Fed to Launch New Bond Buying Program

[pphilfran]

FaninAma ain't gonna be happy...

http://www.dailyfinance.com/2012/12/...l-cliff-fears/

With a nervous eye on the "fiscal cliff," the Federal Reserve is expected this week to announce a new bond-buying plan to support the U.S. economy.

The goal would be to further reduce long-term interest rates and encourage borrowing by companies and individuals. If it succeeds, the Fed might at least soften the blow from tax increases and spending cuts that will kick in in January if Congress can't reach a budget deal.

But the Fed's actions wouldn't rescue the economy. Chairman Ben Bernanke warned last month that if the economy fell off a "broad fiscal cliff," the Fed probably couldn't offset the shock.

Fears of the cliff have led some U.S. companies to delay expanding, investing and hiring. Manufacturing has reached its weakest point since July 2009. Consumers have cut back on spending. Unemployment has dipped in recent months but remains a still-high 7.7 percent.

If higher taxes and government spending cuts lasted for much of 2013, most experts say the economy would sink into another recession.

Once its two-day policy meeting ends Wednesday, the Fed is likely to say it will start buying more long-term Treasurys to replace a program that expires at year's end. Under the expiring program, the Fed has sold short-term Treasurys and used the proceeds to buy $45 billion a month in long-term Treasurys. The plan is called "Operation Twist" because it's sought to "twist" long-term rates lower relative to short-term rates.

One advantage of Twist is that it hasn't increased the Fed's record-high investment portfolio. Critics say that when the Fed pumps more money into the financial system and adds to its portfolio, it risks escalating inflation later.

Unlike Twist, the Fed's new program would expand its portfolio, which totals nearly $2.9 trillion -- more than three times its size before the 2008 financial crisis. Most economists think the Fed will replace the $45 billion-a-month Twist program with a roughly equal amount of Treasury purchases each month.

more at link

[pphilfran]

Lower interest rates are not going to spur the economy...

[FaninAma]

You cannot create true prosperity by devaluing your currency. At some point China will retaliate.

In the meantime savers are getting crushed, seniors on fixed incomes are getting crushed, thepoor are getting crushed as commodity prices go up. But hey, those of us in the stock market, commodity markets and even mixed bond funds are doing great. I will need to do great to give my kids a fighting chance once the bill for this insanity comes due.

We really need to borrow France's guillotines for people like Bernanke. It is a blatant abuse of power but I guess he can get away with it as long as we have the idiots in DC that we have.

[TheHumanAlphabet]

Wow!!! We are again monetizing our debt...Since no one will buy our debt, we print more money to buy our own debt. The Socialist will bankrupt this country. No wonder the dollar is in the toilet with world currencies.

[FaninAma]

THA, actually Japan is in worse shape than we are. Even with this announcement the dollar is going up against the Yen. Other countries will start taking aggressive actions to devalue their own currencies. Expect higher and higher prices which again will hurt the most vulnerable.

But hey, who cares as long as we tax the rich.

[FaninAma]

The fed is not trying to protect average citizens...they are trying to protect those who peddle debt. we all should know their names well..JP Morgan, Bank of America, Citi Bank, Barclays.

The Fed and central banks of the world could give a **** about you and me or our kids or our parents. And the social safety net of this country and Europe? It is a system of bribery simply to keep the lower and middle classes from rising up and killing these bastards.

BTW, they are lying their asses off about inflation.

[TheHumanAlphabet]

Wow, the dollar is really rising. Its around 107 now...When I was there early last year it was around 88. When I first strarted traveling there it was around 121. They are in bad shape, no young generation to keep the promise going for their aging population...what we will see soon enough...

[sappstuf]

Skyfall was awesome.. I would be Bullish on Bond right now.

[KantoSooner]

Where are you getting the Yen/Dollar figure of 107? I just checked and it's at 82.5 or so. It's been in the mid-80's for a while now.

Damn, too. I still have household effects there and need to move them. The moving company prices their services in yen, so I've been waiting for a strengthening in the dollar. Now you have made me sad. I thought I'd get my wine glasses and bar ware back from the ex- at long last. Damn. Damn. Damn.

[TheHumanAlphabet]

Kanto, when I looked this morning on OANDA, I swear that's what it said. Now it is the more used to seeing 82.88...I either thought I hit the yen button and missed or they gave me some wiggy number...

[JohnnyMack]

Skyfall was awesome.. I would be Bullish on Bond right now.

Not bad.

