Can US have QE3 without increasing debt ceiling limit?

S

spets1

New Member
QE is almsot over (ends in june 20 i think?)

SInce US have already reached the debt limit some time ago. The congres has so far not passed to increase the debt limit. Therefore they cannot introduce the QE3?
AM I right here?

Maybe they will make the ECB print money? Whats the ECB debt limit?
 
QE3 or not the debt ceiling limit has to be increases or the US will default in August
 
Well lets look at the the Keynesian posterboy for money printing.....Japan.

They've been goosing their currency for over 2 decades... inflation to the point where monthly salaries of Y250,000 are nothing special, the flag fall on a taxi cab is Y6000 and the country's tax revenue's nearly less than it's expenditure obligations. There has been no debt ceiling...they just kept printing.

Yet...

When the SHTF recently (earthquake, Tsunami, nuclear meltdown etc) the recovery processes including insurance payouts is showing that the economic growth from all this 'goosing' has actually resulted in real wealth creation. Only outside of it's own borders.

Despite it's huge debt, Japan is now liquidating the wealth it had created overseas in foreign investment (Gold Coast Real estate for one, Foreign factories for another etc) and it may well turn out that they've really been 'in the black ' all along.

The US have watched Japan's model closely and may well chose to follow them down a similar path. i.e. there's no need for a debt limit. It's a somewhat moot point anyway. Just like Greece, there's no way the US can meet it's debt obligations!
 
Short answer : Yes

Long answer:

These are actually two separate issues. The Federal Reserve is not a government controlled entity even though it has the word "Federal" in it. Its decisions do not have to have any presidential or congressional approval.

Congress don't need to pass QE, they are in charge of the debt limit. QE is passed by the Fed board of governors (or FOMC) and is a decision by the Fed to purchase government debt on the secondary market. They increase this as much as they like when they want to. Timing is the key and this has been apparent in the past 18mths

The Fed uses QE as it is illegal for a central bank to directly purchase government bonds and is how the JPM, GS of the world have been having record profits when they have the Fed as a buyer of first and last resort.

The EU is pulling their hair out as they can do the same but all the inner circle countries have to agree to QE which is hard to do when you have hard working German workers paying for the fat pension of a retired 50yr old Greek hairdresser!

If congress don't pass the debt limit, that means the government has no ability to pay its workers, institutions and interest on its debts. Government will cease to function and this has already happened in some format. This is pretty much an accelerated default as this is what the US heading into regardless...

The Fed is in a jam - let's have a look at the few scenarios:

They cannot raise rates as that will accelerate the default further as the US interest payments are enormous. I think 1% increase in rates is $50billion extra interest payments.... per month! Not to mention the incredible hardship placed on the general populace...

They cannot further decrease rates as it is impossible to offer a negative interest rate even though the real interest rates on all savings accounts in the US are negative.

Fed does not want a deflationary environment as this will take the legs out of the economy and make it that much harder for small businesses to obtain sales, employ people. Unemployment could be as high as 25%...


So what's left?

Fed does nothing - not possible as it is the mandate of the Fed (ironically) to achieve maximum employment, stable prices and moderate interest rates. If the Fed could be rated - FAIL.


So really they need to print more money... devalue their dollar further to cheapen their debt and try to jumpstart the economy... the phrase I have been reading more and more lately, is that will only kick the can down the road. They could do this for quite a while... the US have the advantage of reserve currency of the world and as much as there have been talk of other currencies, it will take a while to transition.

Only the can will be heavier and heavier as time goes on....

There's already been ripples... for a good while.

Just don't expect the roller-coaster to stop just yet!

Feel free to agree/disagree - this topic interests me greatly.

GLTA
 
The Fed uses QE as it is illegal for a central bank to directly purchase government bonds and is how the JPM, GS of the world have been having record profits when they have the Fed as a buyer of first and last resort.
Click to expand...

But isn't QE2 counted towards the massive debt the US has acquired? They have printed $600billion and are now sitting at ~14 500 000 000 000 USD. (14.5 trillion).

So if they print more QE3 the debt limit will be smashed through?

SO the question : isn't QE2 counted towards the massive debt the US has acquired?
 
Thanks somerset, I got the impression from Bubbles Bernanke's speech the other day that he has put the ball back in congress's court. Basically saying, "We did what was required, now if the country fraks up, it's the politicians fault."

