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Sea Change at the Fed..??
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Posted 11/13/2012 12:47 (#2694891)
Subject: Sea Change at the Fed..??

I don't know.. but something that I've been thinking about is the Fed's reaction post election.  I posted below about the Fiscal Cliff..
and I'm on record giving credit to Ben Bernanke.. None of us probably wanted to see Quant Easing.. but he probably had no choice.  Granted NOBODY has probably benefited MORE than those who posts on here..  Moi included.  With the incredible Commodity run of the past couple of years.. some of which has no doubt been fueled by the Fed.

Once again this article explains a little about Quant Easing.. and how it works.

One could theroize.. or in my case.. just flat out guess.. That the Fed has been fighting to RE-INFLATE the ECONOMY.. by RE-INFLATING the Housing Bubble that turned into a bust.  Has THAT mission been accomplished...???  If so.. then is it time to start taking away some of the Punch in the Punch bowl?

The reuters article notes that the Fed is on record for pumping $40 Billion into the Mortgage backed bond market "until the outlook for jobs improves substantially."  This is an injection of "stimulus" that should lower interest rates.. Remember as the Fed buys the bonds.. they inject $$$ into the system.. which if that was the end of it.. "could" debase the currency.. HOWEVER, as those bonds are paid OFF.. then $$$ is ALSO REMOVED from the system.  Reversing the injection for a net 0 to even a contraction of the currency adding the interest paid.

Furthermore, you have to look at the Fed at whole.. they could do SOMETHING ELSE to effect their balance sheet..Which is what you have to look at to see the overall actions..  like the magician.. watch my right hand do this while my left hand does something else..  They have many tools and they may contract their expansionary money supply somewhere else.. they are not going to just flood the economy with printed $$$ and watch the value of the dollar crumble.. at least I would not think this to be the case.. their going to adjust course as time moves along.. and maybe we've crossed a critical tipping point..??

(edit add:) From the Reuters article..

"Buying bonds expands the Fed's balance sheet. While the central bank says it will be able to shrink its giant balance sheet -- $2.85 trillion before its latest round of buying bonds begins on Friday -- without sparking inflation, it has never done anything like it before. Critics also say bond-buying enables Congress and the president to avoid dealing with looming fiscal problems by giving them a handy buyer for the nation's ever-increasing debt. Politicians in other countries have complained that U.S. quantitative easing cheapens the dollar and hurts their exports, and floods their economies with capital that is hard to absorb. The unprecedented stimulus could also draw accusations that the Fed is overstepping, ultimately threatening the Fed's independence should lawmakers move to curb its powers in response."

SO the point of this post is to ask the question.. Has the Fed changed course since the election??  If we are post a point of uncertainty.. (the elections) will the Fed NOW ACT to let a little air out of the commodity bubble...???  Is that what may be behind some of this weakness since the elections?   After all, letting inflation get out of control would ALSO drive interest rates higher.. so the Fed could EQUALLY be as concerned about this now...???
I don't know.. just asking the question.  It's all interconnected.. and a complex web it is at that.

Anyone care to comment?  

Edited by JonSCKs 11/13/2012 12:54
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