[FaninAma]

The Fed pulled the trigger today. The market apparently is not impressed. There are 2 things going on that account for the tepid response to the truly impressive level of Fed intervention:

1. We have reached the end game of devaluation of our currency in which further stimulative actions have weaker and weaker responses.

2. The law of diminishing return is in full effect and we have entered the downward slope on the graph.

Actually the 2 consequences are related.

[KantoSooner]

Kanto, when I looked this morning on OANDA, I swear that's what it said. Now it is the more used to seeing 82.88...I either thought I hit the yen button and missed or they gave me some wiggy number...

No need to apologize, and sometimes you get these wierd little momentary bumps, especially if trading is thin. I'd just gotten all happy that maybe something had moved in my favor. And now I must be sad again. I may never hear the resonating ring of my bordeaux glasses ever again. <he chokes back tears.>

[FaninAma]

Japan has been monetizing their government bonds like the Fed has been doing in the QE programs. They have been doing it longer than The Fed and US have. Now Japan is looking at being forced to directly monetize their national debt. If they do that the Yen will collapse.

I think that once the Fed decided to do the same thing with our government bonds they basically locked themselves into following the exact dead-end road the BOJ is currently traveling. I don't see any way to avoid eventual monetization of our national debt.

I have been struggling with which way this crisis will break.....toward deflation or inflation. If we follow the BOJ gameplan, which we have verbatim, we will get massive inflation. Do your own research but this looks pretty overwhelming.
http://www.financialsense.com/contributors/chris-puplava/massive-japanese-debt-monetization-is-coming-yen-to-be-devalued

[cleller]

The Japan situation is just incredible. Dec 1989 the Nikkei hits 38,000; today its about 9000. Its had a few "ups" along the way, but it has basically been falling for 23 years. I doubt the average Joe on the street has any idea about that, and doesn't care anyway.

If a situation like that befell the US Markets, the results/impact would be unimaginable.

[8timechamps]

The Fed pulled the trigger today. The market apparently is not impressed. There are 2 things going on that account for the tepid response to the truly impressive level of Fed intervention:

1. We have reached the end game of devaluation of our currency in which further stimulative actions have weaker and weaker responses.

2. The law of diminishing return is in full effect and we have entered the downward slope on the graph.

Actually the 2 consequences are related.

The Fed is played out, and the market knows it. This is another, in a long line of BS moves to try and make Wall Street feel warm and fuzzy. It's run it's course, and now it's ineffective. Until long-term solutions are enacted by the government, these buy back programs are only serving to **** off other world governments (namely China).

[SoonerorLater]

Japan has been monetizing their government bonds like the Fed has been doing in the QE programs. They have been doing it longer than The Fed and US have. Now Japan is looking at being forced to directly monetize their national debt. If they do that the Yen will collapse.

I think that once the Fed decided to do the same thing with our government bonds they basically locked themselves into following the exact dead-end road the BOJ is currently traveling. I don't see any way to avoid eventual monetization of our national debt.

I have been struggling with which way this crisis will break.....toward deflation or inflation. If we follow the BOJ gameplan, which we have verbatim, we will get massive inflation. Do your own research but this looks pretty overwhelming.
http://www.financialsense.com/contributors/chris-puplava/massive-japanese-debt-monetization-is-coming-yen-to-be-devalued

In the long run bet inflation. Even against against a deflationary backdrop the Fed will will be able to erode the dollar through QE after QE. It will never end until the dollar is destroyed. If they ever stop easing we would crash and burn. Since we the World's Reserve Currency there are a lot of dollars floating around out there. When the dollars start returning home we will have a real situation.

[diverdog]

In the long run bet inflation. Even against against a deflationary backdrop the Fed will will be able to erode the dollar through QE after QE. It will never end until the dollar is destroyed. If they ever stop easing we would crash and burn. Since we the World's Reserve Currency there are a lot of dollars floating around out there. When the dollars start returning home we will have a real situation.

You guys do know that our exports will go through the roof with a cheap enough dollar? Right.

[FaninAma]

You guys do know that our exports will go through the roof with a cheap enough dollar? Right.

Who are we going to export to....China? Europe which issliding into another recession? Africa? South America?

BTW, is anybody else concerned about the fact that a very small group of people who control the Fed are accumulating such massive assets? We were worried about China but the Fed's balance sheet of US assets dwarfs anything the Chinese ever accumulated.

The fact that the Chinese are screaming about what the Fed is doing tells me that they are either benefitting from it by selling back their US Tresuries or they know how much it will hurt the US in the long run putting them in a stronger position in the global economy.