not.

 

Jim Rogers from February:

http://jimrogers-investments.blogspot.com/2012/02/qe-3-is-already-taking-place-look-at.html

Have a look:

http://www.federalreserve.gov/releases/h6/current/



http://research.stlouisfed.org/fred2/series/M2NS

Possible QE3?

 

If we have a QE3, then say goodbye to any slight recovery the economy has made up to this point. Its already bad enough that we're likely going to see some pretty major inflation over the next 10 years or so. You'd think Bernanke would be smart enough not to do that.

 

Can one of you sophisticated gentleman explain to me what QE3 is and what it will do to the US?

 

M2 alone does not prove or disprove that QE is taking place. I think there is a fundamental misunderstanding of how QE works. I'd take care in drawing conclusions from these types of blogs unless they themselves provide exactly how they got to their conclusions. Otherwise you are simply taking their opinion as your own.

 

All I would add, and not trying to derail the conversation, is be careful about those kinds of graphs. The nature of the graph is to show parabalic growth. Reset that graph back to 1960 and I be you would be alarmed by the parabalic growth it was showing then as well.

Always remember there are lies, damn lies, and statistics. If you see a chart like this do not jump to the conclusion that its showing something running amok. Its a common presentation tactic that many like to use to scare people. The exact same chart has been scaring people for decades now.

If someone wishes to get into the boring details why this chart always looks that way I can, but its boring. I am simply saying go further and look at the source information. Maybe there is a problem, but do not simply get your answer from a chart like this.

Chris

 

Right. If you take such a chart and refer to it in percentage-increase terms, then OMG, Reagan's term had a 100% increase in M2! while Clinton's terms saw only about a 40% increase and from 2008 to 2012 it's only been about a 25% increase. But it looks worse, visually, on the chart.

 

Actually resetting that graph back to 1960 would make the problem appear far worse. I think it's also bad business to simply dismiss a tool because it can be misused by some to show different results. There are no sweeping generalities to this.

 

Yes there is, and it was even a lecture of mine I gave. Personally I think its bad business to dismiss what I wrote without asking for the details if you disagree.

For those who wish to learn, fast forward this chart 50 years. When they will be labelling the axis in hundreds of trillions of dollars, this last 6 years will appear to be nothing. Go back to 1960, and you would have to relabel the axis in hundreds of millions, and it will appear parabolic just like this one does. It is the nature of these graphs to show parabolic growth inherently due to them treating dollars as static figures, and not indexing it to relative worth in the past.

I GUARANTEE if you index the dollars to a relative worth you will not see a parabolic shape like this. It is completely a function on how this type of graph works, and how it is completely the wrong type of graph to use with historical cash. Anyone who ever uses a graph like this to try to "understand" something has "sucker" written on their forehead.

Not trying to make you feel bad PMBug about you posting it, I am just clarifying for those who say it is useful. This applies to all graphs of this nature, always has, always will, as long as there is inflation.

Chris

 

Pretty sure that Rogers is referring to QE in the broader context of "money printing" - expanding the money supply. But I could be wrong. I didn't search for the Fed's balance sheet report to confirm his other claim (which would be more in line with a technical definition of QE).

 

medoraman - you may be comfortable conceding that it's natural and expected for money supply to grow exponentially, but I'm not.

 

But is it exponential? Look at Ctrl's post in #8. I see it growing, but do not see exponential functionality at play.

I am a harder money kind of guy to most people, but seem to be painted as an "economic liberal" on this board lol. I firmly believe in having a portion of a portfolio in PM, and have had it for over 20 years now. I am simply pointing out a common misconception of graphs like this sir. The EXACT same graph was shown in the late 70's "proving" the US was about to default, the EXACT same chart was show by Ross Perot in the 90's "proving" the US was about to default. I am not old enough, but I imagine someone in the 60's was probably also "proving" it then as well.

Chris

 

You are the one who claimed the graphs showed parabolic growth.

 

I was saying it appears to, and many people accept that, this graph shows parabolic growth. However, its a deficiency of the graph and the nature of how it treats dollars as static values, rather than reality. That is what I was intending to convey sir.

 

There is "money printing" , but M2 is the money that is created by fractional reserve banking being performed by the member banks of the Federal Reserve system. M2 is supposed to be limited by the reserve amounts that each individual bank has on deposit at the Federal Reserve. In other words, a bank can't create infinite amounts of currency as it is limited as a multiple of it's reserve. Usually 9X. So in simple terms, if a bank has a $1000 reserve, it can create $9000 of currency. M2 = $9000. M2 /=$10,000 which I will explain in a minute. The $9000 is created by issuing loans to people.

Banks can increase their reserves the old fashioned way by attracting depositors. They used to do this with decent interest rates, free toasters, and suckers for the kids. They can also do it by borrowing from each other and directly from the Federal Reserve. Of course in the real world it's hugely more complicated, but this is the basic operational premise.

While the Federal Reserve doesn't directly create M2 is is directly responsible for the Monetary Base, or MB. MB includes all the reserve deposits from the member banks and this reflects the real economy. (or it once did) For every $ in the MB there has to be an underlying asset to balance it. On the Federal Reserve's real balance sheet you will notice this includes US Treasury debt and gold certificates backed by the gold siezed from the people by FDR in 1933. The point is the law requires the Fed to back all MB by real monetary assets, and the size of MB limits the total size of M2 (or M1, M3, whatever) The $1000 that I mentioned above is actually part of MB.

