Time for more Q.E.?

[Steal]

The Federal Reserve President of St. Louis James Bullard has warned that current U.S. policy could lead to Japanese style deflation and that a new form of quantitative easing may be necessary, according to CNBC.

Bullard is recommending the purchase of government debt in an effort to stimulate the economy, and prevent a deflation style scenario, according to the AP.

Bullard blames the Fed's extended low rate language partially for what could become a potentially Japanese style deflationary period, and that quantitative easing programs are the U.S.' best weapon against this result.

Here's the abstract:

In this paper I discuss the possibility that the U.S. economy may become enmeshed in a Japanese-style, deácautionary outcome within the next several years. To frame the discussion, I rely on an analysis that emphasizes two possible long-run outcomes (steady states) for the economy, one which is consistent with monetary policy as it has typically been implemented in the U.S. in recent years, and one which is consistent with the low nominal interest rate, deflationary regime observed in Japan during the same period. The data I consider seem to be quite consistent with the two steady state possibilities. I describe and critique seven stories that are told in monetary policy circles regarding this analysis. I emphasize two main conclusions: (1) The FOMC is extended period language may be increasing the probability of a Japanese-style outcome for the U.S., and (2) on balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome.


link here (http://www.businessinsider.com/feds-bullard-it-is-time-to-start-talking-about-qe-20-2010-7)

[mamboni]

Jim Willie, a trained statistician, has analyzed the Treasury auctions and TIC reports and extimates that ~1/3 to 40% of the US soveriegn debt being rolled over + newly issued is being monetized!!!!! It would appear that debt and asset valuations are being destroyed faster than any new credit creation by the FED. Of course, the credit is being horded by the big banks that park it at the FED for guaranteed interest and thus finance the Treasury. This guy in St. Louis wants 'more' monetization. It seems to me that this will only blow the bond bubble even bigger. If we extrapolate this process forward in time, we reach a point where the FED owns many $trillions in T-bills, T-bonds etc. Interest rates are at all time lows like ~1%. The banks have parked $trillions at the FED and is collecting interest payments which are considerable despite low interest rates (the principle is so huge). Meanwhile, the private economy is dead as banks will not lend and companies are buffing up profits by downsizing. Unemployment is over 30% with no end in sight. Government deficits are exploding as benefit and entitlement outlays march on and tax reciepts collapse. We are at the point where the entire credit market is dominated by the US Treasury-FED-Wall Street Banks circle jerk and ultralow interest rates and huge sums of new credit being created while the private economy has collapsed. So, the $trillion question: what will burst this gigantic bond bubble that will instantly vaporize the US dollar and snuff out the US economy?

[Ponce]

I really like this part " a new form of quantitative easing may be necessary"..........specially the last three words "may be necessary" hahahahahahahaahah, or in plain English, we are in deep doodoo no matter what.

[Neuro]

So, the $trillion question: what will burst this gigantic bond bubble that will instantly vaporize the US dollar and snuff out the US economy?

I think the most likely trigger is that China announces, this is it, we are not buying any more US debt for widgets and trinkets, gadgets and melamin laced milk. Solly no have, go away, gaolin.

Of course it is entirely possible, also, that the bust will come from a truly psychological short term market event made magnitudes worse by program trading.

[mamboni]

So, the $trillion question: what will burst this gigantic bond bubble that will instantly vaporize the US dollar and snuff out the US economy?

I think the most likely trigger is that China announces, this is it, we are not buying any more US debt for widgets and trinkets, gadgets and melamin laced milk. Solly no have, go away, gaolin.

Of course it is entirely possible, also, that the bust will come from a truly psychological short term market event made magnitudes worse by program trading.


Sometimes I wonder if the Chinese bond "problem" isn't just a red herring: The FED can surreptitiously monetize $2 Trillion in just a couple of quarters. In the grand scheme of things, the Chinese bonds are small potatos, no?