The Fed, Not Out of Ammo!

The Federal Reserve still has options, short of QE3, if it wants to encourage more lending. First, it can reduce to zero the rate of interest it pays banks on deposits held at the Fed. Second, it could sell short term Treasuries it holds and with the proceeds buy long term Treasuries. This would reduce…

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Quantitative Easing 3?

QE worked miracles by injecting massive liquidity into the economy in ’08 and ’09, and staved off a depression. While smaller, QE2 boosted equity prices and weakened the $US which boosted exports, raised commodity prices and headline inflation. If we get QE3, which is likely to be less successful than QE2, it’s because inflation’s receding,…

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Treasury Yields, Stay!

There seems to be widespread view that Treasury yields will rise sharply once QE2 is over since the captive market for bonds, the Federal Reserve, will be gone. Wrong, wrong, wrong! The only way Treasury yields will increase is if we have an accelerating economy (not), rising credit demands met by increases in bank lending…

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