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QE3 unleashed

By Doug Powers  •  September 13, 2012 04:43 PM

**Written by Doug Powers

Personally I preferred Krugman’s alien invasion stimulus plan over this, but the Fed doesn’t consult me on these things:

The Federal Reserve announced plans to unleash more stimulus Thursday, in its third attempt at a controversial program to rev up the U.S. economy.

The policy, known as quantitative easing and often abbreviated as QE3, entails buying $40 billion in mortgage-backed securities each month. The end date remains up in the air, as the Fed will re-evaluate the strength of the economy in coming months.

The Fed is wasting no time. The purchases begin Friday and are expected to total about $23 billion over the remainder of September.

In addition, the Fed also indicated that it plans to keep interest rates at “exceptionally low levels” until mid-2015. Previously, the Fed had forecast rates would remain low until late 2014.

The central bank’s main objective is to lower interest rates and mortgage rates in particular. By keeping rates low, the Fed hopes to fuel more spending and eventually, more hiring.In its statement Thursday, the Fed indicated it will not only continue QE3, but also “employ its other policy tools” if the “labor market does not improve substantially.”

Tyler Durden at Zero Hedge:

To summarize:

•The good news: The Fed’s NEWER, OPEN-ENDED and NEVERENDING QE is bigger, longer, and has a Retina display (however its battery life is far shorter).
•The bad news: The Fed has now confirmed it is merely a sad, political, self-frontrunning caricature of what a central bank should be.

If you’re not familiar with the term quantitative easing, it’s printing money updated for the new millennium so the Fed can play chicken with inflation with the push of a button instead of having to go through the trouble of actually printing the money:

In implementing QE3, the central bank does not use taxpayer money to buy bonds. Rather, it expands the U.S. money supply and electronically credits banks with more funds.

Is the strategic oil reserve up next? I’m expecting a “kitchen sink” approach until early November.

Update: Be sure to check out Zombie’s “Quantitative Easing, Weimar Edition.”

**Written by Doug Powers

Twitter @ThePowersThatBe

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