Chairman Bernanke insisted “It is time to throw out all the stops. We’re going for broke. We will buy anything for sale. You name it, we’ll buy it.”
He admitted that the Fed has been secretly buying equities through its dealer banks. QE4 is going straight to Wall Street. Bernanke argued “Look, if several Trillion dollars of Fed purchases of stocks won’t push the Dow to 45,000, I don’t know what would.”
Bernanke said the Fed will also stand by to purchase homes. He’s heading to Detroit tomorrow to see what’s for sale.
The NYFed is looking to buy the Brooklyn Bridge if anyone knows its current location. The Dallas Fed is bidding for the Cowboys Cheerleaders. The San Francisco Fed told the Humboldt County Pot Growers Association that it would only buy medicinal grade while it awaits a legal opinion determining whether its independence includes immunity from prosecution for felonious trafficking.
Apparently misunderstanding Bernanke’s directive, the KC Fed has offered to sell the Royals.
When questioned where the Fed would find the money to fund QE4, Bernanke responded: “We learned from the first three phases that we can’t run out. Trillions, Quadrillions, Whatever! We’ve got the Magic Porridge Pot. When we want more, we just keystroke it.”
He refused to put time limits on this new phase of QE: “No, it will never end. We’re going to buy everything. The whole damned planet. Some stars, too. I want to buy some Black Holes. Those things are dense; you can stuff a lot of money into them.”
Reflecting on a world in which the Fed owns everything, Bernanke said “Yes, that’s the logical conclusion. The end game. And here’s the best thing about it: we’re independent. We should have thought of this a long time ago.”
In other news……
This morning I saw a very nice quiz concocted by a financial markets guy. I don’t want to get him in trouble so will borrow heavily from him but without attribution. If you can get this right, then you know why Quantitative Easing One, Two, and Three is a big bunch of baloney.
Consider the following thought experiment. These are the scenarios; what is the expected result of each?
A. The Treasury decides that it will fund itself 30% more in Overnight Bills and reduce bond issuance across the curve.
B. The Fed announces it will increase QE by 30% (it will remit the net income of this activity back to the Treasury)
C. Congress announces a new tax on all passive income from USTreasuries, to holders both at home and abroad (ie Central Banks), for all new-issue USTreasuries. The tax will be equal to 30% of the return in excess of the fed funds rate
D. Treas Secty Lew pre-announces that we will ‘selectively default’ and apply a haircut of 30% on all future Treasury coupon payments of new issues in excess of fed funds rate.
What will be the likely effects of each policy? Don’t peak!
OK here is what the markets guy (rightly) says:
Here’s what’s funny. Most intelligent market participants will say things like:
A. Stocks down a few percent on fear of US debt downgrade. Economy slightly weaker or unchanged.
B. Stocks up 5-10% and economy grows another 1% for 1-2 yrs; monetary stimulus.
C. Stocks down 5-10% on tax hike (like last year) that maybe corrects. Economy slows 1-2% for a year or so because it’s a tax hike (ie fiscal consolidation).
D. Stocks down 80% and we go into a great depression on steroids. All investment dollars flee the US. I can’t tell you what happens next because my Bloomberg account gets shut down. They might even declare an Internet Holiday.
Here’s what’s craziest: THESE ARE ALL THE SAME THING. The name and the processes are different, the OPTICS are different, but the net is the same. There’s the government and there’s everyone else. The government either pays more out – in interest payments or transfer payments or vendor payments, or it takes back more in taxes or default or interest ‘savings.’ Everything the government net gets in ‘revenue’ the rest of the world loses in income. Everything the government dissaves (deficits) the rest of the world saves. Equal and opposite.
Now, there’s someone who understands monetary and fiscal policy! It’s MMT all the way.
One can only hope that someday, somehow, some way, the Fed will eventually understand what the heck it is doing.
Buying Treasuries at best has a negative impact on the economy as it reduces interest income. Buying toxic waste MBSs off the balance sheets of banks might reduce their balance sheet insolvency, but does nothing to stimulate the economy. (It also teaches banksters the wrong lesson: Uncle Ben will always clean up your mess, so make another one!)
If the Fed really did start buying houses, that could help. If it bailed out indebted households that almost certainly would help. If it started hiring the unemployed, we could end this crisis in about a week. Buying bridges, cheerleaders, or black holes would be a much less efficient way to stimulate the economy, but one could envision transmission mechanisms that would allow that to work, too.
Not that I think the Fed is actually going to do that. Because it doesn’t know what it is doing.