Shale oil has kept the lights on throughout the world. Now oil prices have sunk below $80 (and still counting); now the Fed has ended its QE program. Are they throwing in the towel?
Watch this space. Lost more coming your way
Federal
Reserve ends quantitative easing bond-buying program
29
October, 2014
The
Federal Reserve has officially announced an end to its quantitative
easing bond-buying program, but economists are split over whether the
central bank’s decision will help or hinder post-recession
recovery.
As
expected, the Fed said Wednesday afternoon that it’s third and most
recent round of quantitative easing, QE3, would come to an end.
"The
Committee judges that there has been a substantial improvement in the
outlook for the labor market since the inception of its current asset
purchase program. Moreover, the Committee continues to see sufficient
underlying strength in the broader economy to support ongoing
progress toward maximum employment in a context of price stability.
Accordingly, the Committee decided to conclude its asset purchase
program this month,"
reads part of a statement released
by the Fed on Wednesday.
"The
Committee 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 and of rolling over
maturing Treasury securities at auction. This policy, by keeping the
Committee's holdings of longer-term securities at sizable levels,
should help maintain accommodative financial conditions."
The
confirmation surprised few since the Fed was largely reported ahead
of Wednesday’s decision to be considering making such an
announcement. As far as what the result will be, however, is up for
debate as economists weigh potential outcomes ranging from outright
optimism to doom and gloom.
Combined,
the three rounds of QE undertaken by the Fed since 2008 have
generated trillions of dollars for the American economy through a
process in which the central bank has perpetually pumped money into
long-term government bonds and bonds backed by home mortgages.
But
David Wessel, the director of the Hutchins Center at the Brookings
Institution, told NPR recently
that the three-and-a-half-trillion dollars’ worth of bonds
purchased during that six-year span has been “far
more than anybody inside or outside the Fed expected when this all
began.”
AFP Photo
Indeed,
the Fed has twice announced an end to its bond purchasing programs,
only to soon after start again when it was realized that the desired
effect failed to be achieved. Six years later, though, the end to QE3
might once and for all be the final nail in the program’s coffin.
In
2009, Ben Bernanke, then the chairman of the Fed, said that
quantitative easing would only end “when
credit markets and the economy have begun to recover,” at
which point the central bank would resume business as usual.
“As
the size of the balance sheet and the quantity of excess reserves in
the system decline, the Federal Reserve will be able to return to its
traditional means of making monetary policy--namely, by setting a
target for the federal funds rate,”
he said. “In
considering whether to create or expand its programs, the Federal
Reserve will carefully weigh the implications for the exit strategy.
And we will take all necessary actions to ensure that the unwinding
of our programs is accomplished smoothly and in a timely way,
consistent with meeting our obligation to foster full employment and
price stability.”
Today,
the American economy is statistically sounder than six years ago: not
only have three rounds of QE allowed faltering banks to get boost
after boost from the government, but, partially as a result, jobless
claims are down drastically from post-recession figures.
Nour Eldeen Al-Hammoury (Image from
nourhammoury.com)
Nevertheless,
optimism isn’t universal when it comes to what ending QE3 means for
the world economy.
“Well
there are some improvements, but we can’t say that it is recovering
as everyone hoped,” Nour
Eldeen Al-Hammoury, a chief market strategist at ADS securities in
Abu Dhabi, told Euro
Newsrecently. “GDP
is growing based on the inventories, which doesn’t mean that sales
are increasing. The slack in the economy remains and so far there is
no clear strategy on how this slack will be resolved. Moreover, the
slowing down in Europe and Asia will be something to consider as the
US economy is unlikely to grow on its own.”
According
to Al-Hammoury, markets the world over may suffer as a result of
ending QE3. “It
is not the Middle East markets only, it is global markets and
especially the emerging markets,”
he said. “Let’s
say, for example, Dubai — Dubai stock market was one of the best
performers in the world. However, we will see some more declines at
the end of the year. These markets are again sensitive to any events.
