Bernanke Announces QE3 In A Big Way

Ben Bernanke announced today that QE3 (Quantitative Easing 3) would be an open-ended round of buying mortgage securities and keeping rates between 0% and 0.25% through mid-2015. This move is the biggest and boldest of all the easing the committee has done yet. Unlike QE1 and QE2 where there were limits set to how much they would spend, and how long it would last, this time they’re just saying that they’re going to buy $40 BILLION of mortgage backed securities PER MONTH until things get better. The paragraph from the FOMC statement that sums it up best reads:

“….The Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions…should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”

While this sounds very promising for stock prices, gold prices, oil prices (virtually everything BUT the dollar), the next paragraph is scary:

If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

So what they’re really saying is, things don’t look great out there, and we’re going to keep spending until we fix it.  This truely is unprecedented.  Employment is still very weak across the country, and that’s our biggest problem.  Rates have gotten low and stayed low for a while now, and it’s still not working.  They’ve basically made up new rules with this move, and hopefully it will work.

Will this help Obama get re-elected?  It probably won’t hurt him.  But is this really what our country needs right now?  I would love to hear your comments.

2 Responses

  1. Vernon
    The Feds are really "scraping the bottom of the barrel" this time. After this, what else could they do? I feel that a big part of this move is to help obama's re-election efforts. I think that in order to get our economy moving again, the big corporations (manufacturing) have to begin to recreate more jobs in the U.S. Our country was built upon a strong manufacturing base and we have essentially lost that. I hope and pray that our leaders will do the right thing(s) and restore this country to the powerhouse that it once was.
    • Thanks for the comment Vernon, I agree with you. If corporations know that they're going to be paying more taxes next year, they're not going to hire as many people as they would otherwise. Corporations create jobs for people, we need to make the environment friendly for them. Today the media announced that Obama has been a net "creator" of jobs since going into office. According to the Labor Department, in the year following his inauguration the economy lost 4.3 million jobs, and 4.4 million jobs have been added back since then. What they failed to mention is that we need to add about 150,000 new jobs per month just to keep employment levels steady due to immigration into our country, sort of like adjusting for inflation. That means we're still about 4.8 million jobs behind where we used to be when Obama took over. And that's why our unemployment rate is still at 8.1%. President Obama can try to say he's creating jobs, but he really is "scraping the bottom of the barrel" with that claim. And one more thing, how many of those "new jobs" are paying less than what those people are used to earning? A lot of them.

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