Bernanke's QE3 squeezes RBA on rates

AgH20 · Sep 15, 2012

If this wasn't so awful it would be funny.

The article puts succinctly that Helicopter Ben's actions of open ended buying of mortgage backed securities at $40 billion per month will affect Australia's ability to stay ahead of the freight train taking everyone else off to the fiscal cliff. It's a matter of when not if.

http://afr.com/p/business/companies/bernanke_qe_squeezes_rba_on_rates_uTiwO4SxLeB0YiSjsW8dhL

A decision by the US Federal Reserve to throw an unlimited amount of money at the world's largest economy has sparked a rally in global sharemarkets and pushed the Australian dollar higher, putting pressure on the Reserve Bank of Australia to cut interest rates.

Investors snapped up shares after the Fed said it would keep its fund rate the US equivalent of official interest rates at close to zero until the middle of 2015 in addition to injecting $US40 billion each month into the US economy until employment grew.

Global markets reacted swiftly with Wall Street hitting its highest level since 2007 and the Australian dollar rising more than US1 to a peak at $US1.059. The local sharemarket reached its highest level in more than four months.

But economists warned that the Fed's plan, which followed further stimulus from the European Central Bank last week, could damage the Australian economy by keeping the currency at elevated levels, forcing the RBA to cut interest rates.

Macquarie Group economist Brian Redican said the latest round of quantitative easing was unlikely to boost iron ore prices, which fell from $US100 a tonne earlier in the week to $US96 following Fed chairman Ben Bernanke's announcement.

"That crunches mining company cashflow and raises a big question over mining investment," Mr Redican said. "If that happens then that blows a big hole in your growth profile. This is why I don't think the RBA can continue to ignore [the Australian dollar]."

Traders disagreed with this assessment, putting the chances of a cut in the official cash rate to 3.25 per cent next month at 40 per cent, down from 47 per cent previously.

The world's largest central bank will keep buying mortgage-backed securities and other assets, as well as using other policy tools, to make it cheaper for borrowers to invest and consumers to spend.

Dr Bernanke said the Fed wanted to see "ongoing sustained improvement in the labour market" and was ready to do more if its latest move failed to create enough jobs in the months ahead.
Click to expand...

Looks like Ben is a one trick pony-so QE1 and QE2 and Operation Twist did not have the desired effect of getting the American economy jump started. So Ben decides to do the same again, this time without any limits.
Einstein's definition of insanity-keep doing the same things over and over again but expect a different outcome. WTF??

Factoring in its buying of longer-dated Treasury bonds under the current Operation Twist, the Fed will be spend $US85 billion a month on stimulus for the remainder of 2012.

It has already bought as much as $US2.8 trillion in Treasury bonds and mortgage-backed securities since the 2008 financial crisis, but more than three years since the recession officially ended, US unemployment remains high at 8.1 per cent.

"This will push the Australian dollar higher making the RBA's job tougher but it should also push commodity prices higher '' said Commonwealth Bank of Australia chief economist Michael Blythe.

Historically, stocks have initially risen when the Fed has announced these programs only for the rally to run out of steam down the track.
Click to expand...

Some economists believe the benefit to the economy will be modest this time, but fund managers are hopeful there will be a recovery in the housing market.

"QE3 is certainly a positive for markets in the short term but what's more interesting is the US housing market recovery, which looks like it's happening for real," said Perpetual head of equities Matt Williams.

"This recovery, if it's sustained, will be more significant for the US economy and world markets than another round of QE."
Click to expand...

Is this guy for real? US housing market experiencing a recovery??

Home building slipped in July after a strong improvement in June, but new permits rose to their highest level in four years.

Housing starts fell 1.1 per cent from June to a seasonally adjusted annual rate of 746,000 but new construction was up 21.5 per cent from a year ago and permits were 29.5 per cent higher.

The rise came as inventories of unsold new homes in the United States hit a 50-year low.

Housing affordability is already at close to record high due to low interest rates.

"The housing market remains a beacon of hope for the US economy with positive reads across a suite of partial indicators,'' said Tony Morris, ANZ Banking Group head of interest rate research. Philip Baker and Joanna Heath
Click to expand...

mmm....shiney! · Sep 15, 2012

AgH20 said:

But economists warned that the Fed's plan, which followed further stimulus from the European Central Bank last week, could damage the Australian economy by keeping the currency at elevated levels, forcing the RBA to cut interest rates.
Click to expand...

If they don't cut rates, we'll all be wearing Kimonos and having relationships with "toy dogs".

Clawhammer · Sep 15, 2012

Not to be too fastidious, but this isn"t QE3. It's TARP (infinity). And he's not buying mortgages, he's buying mortgage backed securities. The poor schlubs still have to pay their underwater mortgages only now when they default, instead of the bank paying, the taxpayer has to pay.

he's just giving more money to the banks (to hoard)

moral hazzard much?

tozak · Sep 15, 2012

The ozzie dollar will never trade above US$1.10 while we have positive interest rates, the RBA will cut every time we look like we are going above US$1.10

All allies with the US will devalue in order to conceal the collapse from the Forex markets

mmm....shiney! · Sep 15, 2012

Clawhammer said:

Not to be too fastidious, but this isn"t QE3. It's TARP (infinity). And he's not buying mortgages, he's buying mortgage backed securities.
Click to expand...

But where is the money coming from?

grinners · Sep 16, 2012

Fixed for how long?

Seems like about what I have in mind.

fishball · Sep 18, 2012

Log in or Sign up

Bernanke's QE3 squeezes RBA on rates

AgH20 New Member

mmm....shiney! Administrator Staff Member Silver Stacker

Clawhammer Well-Known Member Silver Stacker

tozak Well-Known Member Silver Stacker

mmm....shiney! Administrator Staff Member Silver Stacker

grinners Active Member Silver Stacker

fishball New Member Silver Stacker

Share This Page

Log in or Sign up

Bernanke's QE3 squeezes RBA on rates

AgH20 New Member

mmm....shiney! Administrator Staff Member Silver Stacker

Clawhammer Well-Known Member Silver Stacker

tozak Well-Known Member Silver Stacker

mmm....shiney! Administrator Staff Member Silver Stacker

grinners Active Member Silver Stacker

fishball New Member Silver Stacker

Share This Page

Useful Searches