Sunday, November 21, 2010

"Is QE2 a Ruse by Bernanke?"

I'm still trying to figure out what the Fed is up to. See the post immediately below for some of the incongruities.
From Economic Policy jouurnal:
I recently sent Jeffrey Rogers Hummel, a Research Fellow at the Independent Institute, Associate Professor of Economics at San Jose State University, and one of the top Fed watchers in the country, a link to Federal Reserve Chairman Ben Bernanke's recent comment that he was not conducting "quantitative easing".

With permission, I reproduce below Jeff's comments. In them, he writes that QE2 may be a ruse. Since Jeff is one of the few who understands what really went on with QE1 (His upcoming  paper on  "Friedman versus Bernanke" will blow away the thinking that the explosion in the monetary base in late-2008 to early 2010 was all about Fed money expansion.), his thoughts can not be taken lightly.

At this point, my view is that Bernanke is doing a full out money blast that will translate into huge price inflation, however, the confirmation, as Jeff states, will be in the numbers. If Bernanke drains from other parts of the balance sheet to sterilize his Treasury asset purchases, then Bernanke is indeed pulling a fast one on the country. The numbers will tell all.

Here are Jeff's comments:
Thanks so much for sharing this Bernanke quotation with me, which I hadn't yet seen. It partly confirms what I had suspected from the outset: QE2 is a ruse.

Bear in mind that the Fed's announcement of November 3
said nothing about "quantitative easing" or even increasing the base.Rather it merely said the Fed was going to buy $600 billion in long-term Treasuries. If you look at the Fed's balance sheet, over the two weeks since the FOMC meeting, it has acquired about $30 billion of additional Treasuries. But that has been offset by a $13 billion fall in its holdings
of mortgage-backed securities plus more modest declines in other assets including foreign currencies and Maiden Lane, so that there has been almost no net effect on the balance sheet or the monetary base....MORE