Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Before the main part of the piece ADP payroll came in at 216,000 versus expectations of … 203,000. Nothing out of line there.
Some biting words from the always blunt Richard Fisher, president of the Dallas Fed. With talk like this one wonders how Fisher keeps his job. Of course QE1 was offered to the markets/economy when the country was in crisis – many argue now it was reasonable. QE2? There was some summer weakness in 2010 and markets were jittery post flash crash and tough summer…. but good enough for “crisis action”? And now even as Operation Twist continues the constant whining from the Wall Street crowd for QE3. (even as the Bank of Japan and Bank of England have done new rounds of QE in the past few weeks, along with a trillion injection into the European banking system via LTRO) What domestic emergency am I missing? 2% GDP is now an emergency? Or is a 7% drop in the stock market nowadays considered a reason for monetary stimulus. Seems to be…
I am personally perplexed by the continued preoccupation, bordering upon fetish, that Wall Street exhibits regarding the potential for further monetary accommodation—the so-called QE3, or third round of quantitative easing. The Federal Reserve has over $1.6 trillion of U.S. Treasury securities and almost $848 billion in mortgage-backed securities on its balance sheet. When we purchased those securities, we injected money into the system. Most of that money and more has accumulated on the sidelines: More than $1.5 trillion in excess reserves sit on deposit at the 12 Federal Reserve banks, including the Dallas Fed, for which we pay private banks a measly 25 basis points in interest. A copious amount is being harbored by nondepository financial institutions, and another $2 trillion is sitting in the cash coffers of nonfinancial businesses.
The Dallas Fed President warned that an addiction to monetary morphine is dangerous, adding that if data continues to improve, albeit at a very modest pace, “markets should begin to preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage.”
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Long time readers know I don’t believe that last statement one bit – I am sure Fisher believes it but Mr. Bernanke is a different animal. Short of $140 oil he will QE until the cows come home, because the good Yellens and Bernankes of the Fed truly believe they are creating jobs via QE (Yellen states that QE1+QE2 = 3 Million Jobs), and that a fleeting wealth effect is worth hundreds of billions added to the balance sheet every 5-6 quarters.
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