Quantative Easing, round two may be in the cards

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crazyhorse's picture
crazyhorse
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Quantative Easing, round two may be in the cards

Zerohedge has an article hinting that the Fed may be considering QE, round 2 with approximately $5 Trillion of expansion of the monetary base.

http://www.zerohedge.com/article/evans-pritchard-announces-fed-contempla...

This number got me thinking, that if the Fed really wanted to save the economy from Great Depression, mk. 2 and kick the can a little further down the road, that $5 Trillion in new money would be enough to give every homeowner in the USA roughly $75,000 off their mortgage.  (I'm basing this off of estimate $109 Million homes in US in 2006 with 68% homeowner rate and 20% with no mortgage.)  This new money would go straight to the banks and firm up their balance sheets while decreasing debt saturation, spurring more lending and economic activity. 

Does anyone think that something like this is a possibility?

If banks continue to use their money as they did with QE, mk. 1 then I see commodity prices going sky high as the banks look to speculation for quick returns, as the economy falls apart.

Subprime JD's picture
Subprime JD
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Re: Quantative Easing, round two may be in the cards

QE part is guaranteed in my book. The question is WHEN not if. Keep in mind that the fed doesnt have many bullets left so when it does QE2 the limits of the fed balance sheet are probably around 5 to 6 trillion. After that things start to get very interesting.

agitating prop's picture
agitating prop
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Re: Quantative Easing, round two may be in the cards

Crazy Horse, 5 trillion in new money? Possible. What's the debt right now? I think it's something like 13 trillion, over double what it was 5 to 10 years ago. Piling on 5 trillion in new money, is going to devalue the dollar against other fiat currency regimes, like the euro regions, that are belt tightening. That might be the Operation Beggar Your Neighbour plan.   A much weaker dollar would kickstart manufacturing, so the employment situation might improve in the U.S. Interesting that while Geitner was pushing for quantative easing, pressure was being applied to China to allow the yuan to float.   It looks like the U.S. is going to try to get some economic traction through higher employment.  My intuition tells me, if your 5 trillion proposal has legs,  that oil as an energy source will probably be abandoned. The new push back into manufacturing will be centered around building infrastructure for alternative energy. Oil is the lynchpin. Continued reliance on foreign oil will undermine American schemes to keep their economy going, will create a very serious inflation concern. The dollar could be destined to lose 50% of it's current purchasing power, but if reliance on oil is factored into the equation, the inflationary impact will be uncomfortably more. And that's what revolutions are made of.  It's crunch time for politicians. They have to consider a narrowing number of strategies to avoid one of  the populist contingencies-- reliance on the guillotine.Smile

Subprime JD's picture
Subprime JD
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Re: Quantative Easing, round two may be in the cards

agitating prop:

A dollar devaluation would be devastating for the US. Imports would skyrocket (including oil which is vital) and would cause the retail sector to absolutely implode. With no substantial manufacturing base in the US, the pain would be felt severely amongst the lower class (the majority class) as their paycheck to paycheck existence would be put into jeopardy.

agitating prop's picture
agitating prop
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Re: Quantative Easing, round two may be in the cards
bearmarkettrader wrote:

agitating prop:

A dollar devaluation would be devastating for the US. Imports would skyrocket (including oil which is vital) and would cause the retail sector to absolutely implode. With no substantial manufacturing base in the US, the pain would be felt severely amongst the lower class (the majority class) as their paycheck to paycheck existence would be put into jeopardy.

Very good point, but....and it's a big butt. The U.S has unused productive potential in the form of labour, languishing in the financial industry, people working as massage therapists, "professional" nail painters, and untold millions designing the perfect resumes, for redundant people pursuing employment in useless jobs.  The resume drones are struggling or out of work, too.

The U.S. is capable of producing almost everything it needs, through manufacturing. It will be more costly, for sure, particularly if oil remains the primary energy sourde. But if oil alternative infrastructure is built, is part of the big picture, it would kill two birds with one stone. A plan like that would give people something productive to do, provide an appropriate fiat funnel, and address a long standing problem, once and for all. 

Will the power elite pursue this path because it's the right thing to do?  Naahhh...they'll do it because they have to. Let's call it the least worst solution! An inflationary program like this spreads money around, and makes them look like heroes, while the tears stream down their faces in cinematic, "feel your pain" moments, perfect for television! For them, what's not to like? Contrast it with austerity plans which have them all looking like Snidely Whiplash, and what do you think they'll go for?

SteveW's picture
SteveW
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Re: Quantative Easing, round two may be in the cards

A trillion here a trillion there, pretty soon you'll be talking about real money!

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