• 706 days Will The ECB Continue To Hike Rates?
  • 706 days Forbes: Aramco Remains Largest Company In The Middle East
  • 708 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,108 days Could Crypto Overtake Traditional Investment?
  • 1,112 days Americans Still Quitting Jobs At Record Pace
  • 1,114 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,117 days Is The Dollar Too Strong?
  • 1,118 days Big Tech Disappoints Investors on Earnings Calls
  • 1,119 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,120 days China Is Quietly Trying To Distance Itself From Russia
  • 1,121 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,124 days Crypto Investors Won Big In 2021
  • 1,125 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,126 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,128 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,128 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,131 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,132 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,132 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,134 days Are NFTs About To Take Over Gaming?
The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

  1. Home
  2. Markets
  3. Other

Has the Fed Started QE3?

The Fed surprised the market by extending its policy of 0 to 0.25% Fed funds rate to mid-2013. The way the Fed manages to drive rates lower is to buy Treasuries with newly created money - driving the price up and the rates down. The big question is whether the policy will have a sizeable effect on markets. The chart below shows the historical jump in the Fed's combined policy tools that were used to lower rates and bail out financial institutions through a variety of programs. These include the big purchase of mortgage-backed securities (MBS) called QE1 and the large purchase of Treasuries called QE2.

The point of the extrapolation in the chart is just to guess how much more money the Fed might need to create to keep the rate extremely low for another two years. By connecting a straight line from the start of the unusual policy tool expansions in late 2008 to today's number, and then extending it to 2013, we can estimate that the policy might require about $1.5 trillion in order to keep the rate low.

0% Fed Funds to Mid-2013 Could Require $1.5T

The Fed doesn't calculate the amount of money that might be required and probably doesn't know for sure. They just keep buying on the open market until the rate comes to its target. If there were a loss of confidence in the dollar, the amount could become very large - and in the extreme, printing more money contributes to that loss of confidence, which in turn causes runaway inflation. We are not there yet. But this kind of open-ended promise is a dangerous precedent because we can't be sure of the cost of the commitment.

However, we can say that the Fed policy is to let the dollar fall and to support the bankers and politicians who want to stimulate the economy.

 


Many analysts at Casey Research foresaw the problems that are playing out today with US debt and the dropping value of the dollar. Join Bud, Doug Casey, other Casey Research experts, and special guests including John Mauldin and Mike Maloney in a free online event focusing on the American debt crisis - including how you can protect yourself and your wealth.

 

Back to homepage

Leave a comment

Leave a comment