"Fiscal Policy
Fiscal policymakers also face significant challenges. The federal budget deficit has expanded to an average of more than 9 percent of gross domestic product (GDP) over the past two years, up from an average of about 2 percent of GDP during the three years prior to the recession. The extraordinarily wide deficit largely reflects the weakness of the economy along with the actions that the Administration and the Congress took to ease the recession and steady financial markets. However, even after economic and financial conditions have returned to normal, the federal budget will remain on an unsustainable path, with the budget gap becoming increasingly large over time, unless the Congress enacts significant changes in fiscal programs."

Read more: http://www.businessinsider.com/bernanke-national-press-club-speech-2011-2#ixzz1PXHRtZHl
 
I think it's a case of hot potato! If the debt ceiling was raised, the same issues would come up eventually... just a matter of time. Bernanke is just sending a warning - don't add oil to the fire congressmen!

In my opinion, the QE2 is not counted in the government debt amount... the Fed is not creating the deb, they are buying it... the government is causing all the issues by bailing out their banker buddies! And what debt are you talking about anyway? If you talk about unfunded liabilities, it is many multiples of $14.5T

The Fed are monetising the debt i.e. increasing the money supply by purchasing the US government debt. They do not need to wait for the debt ceiling to do this. The Fed bank is separate to the government, they have created money out of nothing based on their purchase of debt. It is merely a shifting of one entity's liabilities to another's assets... now if I did that, I would be put into jail....
 
Since the ultimate foundation of the US Dollar is Treasury debt, that debt must be increased so that the "money supply" can be increased. If the supply of Treasury debt is NOT increased, the increased supply of US Dollars necessary to service and repay EXISTING debt will not be there. That is the situation presently faced by Greece.
 
Here is the problem'; the "recovery" has been fuelled almost exclusively by government money printing and government guarantees. In return, the financial managers have recycled this "liquidity" back into the same paper which brought on the great swoon of late 2008 while totally ignoring the "economy". Now, they can see the markets for financial "assets" sputtering everywhere despite their best efforts.
Ever since the gargantuan bailout efforts began in earnest in late 2008, global paper asset markets have operated on the understanding that since they are "too big to fail", there is no "risk" in anything they do. If they profit, they keep it. If they "lose", it's only on paper and the government will guarantee it anyway. This is the way all modern "economies" have come to be run. This is why all modern economies are being run into the ground in a futile attempt to keep the financial system "viable".
 
projack said:
Here is the problem'; the "recovery" has been fuelled almost exclusively by government money printing and government guarantees. In return, the financial managers have recycled this "liquidity" back into the same paper which brought on the great swoon of late 2008 while totally ignoring the "economy". Now, they can see the markets for financial "assets" sputtering everywhere despite their best efforts.
Ever since the gargantuan bailout efforts began in earnest in late 2008, global paper asset markets have operated on the understanding that since they are "too big to fail", there is no "risk" in anything they do. If they profit, they keep it. If they "lose", it's only on paper and the government will guarantee it anyway. This is the way all modern "economies" have come to be run. This is why all modern economies are being run into the ground in a futile attempt to keep the financial system "viable".
Click to expand...


So clearly and succinctly put ! I have learned much from this post ! Thanks :)
 
projack said:
Here is the problem'; the "recovery" has been fuelled almost exclusively by government money printing and government guarantees. In return, the financial managers have recycled this "liquidity" back into the same paper which brought on the great swoon of late 2008 while totally ignoring the "economy". Now, they can see the markets for financial "assets" sputtering everywhere despite their best efforts.
Click to expand...

So who's at fault, the Fed whom we always seem to blame or the Admin? Or are they complicit?
 
mmm....shiney! said:
projack said:
Here is the problem'; the "recovery" has been fuelled almost exclusively by government money printing and government guarantees. In return, the financial managers have recycled this "liquidity" back into the same paper which brought on the great swoon of late 2008 while totally ignoring the "economy". Now, they can see the markets for financial "assets" sputtering everywhere despite their best efforts.
Click to expand...

So who's at fault, the Fed whom we always seem to blame or the Admin? Or are they complicit?
Click to expand...


