Effect of Small or No QE2?

This is a discussion on Effect of Small or No QE2? within the Economic & Fundamental Analysis forums, part of the Methods category; What's the effect of small amounts of quantitative easing, instead of 1 trillion, 500 billion as presumed? I'm thinking short ...

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Old Oct 26, 2010, 10:44pm   #1
 
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Effect of Small or No QE2?

What's the effect of small amounts of quantitative easing, instead of 1 trillion, 500 billion as presumed?

I'm thinking short something(?) and long commodities in this scenario. I'd make a case for banks or autos, but they're sitting on plenty of excess reserves. Short municipal and corporate bonds?
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Old Oct 27, 2010, 1:56pm   #2
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Re: Effect of Small or No QE2?

If the market is "disappointed" by the QE plan - meaning not as much as thought - the dollar will likely rally. At the same time Treasuries, stocks, and commodities will likely sell-off. It's the opposite of what we've been seeing the last few weeks.
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Old Oct 27, 2010, 2:31pm   #3
 
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Re: Effect of Small or No QE2?

Have you thought out who really benefits from QE ?
No ?
Well it's obvious really - the bankers of course

The Govt prints out more and more money for the banks to lend. So the banks make their cut on the loans and bankers make even more on their yearly bonuses of millions.

Just for a change I would like to suggest the Govt prints out the money and gives it to the poor to spend thus stimulating the economy in all directions ( even the banks would benefit )

will they do it ?

Hardly likely the mean s*ds


The bankers must be thoroughly exhausted trying to spend more and more millions chucked at them !! So why not have a little more heart for Christmas " Call-me-Dave" ??
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Old Oct 27, 2010, 2:41pm   #4
 
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Re: Effect of Small or No QE2?

Your proposal would imply that the govt determines who's worthy, who's "poor" etc. I thought we don't like these sorts of things? Govt meddling in private mkts and that sorta thing?
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Old Oct 27, 2010, 2:57pm   #5
 
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Re: Effect of Small or No QE2?

Would likely just result in rapid inflation anyway as retail sector ups prices to scheme away the extra moolaa off of J Public so wouldn't work without price control too... Comrade lol
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Old Oct 27, 2010, 6:22pm   #6
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Re: Effect of Small or No QE2?

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Just for a change I would like to suggest the Govt prints out the money and gives it to the poor to spend thus stimulating the economy in all directions ( even the banks would benefit )
We've done this in the States. We sent out tax rebate checks basically to anyone who'd filed their taxes for the previously year. I think the amount was on a sliding scale based on income, with adjustments for kids. Didn't work. Research indicated it mostly went to savings and/or paying down debt. While that has obviously benefits in terms of the overall health of private sector finances, it did not stimulate demand as intended.
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Old Oct 27, 2010, 6:47pm   #7
 
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Re: Effect of Small or No QE2?

PJ O'Rourke's views are interesting and maybe not just comical

He says he votes Republican every time because they have fewer ideas. Even tho he says they are a load of idiots.

That said the clever Dems are even worse, he says. Give every department to the most talented person in that field for a guaranteed c*ck-up.

I think the central core theme of his is to leave the economy well alone - it will look after itself a whole lot better. The tax code book is so complicated nobody understands it. It should be reduced from 10.000 pages to 1.

DONT VOTE IT JUST ENCOURAGES THE B*STARDS is his latest book
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Old Oct 27, 2010, 9:45pm   #8
 
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Re: Effect of Small or No QE2?

Goof started this thread Good points, Fed will likely print money. I assume you guys mean a short term ralley in the dollar? Can't wrap my head around debasing a currency relative to other currencies, driving up inflation in the US, and not having commodities run up higher in the long term.

Where's the inflation relative to the trillions already printed?

Fed wants to continue purchasing all those MBS's and bonds, from the busted banks and treasury. Banks still believe cash is king in a deflationary environment. Maybe they want to drive down real estate another 20-40% to it's historical trend, and then inflate their way out.

