“Goldman Sachs expects, next month, for the Fed to come out of their policy meeting announcing QE4. It will be a purchase of $45 billion each month in Treasuries. This number will be in addition to the already existing QE3, which is $40 billion per month in mortgage-backed security debt.
But in a sense, Eric, QE4 is going to be a replacement for Operation Twist. Operation Twist was designed to push down the long end of the curve in order to keep interest rates artificially low….
Chicago Federal Reserve Bank President Charles Evans, who rotates into a voting seat on the Fed’s policy-setting panel in January, also said the Fed should step up its program of quantitative easing in the new year to keep its overall level of asset purchases at $85 billion a month for most, if not all, of 2013.
“It’s important to maintain the overall level of asset purchases at $85 billion, at least for a time until we can see whether or not we are doing better or things are going more slowly, and we can adjust, depending on that assessment,” Evans told reporters attending a speech at the C.D. Howe Institute in Toronto.
“But here we go, now we’re talking about an additional $85 billion each month. This is fresh purchases of Treasuries. Here’s what is interesting, Goldman Sachs expects that to continue all the way through 2013. So do the math, that’s more than $1 trillion worth of QE for 2013.
In 2014, Goldman believes the economy to pick up. They believe there will also be a drop in unemployment at some point in 2014 which will allow the Fed to drop those $85 billion in purchases back down to $50 billion each month. So you are talking about $600+ billion for 2014.
Goldman expects this to continue all the way into 2015. So we are looking at close $2 trillion of QE over the next couple of years. Keep in mind this is already in addition to the $2.5 trillion of QE1 and QE2. We are talking about close to $4.5 trillion which has been and will continue to be manufactured out of thin air in order to keep interest rates artificially low.
Goldman also predicts there will be no change in the Fed’s interest rate policy until 2016. So we are talking three full years, 2013, 2014, and 2015 where we will have these near zero interest policies from the Fed.
So you take that near zero interest rate environment, with negative real interest rates, plus close to an additional $2 trillion of upcoming additional QE, and QE4. The Federal Reserve is going to keep printing and printing and printing and things are not going to get any better.
Those running the Fed have essentially used up all of their bullets and the next great financial crisis has not even fully erupted yet.
Sadly, the truth is that money printing is not a “quick fix” and it never has been. Just look at Japan. The Bank of Japan is on round 8 of their quantitative easing strategy, and yet things in Japan continue to get even worse.
You never know, by the time this is all over we may see QE4, QE5, QE Reloaded, QE With A Vengeance and QE The Return Of The Bernanke.
Meanwhile, Europe is gearing up to print money like crazy too.
A couple months ago, European Central Bank President Mario Draghi made the following pledge….
“Within our mandate, the European Central Bank is ready to do whatever it takes to preserve the euro, and believe me, it will be enough.”
And of course the Bank of Japan has joined the money printing party too. The following is from a recent article by David Kotok….
The recently announced additional program by the BOJ includes a fifty-percent allocation to the purchase of ten-year Japanese government bonds. The other fifty percent will buy shorter-term government securities. Thus, the BOJ is applying half of its additional QE stimulus to extracting long duration from the government bond market, denominated in Japanese yen.
All of the central banks seem to be getting on the QE bandwagon.
But will this fix anything?
Unfortunately it will not, at least according to Paul Volcker….
“Another round of QE is understandable – but it will fail to fix the problem. There is so much liquidity in the market that adding more is not going to change the economy.”
This is the “most extreme easing of monetary policy” he could recall. Mr Volcker’s comments came as the World Trade Organisation intensified the economic gloom by slashing its global growth forecasts.
Sadly, most Americans have a ton of faith in the people running our system, but the truth is that they really do not know what they are doing.
Just check out what Dallas Fed President Richard Fisher said the other day….
“The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course. And nobody – in fact, no central bank anywhere on the planet – has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank – not, at least, the Federal Reserve – has ever been on this cruise before.”
But that’s not going to hold the Fed Back.
“There’s strong hints that they’ll do Treasurys next,” Joe LaVorgna, chief economist at Deutsche Bank Advisors, said in a phone interview from London. “They’re pulling out all the stops to try to get this economy to gain some traction and, most important, to get unemployment down.”
The experts say that quantitative easing destroys the economy and – despite the initial optics of it – hurts the little guy.
But at this point the Federal Reserve has already “jumped the shark”. If you don’t know what “jumping the shark” means, you can find a definition on Wikipedia right here. Whatever shreds of credibility the Fed had left are being washed away by a flood of newly printed money.