However, these Middle East markets may benefit again from what’s
happening in Europe. I mean the outflow that is happening in Europe
and also don’t forget that this region has also opened its doors to
foreign investors so with the Fed ending QE we might see some
declines again, and if the global slowdown continues, global markets,
including the Middle East, may continue with the current downside
correction.”
Even
in the west, that pessimism is present: Pedro Nicolaci da Costa wrote
for The
Wall Street Journal this
week that the Fed may deploy another round of quantitative easing if
the decision to end the third series proved to be unsuccessful,
which, according to his report, may be the case.
“Many
of the studies of large-scale asset purchases, known as quantitative
easing or QE, agree they worked very well to prevent deflation and
stabilize the financial system during the 2008 crisis, but disagree
about how effective the programs have been in boosting growth since
then,” da
Costa wrote.
Although
Bernanke has attributed QE with cutting unemployment, da Costa wrote,
Fed researchers and academic economists have for years studied the
practice and are split with regards to how successful the rounds have
been, and what the eventual outcome will be when all is said and
done.
"I
do think they're overly optimistic," Barbara
J. Cummings of the Boston Private Bank & Trust Company told CNBC
this week. "The
market and the Fed are definitely saying two different things. And
the market is right. It usually is."
To
some, the outcome is even drearier. “Without
another dose of stimulus, the US will likely slide into
recession,” Worth
Wray, chief strategist at Mauldin Economics, predicted
to Equities earlier
this month.
Alan
Greenspan: QE Failed To Help The Economy, The Unwind Will Be Painful,
"Buy Gold"
29
October, 2014
It
appears it is time for some Hillary-Clinton-esque backtracking and
Liesman-esque translation of just what the former Federal Reserve
Chief really meant. As The
Wall Street Journal reports,
the Fed
chief from 1987 to 2006 says the Fed's bond-buying program fell short
of its goals,
and had a lot more to add.
Mr.
Greenspan’s comments to the Council on Foreign Relations came as
Fed officials were meeting in Washington, D.C., and expected to
announce within hours an end to the bond purchases.
He
said the bond-buying program was ultimately a mixed bag. He said that
the purchases of Treasury and mortgage-backed securities did help
lift asset prices and lower borrowing costs. But
it didn’t do much for the real economy.
“Effective
demand is dead in the water” and the effort to boost it via bond
buying “has not worked,” said
Mr. Greenspan. Boosting asset prices, however, has been “a terrific
success.”
...
He
observed that history shows central banks can only prick bubbles at
great economic cost. “It’s only by bringing the economy down can
you burst the bubble,” and that was a step he wasn't willing to
take while helming the Fed, he said.
...
The
question of when officials should begin raising interest rates is
“one of those questions I cannot answer,” Mr. Greenspan said.
He
also said, “I
don’t think it’s possible” for the Fed to end its easy-money
policies in a trouble-free manner....
"Recent
episodes in which Fed officials hinted at a shift toward higher
interest rates have unleashed significant volatility in markets, so
there is no reason to suspect that the actual process of boosting
rates would be any different,
Mr. Greenspan said.
...
“I
think that real pressure is going to occur not by the initiation by
the Federal Reserve, but by the markets themselves,” Mr.
Greenspan he said.
And
finally - while CNBC's audience is told what a terrible thing gold
is, "The Maestro", having personally created the financial
cataclysm the world finds itself in following a lifetime of belief in
fiat, Keynesian ideology and "fixing" one bubble with an
even greater and more destructive asset bubble, has suddenly had an
epiphany and now has a very different message from the one he
preached during his decades as the head of the Fed.
Mr.
Greenspan said gold is a good place to put money these days given its
value as a currency outside of the policies conducted by governments.
What
Greenspan failed to add is that it is thanks to his disastrous
policies (subsequently adopted by Bernanke and Yellen) that gold is
the "place to put money."
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