Its Not If, But When Till It Goes Poppppppppp?

[Panda]

http://macrobusiness.com.au/2011/06/commodity-crash-building/

Federal Reserve officials are in no hurry to respond to recent indications U.S. economic growth has hit another soft patch, despite chatter in financial markets that the Fed might start a new program of U.S. Treasury-bond purchases to boost growth.

The central bank has already purchased more than $2 trillion of mortgage and Treasury bonds. The purchases are meant to hold interest rates down by reducing the supply of securities in private hands and to drive investors into areas such as stocks to encourage businesses and consumers.

Fed Chairman Ben Bernanke signaled in April that the hurdle to more “quantitative easing,” as it is known, is very high and Fed officials have done nothing to indicate that Mr. Bernanke’s guidance has changed as economic data has worsened in recent weeks.

In an April news conference, Mr. Bernanke said the tradeoffs that would come with additional purchases were becoming unappealing. “It’s not clear we can get substantial improvements in [employment] without some additional inflation risk,” he said.

Fed officials have largely held to that line. In comments last week, St. Louis Fed president James Bullard said the Fed was entering a period in which Fed policy will be on pause—meaning it won’t be trying to push interest rates either higher or lower. Charles Evans, president of the Chicago Fed and a strong advocate of past programs, said earlier last month that what the Fed had done already was “sufficient.”

In comments Wednesday, Cleveland Fed president Sandra Pianalto said the Fed’s current stance was appropriate and added the recovery was likely to continue, even though growth “may be frustratingly slow at times.”

Mr. Bernanke has argued that past bond purchases haveworked, but it has have taken a political toll on the Fed. Critics in Congress and overseas say the Fed is fueling inflation globally.

“They don’t want to do QE3,” said Vincent Reinhart, an economist who formerly ran the Fed’s influential division of monetary affairs. QE3 is what many traders have dubbed the possibility of a third round of Fed securities purchases. The last round of quantitative easing, which will amount to $600 billion of bond purchases, is set to conclude at the end of June.

[Errol]

So raise rates to quell inflaton but print money

Eh?

[tomwatkins]

Eh?

I'll second that...Eh? What?

[scepticus]

I'm surprised they haven't thought of raising rates a touch and continue printing.

Absolutely not, that is definitely the route to hyperinflation or a terrible liquidity trap depending on how it was done.

I covered that here:

http://liminalhack.wordpress.com/2011/04/27/finding-the-end-ii/

If rates are raised without paying interest on reserves, you get hyperinflation.

If you raise rates by paying interest on reserves then because there is such a large quantity of reserves relative to the amount of longer duration bonds you'd end up with a yield curve looking very flat, but having its short end anchored at some place above zero.

Insane things would result from such a horrible structure.

[The Masked Tulip]

Where is commodities discussed?

[scepticus]

“They don’t want to do QE3,” said Vincent Reinhart, an economist who formerly ran the Fed’s influential division of monetary affairs. QE3 is what many traders have dubbed the possibility of a third round of Fed securities purchases. The last round of quantitative easing, which will amount to $600 billion of bond purchases, is set to conclude at the end of June.

I think that's a correct interpretation. The FED needs to wait until the level of pain reaches a level that its has regained some political capital.

Even then, I suspect that the next initiative won't be more of the same because there are plenty of other options besides QE3.

[Panda]

Where is commodities discussed?

QE is driving the commodity bubble, once QE, well should QE end, watch commodities fall, but its the "IF" QE ends....................Why lend to business when you can make on forever bubbling commodities? Its the exotic speculative bubble which followed real estate.

[Panda]

there are plenty of other options besides QE3.

You knew i would ask......options.....elaborate.............your opinion?

[scepticus]

You knew i would ask......options.....elaborate.............your opinion?

Too many options to really mention. However, consider that when the commods bubble pops, what will QE be "driving" then?

[Georgia O'Keeffe]

Too many options to really mention. However, consider that when the commods bubble pops, what will QE be "driving" then?

a 1958 plymouth fury, preferably red & white

Edited June 3, 2011 by georgia o'keeffe

[scepticus]

a 1958 plymouth fury, preferably red & white

NEXT!

[libspero]

Too many options to really mention. However, consider that when the commods bubble pops, what will QE be "driving" then?

QE drives feeds government borrowing, and the purchase of worthless assets that people would rather not mark to market AFAIK.

Commodities will only crash if there is no demand for them.. which would imply perceived deflation, which would result in more printing, which would result in higher inflation expectations, which would result in higher commodity prices again. Etc...

[scepticus]

QE drives feeds government borrowing, and the purchase of worthless assets that people would rather not mark to market AFAIK.

Commodities will only crash if there is no demand for them.. which would imply perceived deflation, which would result in more printing, which would result in higher inflation expectations, which would result in higher commodity prices again. Etc...

Thanks for that objective analysis. All bubbles pop regardless of the underlying asset.

[aussieboy]

QE is driving the commodity bubble, once QE, well should QE end, watch commodities fall, but its the "IF" QE ends....................Why lend to business when you can make on forever bubbling commodities? Its the exotic speculative bubble which followed real estate.

Really.... Does that warrant the thread title?

[aussieboy]

Thanks for that objective analysis. All bubbles pop regardless of the underlying asset.

Given that the definition of a bubble is usually retrospective, the fact that they pop is hardly surprising.

[Kazuya]

So raise rates to quell inflaton but print money

[Bruce Banner]

Given that the definition of a bubble is usually retrospective, the fact that they pop is hardly surprising.

Only to the participants .

[Panda]

Really.... Does that warrant the thread title?

Its Bardon he returns, the ladyaussieboy! Thought you would jump aboard..................

[aussieboy]

Its Bardon he returns, the ladyaussieboy! Thought you would jump aboard..................

Just back in from the rsl?