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QE3 Won't Be About Lowering Interest Rates   June 23rd, 2011
This is why they're always surprised by economic reality       

 
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Apparently CNN's Paul R. La Monica takes the Federal Reserve's statements at face value that QE2 was all about driving interest rates down so he thinks we're safe from QE3 because rates are low. We're not safe from QE3.

QE3? Bond market does the Fed's job

The yield on the 10 Year Treasury fell to about 2.9% Thursday. To put that in context, the yield was as high as 3.75% as recently as February...

Add all that up and it means the Fed may not need to buy even more Treasuries, a so-called third-round of quantitative easing, to keep interest rates low. The bond market is doing the Fed's job for it...

So as long as the bond market is keeping rates artificially low, don't look for the Fed to try and drive them down even further with QE3.


Please excuse me while I momentarily blow a gasket: How long are these idiots going to keep repeating the nonsense that the Federal Reserve has been printing money to keep interest rates down?

Whether interest rates are at 2.9% or 3.7%, they're already extremely low... and we've already seen that rates falling from 3.7% to 2.9% hasn't done anything to increase economic activity. So why in the world print money to drive rates down for no reason?

That's not what the Federal Reserve is trying to do.

As long ago as February 2009 I predicted that the Federal Reserve would print money to loan to the government so the government could borrow all the money it wanted to spend. I was proven right a month later in March 2009. And at that time I predicted there would be more money printing because the amount they were planning to print wouldn't be enough to monetize the deficit for long. And in November 2010 I was proven right again.

This isn't rocket science. Interest rates are already low. Pushing them down further hasn't helped the economy and the Federal Reserve knows that. But that's not why they're printing money. They're printing money to monetize the deficit, pure and simple. If the Federal Reserve doesn't print money and loan it to the government, there will not be enough money for the government to borrow which could precipitate a bond crisis.

So when someone like La Monica writes an article that suggests we're free from QE3 because the bond market is lowering interest rates all by itself, it's clear that he's subscribing to the same failed economic theories as President Obama, Fed Chairman Bernanke, and Democrats in Congress.

And the fact is that if the economy continues to stall out, or worsens, the deficit won't shrink but rather will stay the same or probably get larger. And there still isn't enough money in the world for the government to borrow.

So we will see QE3.

As I predicted last November, QE3 will probably be late this year or early 2012... and I refined that prediction earlier this month to late September/early October.

I continue to believe those predictions are correct. We'll see QE3 late this year or early next year, very probably by late September or early October.

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