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Charles Evans In Favor of Potentially Doubling Size of QE3
Pinnacle Digest writes: It was only three weeks ago when Bernanke introduced QE3 to the world - a $40 billion a month purchase program for mortgage backed securities. Shockingly, Chicago Federal Reserve Bank President, Charles Evans, has indicated he is in favor of continuing asset purchases at a rate of $85 billion per month all the way through 2013! Can you believe this?
Considering that QE1 was originally only suppose to be $600 billion, but was later doubled to $1.2 trillion, doubling QE3’s size may not be that far-away. In Daniel Amerman’s latest article he explains that “If the Federal Reserve follows through with what Evans proposes, it will mean that the pace of $85 billion a month won't slow, and that an additional $540 billion will be created out of thin air over the course of 2013, which will likely be directly injected into the economy without "sterilization". In other words, what Evans is proposing is that the government create and spend a little more than $5,500 per above-poverty-line household to manipulate the markets and to hold down pension and retirement investment returns.”
Amerman explains that only a few years ago, and in a more sane economic environment, this type of suggestion by Charles Evans would have been considered reckless and irresponsible. In fact, Amerman says it would be the most irresponsible action in the Federal Reserve’s history. We agree; but given how desperate the American economy is, and how far in the Fed has already gone, there is no turning back now, otherwise it will have all been for nothing.
Amerman asks his readers two very interesting questions about Charles Evans’ statement:
So why did Charlie Evans do it? And why did Ben Bernanke likely authorize the nationally televised interview?
Why did a non-voting Fed member go on national TV to talk about his desire to increase the size of QE3 months down the road? Why risk the pain for no gain?
Amerman has a couple valid explanations as to why; however, one of the reasons that stood out to us, was simply the fact that the Fed wants the value of the US dollar to go down, but doesn’t want to make it seem intentional or reckless. So why not have a non-voting member of the organization provoke the thought of more QE coming for the market, and have the dollar sell-off on its own, without taking any heat directly, but achieving the same goal. Amerman explains to readers that Bernanke hasn’t taken his eye off the ball whatsoever. His only true goal is to increase the employment rate. A falling US dollar will help manufacturing and will help grow the jobs market at home.
If Europe wasn’t on the verge of collapse, which has only driven the value of the US dollar up, then perhaps Bernanke wouldn’t have to send one of his minions on TV to scare the public into driving the dollar down. The euro crisis is out of Bernanke’s control and he knows the dollar is a safe haven asset right now. That is very troublesome and counter-productive to his goals.
Amerman explains “And it looks like it has worked, as the dollar moved from a high of 1.280 dollars per euro on Monday, down to a price of 1.292 dollars per euro on Tuesday afternoon. Now, this may be fleeting if the Spanish situation continues to deteriorate. But nonetheless, the only price for the dollar moving the opposite way that a reserve currency should move during crisis, was a senior Fed official doing a little trash talk about the dollar on TV in a way that his own nation barely noticed - but the rest of the world did.”
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