What is QE3?   Is it Ben Bernake telling the Fed to print more money, or is it more than that?  Sorry, I know I should know this.

Haven't we printed enough money that isn't really backed by anything,won't printing more just make the problem worse?  I thought things that were more rare were more valuable? 

QE 3 is the latest asset purchase program rolled out by the FED. Yes it is "printing money."

The money is created digitally and deposited into the account of whichever institution the FED is buying its assets from.

Typically the asset purchases are for government bonds.

Since Operation Twist is still in effect, where by the FED sells short term securities ( maturity of 0-5 years) and buys long term securities (maturity of 5-30 years), the supply of long term treasuries is somewhat limited.

There aren't enough US bonds to buy, at the long end of the curve, to make the kind of splash the FED is hoping for.

So they are also buying mortgage backed securities, in an attempt to prop up the housing market and socialize the losses of financial institution who made investments.

Unlike previous QE programs, this one has no end and no stated cap.

They are going to print until the economy begins to see less unemployment.

And they are going to print to keep the interest payments on the debt manageable.

So the FED has crossed the Rubicon. It is going "full retard."

So does this work?  I can't see how the government saying "let there be money" would help in the long term.  However, I am rather naive when it comes to this sort of thing (I am trying to learn more).

Quote from: JustKari on September 19, 2012, 10:50:16 AM
So does this work?  I can't see how the government saying "let there be money" would help in the long term.  However, I am rather naive when it comes to this sort of thing (I am trying to learn more).

It has never worked. Governments have done this numerous time, in various ways, and the end result is the same.

They end up destroying the value of money, which destroys the savings and wealth of the masses.

And this has the eventual effect of destroying the social division of labor- the economy.

This is how Rome weakened itself.

So you mentioned backing mortgage lenders one reducing interest payments, are those mutually exclusive, or does this keep mortgage interest rates low too?  Are they hoping to increase mortgage lending, because ruby now, banks are pretty tight rusted with lending right now (and they probably should be)?  Or am I misunderstanding? 

ETA:  thank you for answering all my questions.

Quote from: JustKari on September 19, 2012, 11:29:39 AM
So you mentioned backing mortgage lenders one reducing interest payments, are those mutually exclusive, or does this keep mortgage interest rates low too?  Are they hoping to increase mortgage lending, because ruby now, banks are pretty tight rusted with lending right now (and they probably should be)?  Or am I misunderstanding? 

They are attempting to keep the interest payments that the government pays on its bonds, low.

This affects mortgage rates, as they tend to track the rate on 10 year government bonds.

The "debt burden" under higher rates of interest would signal bankruptcy. If rates today were where they were in the 1990s, it would raise the interest payments on government debt so high that it would equal the expense incurred in fighting every war in our history, all at once. And we would have to pay this sum, every year.

So a big part of this is to keep these interest payments at manageable levels.

And they are also buying mortgage backed securities. You remember, these are the securities that blew up the economy as they were bought and sold at "par" value but are really worth much less, as they involved clever probabilistic models that hid their sub prime contents.

Essentially, they used math to conceal the risk inherent in investing in pools of mortgages- many of which went to less than credit worthy borrowers.

Quote from: JustKari on September 19, 2012, 11:29:39 AM

ETA:  thank you for answering all my questions.

You bet.

I want people to know about this stuff.

The more the masses are aware of this crime, the quicker it ends and the better off we will all be.

Okay, I can see how keeping those interest payments lower would help as a band-aide for now, those payments would be painful, but it is temporary.  Is their a more effective way of keeping those payments at a manageable level?

You mentioned they will stop printing when unemployment levels go up, do they feel that the increase in tax revenues from working Americans will replace the money they are "printing" now?

Quote from: JustKari on September 19, 2012, 12:31:57 PM
Okay, I can see how keeping those interest payments lower would help as a band-aide for now, those payments would be painful, but it is temporary.  Is their a more effective way of keeping those payments at a manageable level?

Other than reducing it and paying it down, no.

