Happy days are here again on Wall Street, which saw stocks, commodities and gold going higher immediately after the big news that the Federal Reserve will begin an open-ended program of new Quantitative Easing, known affectionately as "QE3". But this time the Fed is going all-in with it's biggest QE yet. And it's all supposedly because of the nagging unemployment problem. Never mind that QE1 and QE2 did little, if anything to actually reduce unemployment.
The plan is to purchase $40 BILLION per month in Mortgage Backed Securities "until such time as unemployment reaches an acceptable level". But Bernanke's statement omitted any direct benchmark as to what an "acceptable" unemployment number would be. And, the big question that few in the main stream media have asked is "How in heck will purchasing MBS's have a direct impact on unemployment?" But I suppose the answer is that as long as you protect the big banks from collapsing under the weight of mortgage assets that are worth less than one-half of their face value, you are essentially protecting the economy from further job losses. This post from John Wu helps explain what Bernanke is really doing.
Everyone at the Fed is well aware of how unpopular another trillion dollar banking bailout would be if the public actually KNEW that the taxpayers were about to pony up another 2 or 3 trillion dollars to help the banks out, not to mention politically unpopular in a big election year.
So, Bernanke is doing this for "the man on the street" to help grow more jobs and reduce unemployment. It's the one angle that the public will tolerate, and besides most people have no idea what Mortgage Backed Securities are, and how buying them actually impacts the economy.
We've had QE1, QE2, and Operation Twist since November of 2008, growing the FED balance sheet by TRILLIONS of dollars. Yet unemployment is still above 8% "Officially", while private analysts using real numbers (not government accounting gimmicks), placed the unemployment level for August 2012 at 22.8%.
Housing is still in the tank. Mortgage credit is still very difficult to obtain, and home sales have improved only marginally. At present mortgage rates are around their lowest level since 1956, yet this has failed to jump-start the housing market. It's very difficult to see how buying trillions more in MBS's will result in a different outcome than we've already seen.
No, the real strategy here is to cover up a second bailout of banks and the bad assets they are holding. When Bernanke says "prices are not rising", or "Inflation remains low" he's not referring to YOUR food prices or YOUR inflation rate, he's referring to the value of bank owned mortgage's or Mortgage Backed Securities. In his world, inflation is non-existent and deflation is the real problem. If you live atop the banking and finance pyramid, as Bernanke does, you see the problem in a totally different light.
Bernanke obviously believes that saving "main-street" means funneling money to the big banks for as long as necessary. And that's exactly what an open-ended QE3 is really about. It's a very dangerous position Bernanke is taking. The market fundamentals that are keeping home values low and delinquency rates high are like a tidal wave which Bernanke seems to believe he can hold back with a large bucket of sand.
In fact, Reggie Middleton, of BoomBustBlog.com has called Bernanke out on this and says that Bernanke is "lying through his teeth". The general media just accepts it as if it were a normal occurrence. Middleton further points out that if Bernanke were interested in reducing unemployment, he could purchase SBA bonds and funnel the money directly into loans for small business, and hit the unemployment problem directly at the business level.
Instead Bernanke has chosen to force interest rates even lower, continue to prop up the banks, and buy MBS's for as long as it's needed. The direct beneficiary of this policy is the big banks who will be unloading their mortgages at what will likely be a much better price than they'd get if they were forced to sell them on the open market.
So the same game of hiding toxic assets, that began with the 2008 crisis is continuing today - pump up the banks and hope that the housing market and broader economy begins to recover before the dollar totally collapses.
Donna S. Robinson is a real estate market analyst, investor, author and speaker in Atlanta, GA Follow her on twitter at donnaconsults and read her blog at her website: RealtyBizConsulting.com