Monday, November 8, 2010

"Dick Bove on QE2 as a bank-less “financial war with China”"

We'll have some more thoughts on QE2 tomorrow morning.
From FT Alphaville:
We all know Dick Bove ♥ banks — sometimes to a fault.
But the Rochdale Securities analyst brings up an interesting QE2-related point in his latest note. The Federal Reserve’s first round of quantitative easing, he reckons, failed because it ended up creating a partial liquidity trap, with banks just sitting on all their Fed-given funds instead of lending them. This wasn’t a huge problem of course, as the original QE was more about repairing the financial system than boosting the economy — but it does rather beg the question; what is QE2 all about?
For a start (and bear with us here) Bove thinks QE2 has some ulterior aims — namely debasing the dollar and having the Fed finance US Treasury debt:
There may be another explanation as to why the Federal Reserve has embarked on its new policy. My view is that the United States is in a financial war with China. This war is being fought in two arenas. They are the budget deficit and the trade deficit. The United States is losing both wars and, therefore, may be taking some relatively dramatic action to adjust the battlefield.
Which brings us, in a roundabout way, to the topic of banks — or rather, the lack thereof in Fed chairman Ben Bernanke’s recent QE2-related musings...MORE