The debt is somewhere around 16 trillion. So a few fractions of a percent one way or the other can have huge implications for what is owed!

Just like a credit card, the rate of interest and your minimum monthly payment.

Quote



You mentioned they will stop printing when unemployment levels go up, do they feel that the increase in tax revenues from working Americans will replace the money they are "printing" now?

I think you are asking: "when/if employment picks up and causes higher tax revenues, will the FED destroy this newly created money?"

They claim they will but many people doubt that it will be possible, without causing a recession, for this "money" has been invested and reinvested in so many "rehypothecated" assets, that to contract the money supply would cause a cascading deleveraging process that would probably bankrupt most major financial institutions.

So, aside from raising taxes to very burdensome levels, the government has put us into a financial hole we can't dig out of.

Jeez, between this, the election, the Middle East, and having a baby any day now...I may never sleep again. 

Quote from: JustKari on September 19, 2012, 01:40:59 PM
So, aside from raising taxes to very burdensome levels, the government has put us into a financial hole we can't dig out of.

Jeez, between this, the election, the Middle East, and having a baby any day now...I may never sleep again. 

That is about the size of it.

We know they wont raise taxes as high as they need to to get out of this mess, because that would be very politically stupid.

So they will raise taxes in a hidden way, through debasing the money.

I find it sad that most Americans think inflation is rising prices, when rising prices are merely the inevitable aftermath of the Fed inflating the money supply. Even without QE3, the Fed under Dear Leader has inflated the money supply in a manner and at a pace utterly unprecedented in our nation's history. Only the continued recession/depression and the insane continuation of "free" money from the central banks has staved it off so far -- mostly -- but even that can't last forever.

Let it be said: When the Fed prints money, the government receives full current value for those "magic" dollars. But once those "magic" dollars are in circulation, they dilute the value of the entire pool of dollars, leaving you with less wealth. You still have the dollars, but they aren't worth as much. This is back-door taxation.

Educate yourself and research the history of Weimar Germany in the 1920s. They found a nifty way to pay their war reparation debts -- kinda like Ben Bernanke is trying to pay down part of ours -- and in the space of a few years found themselves printing multi-million Mark notes. In a few cases, the currency was being devalued so fast that the German government couldn't print new notes fast enough, so they resorted to "overprinting" existing notes. Here's a shot of German banknotes being used as wallpaper:



Here's the most frightening image I can muster. Keep in mind that the vertical scale uses a logarithmic scale; otherwise, you'd need a monitor several stories high to see it.

Well said, Tbone.

You are 100% correct. Inflation is not a rise in the "price level."

It is, as you say, an increase in the supply of money, which leads to higher prices as it is spent.

Another cogent point, is that the first to receive this new money get it at its full purchasing power, where as by the time it circulates and reaches the common folk, price have adjusted upward. So the masses have lost purchasing power to the holders of the new money.

We are dealing with a naked redistribution of wealth.

Tbone- you sound like you are familiar with Austrian economics, as these insights are not recognized by the mainstream "economists."

I'm not an economist, nor am I a student of economics any more. I did take the basic courses in college. But I could never be described as a student of "Austrian economics."

I'm just a guy with some common sense.

We can't just keep printing money (yeah, I know, it's electronically inserted into the economy, but...) and expect everything to come up roses. The money has to be backed by something. Since we're off the gold standard, that "something" has been the "full faith and credit of the United States." But that ain't lookin' like a very good bet these days, is it? Twice in the past year, a major credit rating agency has downgraded the U.S. government, a thing that has NEVER happened in history.

Sooner or later, the Fed has to get off its zero-interest kick. When that happens... holy shit.

Quote from: tbone0106 on September 21, 2012, 04:10:13 PM
I'm not an economist, nor am I a student of economics any more. I did take the basic courses in college. But I could never be described as a student of "Austrian economics."

I'm just a guy with some common sense.

Got it. Well, it is refreshing, because most people I have come across have completely different perspectives..



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edited by taxed -- fixed broken quote