Fed was made by the biggest bankers and other elites. They all run the current economical system. So all we have to do is murder them all = problem solved. After that make bitcoin backed by gold and we're free.
(they call me a dreamer but [i hope] im not the only one)
 
mmm....shiney! said:
projack said:
Here is the problem'; the "recovery" has been fuelled almost exclusively by government money printing and government guarantees. In return, the financial managers have recycled this "liquidity" back into the same paper which brought on the great swoon of late 2008 while totally ignoring the "economy". Now, they can see the markets for financial "assets" sputtering everywhere despite their best efforts.
Click to expand...

So who's at fault, the Fed whom we always seem to blame or the Admin? Or are they complicit?
Click to expand...

Of course the US government; they haven't run a REAL balanced budget or a budget surplus since 1960. The closest they got was in fiscal 2001 when Treasury debt increased by $US 18 Billion. Nowadays, the Fed "buys" that much Treasury debt in well under a working week.
 
An economic good requires both time and effort to produce. Money is an economic good. In any advanced economy, it is the most important economic good there is because it acts as the medium by which ALL other economic goods are exchanged. As a medium of exchange, the most important difference between money and all other economic goods is that an increase in its "supply" does NOT result in an increase in wealth. Mr Bernanke stands out as being the most insistent that this increased supply of money has NO effect on the exchange ratios between money and goods which are prices.
 
spets1 said:
QE is almsot over (ends in june 20 i think?)

SInce US have already reached the debt limit some time ago. The congres has so far not passed to increase the debt limit. Therefore they cannot introduce the QE3?
AM I right here?

Maybe they will make the ECB print money? Whats the ECB debt limit?
Click to expand...

Wrong, they can start QE3 but unless congress raises the debt ceiling the printed money can not go to increasing the governments debt.

What everyone is missing is WHY QE is even necessary (really it's not but). In normal circumstances a country that has sound fiscal policies will usually stimulate by lowering the cost of money (interest rates). But because the US has been mismanaged for so long and interest rates were so low for so long (which created the bubble to start with and caused this whole debacle) the Fed has no other option. By buying US treasury debt (to which the Fed is now the largest holder) at very low rates and pushing all the rest of the money in the market down the risk curve they are effectively creating credit at LESS than 0% interest. So the Fed can maintain the current levels of bonds they hold and continue to roll them over but they can't buy MORE treasury debt because congress is stopping Government from offering it for sale in the first place.

To say as others have that if the ceiling is not raised it will cripple the government or everything will halt is complete rubbish. They would simply have to turn around and start a new budget every month that didn't involve spending beyond what tax revenues are. Sure that means 150Billion a month in spending cuts but it is completely achievable. It is basically what they should have been doing all a long. I for one hope that congress doesn't raise the ceiling because it will prove that the US government CAN live within it's means.

But back to the original question, yes the Fed can start QEIII without a debt ceiling raise but they can't buy US Treasury debt with the printed money. So that creates an even bigger question if the debt ceiling isn't raised and that is, what will the Fed buy with those dollars? If you can work that out in advance and could crystal ball the failure of a debt ceiling increase you could be a very wealthy man.

Cheer

Chris
 
Lovey80 said:
But back to the original question, yes the Fed can start QEIII without a debt ceiling raise but they can't buy US Treasury debt with the printed money. So that creates an even bigger question if the debt ceiling isn't raised and that is, what will the Fed buy with those dollars? If you can work that out in advance and could crystal ball the failure of a debt ceiling increase you could be a very wealthy man.

Cheer

Chris
Click to expand...
That is the problem with a gold/anything backed currency is if the AUD was backed by Gold the US FED would print $$$$$ buy AUD and redeem for gold and what did the pile of gold cost them? Zip. So a gold backed currency that is NON redeemable would have to be in place and this IMHO is not something you can trust pollies to do as you would find they have either printed too much $$ or do not have the gold they say they have to back it up due to dodgy accounting standards ALA fort knox
 
thatguy said:
That is the problem with a gold/anything backed currency is if the AUD was backed by Gold the US FED would print $$$$$ buy AUD and redeem for gold and what did the pile of gold cost them? Zip. So a gold backed currency that is NON redeemable would have to be in place and this IMHO is not something you can trust pollies to do as you would find the have either printed too much $$ or do not have the gold they say they have to back it up due to dodgy accounting standards ALA fort knox
Click to expand...

Yep, the French did it to the Americans, that's why they closed the 'gold window'
 
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