QE2 NOT AN ECONOMIC STIMULUS
What a laughable concept that the Quantitative Easing was to stimulate the USEconomy!! Not even close. In fact, the Stimulus Bill had only a trifle stimulus inherent either. It was primarily about plugging the vast state budget shortfalls, which have reappeared in full force. Even the name Quantitative Easing is an insult to human sensibilities. It is hyper monetary inflation, which would sound bad. Heck, Neo-Conservative was another euphemism, a label that sounded better than Neo-Nazi. It also fooled the public, an easy task since dominated by simpletons. The actual beneficiaries of QE and QE2 were the big banks. They were given freshly printed electronic funds for their toxic bonds in a vast redemption process. They have been given nearly infinite credit lines to speculate in the easy USTreasury carry trade. They borrow at near 0% and invest in long-term bonds. In the process, low rates enable the big US banks to play the carry trade while their balance sheets fall backwards from the crippled housing and property credit asset. The practice keeps long-term rates down. The USGovt is hard pressed to find willing investors in USTreasurys. So QE and QE2 really helped to compensate for those scarce investors.
THE MONETARY POLICY BLUFF
Anyone who truly believes that QE will stop is a verifiable moron. Already this week, three USTreasury auctions took place. All three were borderline dismal. The main advantage for the USGovt again was the slide deeper into recession for the USEconomy. The effect exposes the destructive inter-relationship, since the USGovt needs a miserable lifeless moribund USEconomy in order to sell its USTreasurys, the packaged USGovt debt. During the last several months, the USFed has been the buyer, directly or indirectly, for 70% of the USTreasury debt securities. Apply the indirect argument to include the inventory of bonds gobbled by obligation from Primary Bond Dealers. They typically have been recycling their USTBills and USTBonds back to the USFed during Permanent Open Market Operations in three weeks on average, an abomination. With foreign creditors backing away and the USFed supposedly buyers no more, a huge vacuum cometh. Again, anyone who truly believes that QE will stop is a verifiable moron.
USGOVT DEBT LIMIT STENCH
The power harlots in WashingtonDC are playing a dangerous game. They have been attempting, much like the Europeans, to redefine what debt default means. The debt rating agencies have been rushing on stage to clarify the matter. The one party refuses to budge on tax hikes. The other party refuses to budge on spending cuts. Both sides obediently leave alone the sacred war so as not to anger the narco barons and fear merchants. The sad fact of life is that Wall Street banks would sink into a failure pit in three months time without the money laundering from the narco operations bound within the smokescreen of a spurious war on terrorism. A glimpse of what might happen with a closer flirtation on debt default has been seen with a quick move in the 10-year USTNote yield from 2.86% low last week to the 3.18% Thursday. It rises to give a quiet alarm.
INTEREST COST WILL SOAR IF EXIT FROM ZIRP
The most basic reason why extreme monetary inflation will continue is the absent demand for USTreasurys. The most convincing practical argument down the road only a little in time is that the entire USGovt debt structure cannot afford higher borrowing costs. The Zero Interest Rate Policy has been blessed as near permanent. Debt Monetization as policy goes hand in hand with ZIRP. Since the US banking system died in September 2008, the USGovt deficits have exploded past $1.5 trillion annually. Most of the recently issued debt securities have been in the very short term maturities, a trend begun by the Clinton Admin. If QE is halted, then short-term yields would rise and long-term yields would rise. The result would be a doubled borrowing cost for the USGovt debt. Not gonna happen! Inflation as policy will rule!!