Will The Fed Initiate Shock & Awe?
Many are speculating that the Fed will announce additional “easing” tomorrow (Tuesday). As I ponder this potential announcement, I can’t help but think that it will end up being more than we expect rather than less than we expect. If it is less, I would think that the markets go a little lower since it seems the recent run-up in stocks has something to do with pricing in QE2. Additionally, while the Fed is politically independent in theory, it’s really not in practice. Therefore, with the elections coming up, it seems to make sense that the Fed could act to prop up the stock markets (unfortunately, a major barometer in the minds of Americans). So, will the Fed come out with a big announcement like a $5 trillion QE program? Boy, you better hope you own gold prior to such an announcement.
The reality is as we move forward in this grand central planning experiment, it will take more each time not less to get the same results (and even more for more results). QE2 will need to be bigger than QE1. QE3 bigger than QE2. The only time this will end of course is when the negatives outweigh the positives of QEX. At this point, we’ll be past the point of return in my opinion.
Isn’t the bigger issue here, however, the fact that this is even on the table at this point? We’re three years in to this economic downturn. that’s right… three years. Three years ago, you would have definitely guessed that the Fed would be discussing pulling back, not doubling down at this point in the game. Yet, here we are, and we need more printing of money. Where will be in another three years?