The Federal Reserve is not supposed to directly create M2 money, but it's actions can directly create how big M2 grows. It's favorite tool for this adjustment is the interest rate. Until the last 2-3 years, for it's entire existence the Fed would raise interest rates, which then makes loans more expensive, and M2 shrinks. Likewise M2 can be increased by lowering interest rates. The Federal Reserve tries to stimulate the economy out of recession by lowering rates and hence money flows into the economy, and we have another economic boom. It will try to slow things down by removing money. It no longer works this way. Allan Greenspan broke it, and it's not coming back.

The problem the Federal Reserve finds itself in now, is the economy isn't getting better and unfortunately, it's reduced the real interest rate ot 0%. It can't go lower lest they pay interest to people to take loans. Since it can't lower rates then it lost it's tool to control the real money supply, M2. This is where QE, a particularly insidious and dangerous technique invented by the Japanese central banksters in the 90s who faced the same problem, comes in. The problem however is that it's very difficult to examine QE in action, because it involves an underhanded method to first increase the MB with fake money. The monetary base is the key and this is what is missing from these QE arguments that only look at M2. I won't explain how QE works as this post is long enough but hopefully this helps some.

 

Thank you Fatima for the explanation. I followed it...I think. It sounds very complicated. It is a lot for someone to keep track of. I bet you there might be ways they (banks?) could sneak around those numbers, yes?

Personally, I would like it if interest rates were raised. That, however, is a different topic.

Hope someone finishes up by explaining QE workings.

Lucy

 

Not really. Forgetting the TBTF banks, the remainder of the banks in the USA are all private companies and they are expected to follow federal and state laws that regulate banking and corporate accounting. If they fall below their reserve requirements, the FDIC, can and often does will close the bank and transfer its assets to another bank. Since the economic collapse of 2008, there have been hundreds, it might be in the 1000s by now, small banks closed. They made too many bad loans on housing and cars but unlike the TBTF banks, the big boys have no interest in bailing them out.

 

Not formally unless there is a real crisis requiring it. It probably doesn't matter what the FED does, most of the Austrians are seeing default in the next few years.

Casey Research has been interesting lately.

(Click on image to enlarge)​

According to Shlaes, US inflation was 1% in 1915
(based on an earlier version of the CPI-U). Over just two years, it hit 17%. As
she states, it happened because the Treasury "spent like crazy on the war,
creating money to pay for it..."

Given the fact that our spending and
money-printing is now out of control, I projected what our inflation rate would
be if we matched the inflation rates of these time periods. The first striped
bar to the right represents what the CPI would register if we matched the 1940s
rise. Inflation would hit 19% by 2014. (Yes, the CPI has been tinkered with many
times, but this is at least what "unofficial" or "authentic" inflation would
register.)

In 1945, the official inflation rate was 2%. It
accelerated to 14% in 24 months. If we matched this percent rise, we'd hit 15%
by 2014 (middle striped bar)..

And the example that kicked off the greatest bull
market in gold and silver, the early 1970s. The CPI stood at 3.2% in 1972, a
level close to ours today. It soared to 11% just two years later. Mimicking this
rise, the third striped bar shows we'd also be at 11% in 2014. (Shadow Stats says we're already at
10% based on 1980 methodology, so from this level we'd hit 17% in 24
months.)

Could we really have inflation that high within
two years? Consider the following:

• Fox Business reported on March 7 that "wages grew much more quickly at the
  end of last year than originally estimated..." This is an important data point
  because most economists believe you can't have higher inflation without rising
  wages.

• Commercial and industrial loans have risen 14% year over year, and business
  and consumer spending are in an uptrend.

• Home-building permits are at their highest point since October 2008.
  Existing home sales fell 0.9% last month, but that's after January sales were up
  4.6%.
• Jobless claims are coming down, retail sales gained the most in five months,
  and auto sales were up 16% last month. One report I read stated that we've had
  24 consecutive weeks of stronger US data.

If the
economy continues to improve and more money is sloshing through the system, it's
easy to see how inflation could grab hold. Yet, if you understand Austrian
economics, you'll look beyond how the mainstream views inflation and to its root
cause: monetary debasement.

• The US monetary base stands at $2.72
  trillion, a 168% increase since October 2008.

• The national debt in the US has
  risen by a whopping $4.9 trillion just since Obama took office. It now stands at
  $15.5 trillion.

• The US budget deficit this year is
  projected to be over $1.3 trillion, an obscene amount that exceeds the
  entire annual budget of just 20 years ago.

• According to ISI Group, there have
  been an incredible 122 "stimulative policy initiatives" from central banks
  around the world over the past seven months.

Remember,
in these historical examples, inflation was initially low and therefore
off everyone's radar. But government tinkering with the monetary system lit the
spark that led to a sudden and rapid rise in inflation. It caught many off
guard, just like I suspect it would now. Don't think there
are no consequences to our unwise fiscal and monetary course; a potentially ugly
tipping point is more likely than not at some point.

Given the abuse most fiat currencies are
undergoing around the world today, coupled with obscene amounts of deficit
spending, I think gold should be viewed not just as a potential moneymaker but
as protection against the rabid inflation that will invariably damage our
economy and dilute our pocketbooks. If
you think deflation is next, I'll accept that argument - for a time - if you
accept mine, that the Fed would almost certainly panic at
another deflationary event and print to the max. This is why we're convinced
that inflation, à la currency dilution, is inevitable. (Harry Dent,
best-selling author of The Great Crash Ahead, is convinced deflation
poses our biggest economic threat, while Currency Wars author James
Rickards believes inflation is the real danger. You can hear them debate
the issue - and participate as a member of the audience - during the
Inflation-Deflation Face-Off program at the upcoming Casey Research Recovery Reality Check
Summit.)

 

Being neither sophisticated or a gentleman I'll just point at this http://www.youtube.com/watch?v=PTUY16CkS-k