atticus, come on. Firstly, will you please answer my question? Secondly, as we all know, realistic solutions are rarely the same as perfect solutions. Yes, I agree with you that QE2 is hardly optimal, but it's a compromise among very many different interested parties. At any rate, forget QE2. My question was generally in reference to continued monetary stimulus, rather than the specific method by which said stimulus is being administered.
I thought I did. OK, law of diminishing return. The manner in which they effect the stimulus is critical (to ME). It's not a bunch of Amish raising a barn. These f*ckers are grossly and criminally mismanaging your sizable tax payments.
Not mine, they ain't... Merv's (mis)managing mine at the moment. Fair 'nuff, though, I see your point. Would it be accurate to say that, if, hypothetically, they had chosen a "better" way to administer the stimulus, you wouldn't find it objectionable? So if they were in the mkt buying more MBS, say, and 30s, you wouldn't have a beef with that, in principle?
OKI, makes sense, thx... I don't have a disagreement with the point you're making. IMHO, they're doing what they're doing for a reason, but that's a different discussion altogether.
Okay, but if the point is to great an asset bubble (*), then why does it matter if it's MBS or long bond, or short bonds? In fact, wouldn't another large scale purchase of MBS effective crush the liquidity that market while the disruption to the treasury market is far less? (*) In some sense, we (include the Fed) can concede that it is trying to create an asset bubble by reducing short term rates to nothing; The logic is that an asset bubble created by speculative exuberance results in a recession while an asset bubble created by financial leverage results in a far far worse recession or even a depression. So the Fed chooses the lesser of the two evils.
I am not intentionally obtuse, but I contend that they are both speculative and leveraged. W.r.t the MBS, an error of omission is not a tacit agreement. I would probably move to DC with a .300 Win Mag if they started buying BOFA's paper. I would be far less obnoxious, lol, if they were attempting to make sound macro decisions. The Fed reminds me of a CME local I knew who was trading a Eurodollar model with implied pricing over par. Didn't work so well. I'll stop with one analogy/metaphor and a final thought. You don't pour gas on a fire. And if so, insure the f*cker first. Whatever they are doing isn't working.
Frankly I think you are intelligently arguing a useful point. I wish more ET threads go this way. Why do you think QE2 is creating a leverage bubble. By any measure, neither consumer, or indutrial, nor financial sector leverage is high (or even growing at all). The latest few Sr Loan Officer Survey confirms the point. Asset allocation to equity where not made on leverage, but from outflows from fixed income. Finally, economic stats do look to be improving. I'm not arguing that this is necessarily due to QE2, but certainly it doesn't argue that it has failed.
I suppose I am having a rare lucid moment. I agree that this thread is more the ideal than the norm. No, sorry, I think that public debt is the problem, not private. It's not my niche, other than spending some time at Booth. I don't have the figures, so I will defer to your trend-data. Illinois and Cali are ready to secede to Mexico, but they won't have them. My brother in law is an oligarch and sees no reason to come back to the US (Booth grad). I suppose my objections are more philosophical than quantifiable. I realize that $700B in stimulus is a drop in the bucket, but we're becoming inured by the state of being in which we're incapable of experiencing pain. The demos on job creation escape me, but the trend-model is broken. We need what, 270k jobs just to maintain? I have a problem with throwing trillions at a 4% yield. Truly my biggest hang-up is the lie that is QE2 and the inability to at least allude to making a profit. Lose money in the Treasury scheme, but short the Euro or something. Let us believe that you're not simply throwing the $ in the toilet. They will be desperate for private bids when the coupon trades to 8%, and they the bid to cover will never exceed 2:1. I have no problem with infrastructure stimulus as long as it's 100% Federal programs. The States make the Fed look like a team led by Einstein and Bohr.
Isn't it more of a problem if the Fed did a trade? The Fed is not suppose to be a hedge fund; Nor is it suppose to make money. It's dual mandate is price stability and economic growth - not making PnL for the US Govt; Isn't the general idea that, if the Fed creates a loss but generated economic growth, the gain in GDP should offset the losses and is preferrable to the reverse? Finally, if the Fed lets its holdings mature, there's no realized loss to the tax payer.