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More Liquidity on the Way

Monday, October 25, 2010, 4:07 PM
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The most anticipated announcement of the year - perhaps too anticipated (sell the news?) - will answer the question, "How much new money will the Fed decide dump into the situation at their next meeting?"

Estimates range from a low of $500 billion to as high as $4 trillion. In the middle of the range is Bill Gross of PIMCO, who thinks the Fed needs to buy around $100 billion a month of US Treasuries (effectively monetizing the entire US deficit next year), while the high end is claimed by Jan Hatzius of Goldman Sachs, who makes the case that the Fed's own "Taylor Rule" requires them to buy $4 trillion if they wish to close the apparent gap that exists between that rule and economic reality.

What began as a temporary rescue operation by the Fed and the feds to try and perform a normal Keynesian jump-start operation on the economy is now a permanent fixture without which the markets cannot operate.

 

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