QEIII: It’s ON, bitches! (Text updated with more details)
Ben Bernanke, the Chairman of the Federal Reserve, announced today that the Fed will embark on another round of Quantitative Easing, beginning immediately. The Fed will increase its holdings by an estimated $85 billion per month in securities, about half of which will be long-term Treasury bonds, and the remaining $40 billion or more will be agency mortgage-backed securities. The agency paper will be purchased with new cash, while the long-term Treasuries will be acquired in exchange for short-term Treasury paper, as a continuation of Operation Twist.
There is no ultimate target amount or end date specified for this round of easing. Essentially, the Fed will buy or exchange $1 trillion in securities per year, until chairman Bernanke says to stop. It is completely open-ended. Additionally, the Fed expects to keep interest rates at or near 0% until sometime in 2015.
Let’s be clear about what this announcement means: The Fed will print $500 billion per year in new money, and inject it into the economy by buying agency paper (Freddie Mac, Fannie Mae, et al.), while also flooding the market with $500 billion of short-term paper in exchange for long bonds. That new money is not based on any realistic estimate of economic growth, or economic requirement to expand the money supply. It is pure, Keynesian monetary stimulus.
This will, of course, be done in a completely responsible way, and there is no threat whatsoever that this will cause an increase in inflation, and in any case, the Fed is fully prepared to sterilize this move at any time conditions warrant. Seriously, it’s best for the Fed to do this, and nothing could possibly go wrong.
Some may disagree.
Anyway, here’s some video of the first round of this open-ended QE being implemented:
Image via Max Keiser