Maybe they purchase some batches of treasuries without printing an equal amount of dollars - sounds moronic but they do own the yield curve. TIPS were sold at a negative yield yesterday. Yields are too low to keep investors buying indefinitely. How would bond prices and yields rise simultaneously?

Fed is going to continue propping up the stock and bond markets, but maybe at a slow monthly rate of QE.

Maybe we're in a deflationary environment with inflation creeping into certain sectors.

Thoughts?
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Old Oct 27, 2010, 10:24pm   #9
 
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Re: Effect of Small or No QE2?

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Originally Posted by Goof View Post
Maybe they purchase some batches of treasuries without printing an equal amount of dollars - sounds moronic but they do own the yield curve. TIPS were sold at a negative yield yesterday. Yields are too low to keep investors buying indefinitely. How would bond prices and yields rise simultaneously?

Fed is going to continue propping up the stock and bond markets, but maybe at a slow monthly rate of QE.
This doesn't make a lot of sense...
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Old Oct 27, 2010, 10:38pm   #10
 
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Re: Effect of Small or No QE2?

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I think the central core theme of his is to leave the economy well alone - it will look after itself a whole lot better.
Didn't we try this "leaving the economy well alone" thing with the mtge market?
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Old Oct 28, 2010, 10:27am   #11
 
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Re: Effect of Small or No QE2?

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Didn't we try this "leaving the economy well alone" thing with the mtge market?
Good point imho. Not all political meddling is wrong just most of it.

The method of passing a bill in the USA could take some repairing. It goes in as one thing and comes out the other end with all sorts of crap attached to bribe its way through - what a system !! Eventually the country is over burdened with all these local bills that would never get passed on their own.

Most of the world's politicians could benefit from a big dose of integrity too
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Old Oct 28, 2010, 10:34am   #12
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Re: Effect of Small or No QE2?

whats the point in giving money to a load of morons who dont know anything about basic household budgeting. I wouldn't even give them the vote without some kind of basic literacy test.

I am sick and tired of all this whingeing about bankers, if you borrowed the f*cking money take some responsibility. Bankers are not there to hold your c*ck while you pee, if you can't budget your own household income and have no protection in the event of illness or redundancy - tough sh*t.
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Old Oct 28, 2010, 11:08am   #13
 
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Re: Effect of Small or No QE2?

yes jsc just as the populous is not there to hold the c*cks of a bunch of to055rs who by way of employment owe a duty of care to everyone involved in the economy in which they operate. They take excessive risks to inflate their own p60 and the ordinary taxpayer foots the bill.

These people are rewarded very well for their work which is built upon the backs of many who are far worse off so the least they should be doing is acting responsibly and professionally.

I just hope the Tories crack down on this type of bad practice as hard as they are coming down on current welfare systems. maybe then we'll actually get somewhere. Unlikely though.

Should investigate estate agent rackets too.
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Old Oct 28, 2010, 2:30pm   #14
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Re: Effect of Small or No QE2?

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Originally Posted by Goof View Post
Maybe they purchase some batches of treasuries without printing an equal amount of dollars - sounds moronic but they do own the yield curve.
The only way the Fed could avoid increasing reserves in the money system when they buy Treasuries is to drain them some other way, like the way the ECB sterilizes it's bond purchases by auctioning short-term deposits.

Quote:
How would bond prices and yields rise simultaneously?
I hope this isn't a serious question.
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Old Nov 2, 2010, 11:52am   #15
 
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Re: Effect of Small or No QE2?

I think whatever size the Fed do it going to have the same effect, unless it less than 500 bln that is, Treasuries will initially rally maybe on the evening and a little through asia but coming into year end, they will get sold down as this event has past and people will look towards inflation. Im heraring a couple of houses looking to put on steepeners buying the EDU1/EDU2 spread after the fed announcement whatever the result will be. Probably look for a Santa rally in equities aswell .
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