Qe3 is the Federal Reserve letting Americans know the Depth of the Economic Problems

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Published on January 28, 2014

Author: ZiadAbdelnour1

Source: slideshare.net

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the Federal Reserve (Fed) announced a third round of money printing, or Quantitative Easing 3 (QE3). This round of money printing has a dramatically different twist and message attached to it, as it has no expiration date or limits. Clearly, the Fed’s stated objective of a sound currency is now taking a back seat to stimulating the economy.

QE3 Is The Federal Reserve Letting Americans Know The Depth Of The Economic Problems? The Federal Reserve (Fed) announced a third round of money printing, or Quantitative Easing 3 (QE3). This round of money printing has a dramatically different twist and message attached to it, as it has no expiration date or limits. Clearly, the Fed’s stated objective of a sound currency is now taking a back seat to stimulating the economy. Today, the question remains whether or not this latest attempt to stimulate the economy will work, or will it be remembered as just another desperate attempt by the Fed to save a broken system. The outlined plan of QE3 states that the Fed will purchase at least $40 billion worth of mortgage-backed-securities each month until unemployment numbers are satisfactory. It is interesting that they have not defined what a satisfactory level of unemployment is, but based on historical statements released by the Fed, they are likely looking for levels somewhere between 5% and 7%. Many are calling this QE program, QEternity due to the lack of end date and limits on the program. Open-ended money printing could be considered positive from the perspective of stock markets, since the message delivered by the Fed is clear that they will do whatever necessary to prop markets up, and continue the illusion of recovery.

Interestingly enough however, markets to this point have actually seen declines since the announcement. Major US indices are down between 6 and 8% in the two months following the announcement, despite prior consensus that prices would rise like they did following QE1 and QE2. The effect of QE programs are losing their marginal effectiveness, and require larger injections, only to see lower marginal returns each time. As you can see on the following chart of the S&P500, QE programs 1 & 2 have resulted in diminishing returns. The Feds are clearly aware of this troubling pattern and as a result implemented QE3, which is the most significant version of their stimulus to date. Read More: Is The Federal Reserve Letting Americans Know The Depth Of The Economic Problems? Thank you Ziad K Abdelnour

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