I was at All About Alpha this weekend and saw an article equating the financial markets with the 1994 movie "Speed".
There's a bomb on the bus and if it slows below 50 mph the bomb detonates.
The analogy can be expanded to the greater economy. In the four years 2008 through the end of 2011 the government will have spent $6.2 Trillion more than it took in.
Add to that the $1.2 Trillion in mortgages and $600 Billion in treasuries the Fed created money to buy and you have a nice round $8 Trillion in pump priming.
For this we will get somewhere between $750 and $1 Trillion in GDP growth '08-'11.
That is not a good return on the investment.
I know a lot of the government debt just substituted for the household sector's deleveraging:
but the question of the moment is What happens if the driver takes his foot off the accelerator?
(chart via Carpe Diem)
The fed has just released its new POMO schedule for the period from May 12 to June 9. In essence, every single day between now and Thursday June 9 will see a POMO, except for holidays and June 2. The total amount to be monetized is just $93 billion consisting of $80 billion in Treasurys (no surprise) and just $13 billion in MBS, confirming that as we have expected, the QE Lite component of monetization is coming to a rapid end as few if any prepay their mortgages with the Fed any longer.Here's the May 10-16 chart for the S&P 500 ETF via BigCharts:
The MBS component is down from $17 billion as of the last schedule, and from $22 billion two months ago. The total monthly amount of $93 billion is the lowest of any monthly QE2 schedule....MORE