QE causes asset values for commodities to rise. This is the benefit of QE, not for the man on the street. QE in the beginning did help stocks and caused a mild upturn in the job picture. But the cost of living rises while wages in a global society don't. The wage increases that these Nominal GDP guys like Scott Sumner wants, in order to counteract the increase in commodity prices, like oil and food, will not be passed onto workers in a global society.
Ultimately this will hurt the American consumer, and it will benefit only the rich. Therefore, if the Fed does this there needs to be a wealth tax in order to offset the extra wealth flowing to the rich through too much QE.
The Fed announced on 9/13/2012 that it wants another housing bubble. Well, actually, the Fed announced that it would purchase unlimited Mortgage Backed Securities.
Mortgage Backed Securities, or MBS, allow irresponsible banks to offer easy money loans and pawn them off to unsuspecting investors. In this case, the pawn receiver is the Fed, who will be the buyer of all these securities.
Now, one presumes that the Fed is trying to jump start the business of securitization. They will buy 1/2 of the securitized bonds. Once the Fed is up to its eyeballs in these bonds, will the private sector jump in as the Fed pulls back? That is the question. And if the private sector jumps in, will there be government guarantees, as the Fed and the TBTF banks and the IMF want?
Securitization of long duration mortgages gives the TBTF banks, their shadow banks and the hedge funds the opportunity to get rid of questionable mortgages, and receive money to make more questionable mortgages. I have predicted that the Republicans really want the repeal of Dodd-Frank and the Volcker Rule in order to speed up the securitization project.
Now that the Fed is involved, look for every effort to be made to weaken the rules in Dodd-Frank to accomodate easy money lending.
The only question that remains is if Americans remember and if they won't play the game. The Fed wants to throw an easy money party. Are we all going to attend and how much of this toxic punch will we be drinking?
As regular QE punishes savers with low interest rates, MBS securitization will punish renters, as house prices will appreciate with no real basis in fundamental valuation, that is, based upon wages and rents. House prices should be based upon rents, not the other way around.
The question remains for me, who will be the shadow banks? Where will the next Ameriquest and Countrywide come from?
People must be warned that this is an attack on the middle class, like they can afford it.
Bernanke is proving that the banks are in a lot worse shape than we previously thought. This new QE is no guarantee that they will get better. Multi generational living and the new love of IPads instead of cars and the new frugality could stand in the way of this silly scheme.
Bottom line, it has been less than 10 years and the central bank wants another housing bubble. Housing should be based upon wages and rent, not upon a scheme to attack the middle class, leaving them with houses that are grossly overvalued when the crash comes.
The Fed has big shoulders, able to tolerate totally useless loans that will never be paid back. This is because the Fed does not have to have a market for these securities. The Fed can just hold onto them forever. Some will fail, some will be paid down.
It won't matter to the Fed, who is putting the US government on the hook for all these mortgages. The Fed doesn't do this for free. Once this bubble gets going, you may want to sell your house as prices appreciate, and certainly do not borrow against it, because the Fed will pull the plug on this little buying spree at some point. Then you won't be able to give away your house.
No one argues with the Tea Party that a governmental debt crisis exists. However, sane and prudent slowing growth of the budget is quite different than the slash and burn austerity mentality that the Tea Party shares with the IMF. I have written about the danger of IMF thinking, and in nations where cuts to government spending are massive, in the face of high unemployment, this becomes a dangerous way to go. There has to be balance and a gradual weaning of the pace of growth of government, not a wholesale slaughter of major programs. Unemployment could rise dramatically if governmental programs are slashed.That is true of many areas of Europe.
Regardless of what Rick Santelli has said, we have been screwed by the big banks and the central banks of the western world. The question is are we going to peacefully resist this new financial order or are we going to let these bankers take down our way of life. Are we going to prove Karl Marx right by hurting the average Joe or are we going to strengthen mainstreet by rational thinking? As we see wages go down in a world economy, are we going to pump housing up or are we going to let it correct so that renters can actually afford to rent on the lower wages? At some point, the deleveraging and globalization that is taking place will produce manufacturing and results. But as of now the opposite is happening.
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