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Why QE and FOMC Tools Do Matter


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#11 CLK

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Posted 08 September 2012 - 05:44 PM

If this economy does not turn around soon, there is going to be an inflationary depression. It is almost here now. The stock market has decoupled from the economy, I know it leads, but it is not leading anything anymore. Money goes nowhere anymore. I make between 40-50k, and l am barely surviving, and that's driving an old car. Besides house payment, food and gas take almost the rest of it. Rediculous it takes this much to live. Face it folks, we are reliving almost the 1930s depression. Once in a lifetime economic collapse, retirements are going to be pushed way out.

Edited by CLK, 08 September 2012 - 05:45 PM.


#12 thespookyone

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Posted 08 September 2012 - 07:45 PM

"For me, I just follow money and leave the worry part to others to wrestle with." Ditto. That's working just fine. :)

#13 Dex

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Posted 08 September 2012 - 08:16 PM

the fallacy that the money the FED uses to buy bonds and mortgage instruments under the QEs and Twist actually gets injected into the economy.


You get it! The only mechanism available to Fed to stimulate Main Street economy is buying up
US Treasury bonds which enables the government to keep $1+ trillion deficit spending each year.
Fed can't just drop dollar bills from a helicopter.


Creating bank liquidity is not effective unless there is demand for loans from businesses. I am being
bombarded with offers to borrow money so there can't be a shortage of lending money.



Isn't the Fed providing the $ to the Gov't who then does the dropping from the helicopter?

Edited by Dex, 08 September 2012 - 08:17 PM.

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#14 Dex

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Posted 08 September 2012 - 08:36 PM

Since Bernanke has made yields of risk free instruments so low by lowering the fed funds rate and using QE tools, stocks have little competition. This is why QE3 is so important to the markets. If Ben decides to make bonds more expensive as compared to stocks, the stock market can and will continue to rally.


Here is what I don't get - tell me if my assumption is wrong about stocks up, interest rates up.

QE3 happens the way you say - stocks go up, bond prices go down, interest rates go up & hurts the economy.

This article says the effects on bonds will be muted.

http://online.barron...mod=BOL_hpp_mag

http://finance.yahoo...urce=undefined;
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#15 MikeyG

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Posted 08 September 2012 - 08:39 PM

To be sure, these ongoing comparisons with Japan really have become trite in discussions like this one as they haven't panned out as many have predicted over the last 20 years.


Not doing a comparison, just saying that sometimes that monetary does not have an affect in stocks under certain circumstances...

That is why I said the previous statement was to generalized...

#16 MikeyG

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Posted 08 September 2012 - 08:45 PM

Since Bernanke has made yields of risk free instruments so low by lowering the fed funds rate and using QE tools, stocks have little competition. This is why QE3 is so important to the markets. If Ben decides to make bonds more expensive as compared to stocks, the stock market can and will continue to rally.


Here is what I don't get - tell me if my assumption is wrong about stocks up, interest rates up.

QE3 happens the way you say - stocks go up, bond prices go down, interest rates go up & hurts the economy.

This article says the effects on bonds will be muted.

http://online.barron...mod=BOL_hpp_mag

http://finance.yahoo...urce=undefined;



If QE3 happens the Fed will be providing a backstop for rising rates...

The Fed decides to buy treasuries, just like anything there is a limited supply...

Since demand increases, price goes up, yields go down...

Not sure if this what you are asking???

#17 pdx5

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Posted 09 September 2012 - 01:19 AM

Isn't the Fed providing the $ to the Gov't who then does the dropping from the helicopter?


Great question! But the answer is....NOT SO!

Because the lion's share of federal budget is spent NOT on building infrastructure, Not on buying hi-tech military hardware, NOT on research of futuristic products & processes, NOT on developing new pharmaceuticals....etc....That is why the Trillion dollar deficits are not reviving the economy.

Lion's share of federal budget is spent on writing checks to people. Those checks are small and are spent mainly on consumption of necessities. It is NOT a capital forming process NOR productivity enhancement process, which result in wealth creation. Only real wealth creators are manufacturing, agriculture, mining and applied research. Retail consumption is not a wealth creator if stuff is mostly imported from other countries.
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#18 Dex

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Posted 09 September 2012 - 10:30 AM

Isn't the Fed providing the $ to the Gov't who then does the dropping from the helicopter?


Great question! But the answer is....NOT SO!

Because the lion's share of federal budget is spent NOT on building infrastructure, Not on buying hi-tech military hardware, NOT on research of futuristic products & processes, NOT on developing new pharmaceuticals....etc....That is why the Trillion dollar deficits are not reviving the economy.

Lion's share of federal budget is spent on writing checks to people. Those checks are small and are spent mainly on consumption of necessities. It is NOT a capital forming process NOR productivity enhancement process, which result in wealth creation. Only real wealth creators are manufacturing, agriculture, mining and applied research. Retail consumption is not a wealth creator if stuff is mostly imported from other countries.



OK - Thanks - I can buy into that. Much of the money you mention goes overseas to those who make what people buy at the retail level. And, money spend on the wars doesn't move the economy much. Neither help the economy or the employment rate in the USA.

Edited by Dex, 09 September 2012 - 10:40 AM.

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#19 Dex

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Posted 09 September 2012 - 10:36 AM

Since Bernanke has made yields of risk free instruments so low by lowering the fed funds rate and using QE tools, stocks have little competition. This is why QE3 is so important to the markets. If Ben decides to make bonds more expensive as compared to stocks, the stock market can and will continue to rally.


Here is what I don't get - tell me if my assumption is wrong about stocks up, interest rates up.

QE3 happens the way you say - stocks go up, bond prices go down, interest rates go up & hurts the economy.

This article says the effects on bonds will be muted.

http://online.barron...mod=BOL_hpp_mag

http://finance.yahoo...urce=undefined;



If QE3 happens the Fed will be providing a backstop for rising rates...

The Fed decides to buy treasuries, just like anything there is a limited supply...

Since demand increases, price goes up, yields go down...

Not sure if this what you are asking???


OK I think I understand what you are saying above about a "backstop".

What I was thinking about is your first statement that stocks continue to go up. Because my thinking is that as stocks go up, interest rates go up and the FED doesn't want that.

I can see the FED action as being a "Backstop" - meaning keeping rising interest rates in check. But, to my way of think; stocks would level out, or growth in stock prices would slow considerably.
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#20 Dex

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Posted 09 September 2012 - 10:42 AM

Double post

Edited by Dex, 09 September 2012 - 10:43 AM.

"The secret of life is honesty and fair dealing. If you can fake that, you've got it made. "
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