Bernanke laid out very specific conditions in which he would engage in further easing. That he is planning QE3 is not indicative of him implementing QE3.
Bidding up equity and commodity prices here in anticipation of “the punchbowl” is most unwise.
Bernanke wants inflation and a weaker dollar to spur exports. Recently he received both, with commodity and equity prices skyrocketing and the trade deficit (not the last report, the one before that) closing significantly.
But he cannot engage in further easing while commodity prices are so high. To do so would be counterproductive, destroying businesses most especially the small variety.
His easing is contingent on deflation being present.
In summary friends, if you want to see QE3, I must win first.
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thanks Cain,
like your insight .. your back of the envelope calc earlier about deposits was most interesting
you will continue to fade this testimony?
I will.
Everything in Europe is pointing to a stronger dollar, and you’d be nuts to think China hiking rates after an almost 10% inflation rate is going to bring them a stronger currency; just varying degrees of weakness in both of those situations. The prospect of spending reforms coming from the debt ceiling debate also aligns with that view.
On top of that, I get the feeling the economy is bumping up against high energy and material costs.
And specific to energy, if Libya/Middle East should stabilize then that is going to put a lot of pressure on crude prices.
There’s just too many things going on right now telling me to by short oil and energy, and to have lots of cash. If I renege, then those losses will have come with peace of mind.
sorry one more thought … do you really think the Bernank cares about small business?
nothing in the past would inidcate otherwise.
Yes, he definitely cares about small business. My impression of Bernanke is that he’s a conservative who hates what he’s being forced to do.
Juicing up the economy was all fine and dandy when prices were in a downward spiral. There was no demand for him to destroy so he had nothing to lose.
Here, if he hits the gas when who should let off, he can send the car into a wall. There needs to be a minute where he gauges what’s around him before laying on the accelerator any more.
I dont know if Japan has the luxury of waiting before enacting their own QE initiaitve. Yen is taking off on QE3 news. Tonight JPN will have to flush some more yen down the toilet to weaken their currency relative to the dollar. Its going to flow into commodities. How soon before it all goes boom!?
Cain,
I agree that if QE3 comes, it at least isn’t imminent..
however, I disagree that the Bernanke needs to see commodities cool off before hitting the accelerator again.. I believe he thinks he has outlets at his disposal to decrease demand (really speculation) in the commodities even if he’s to splurge some more money all over the system.. and I think the wild swings in silver, sugar, corn, etc. lend credence to this thought.. Although, I concede that perhaps the two most indicative commodities of inflation, gold and oil, are steadfast in their ascent.. thus far….
Also, your recent posts have been really interesting, accurate and informative…
Keep ’em coming!!!
The weaker dollar will help exports, but that’s only half the equation. The other half where we spend a shit load of money on imported oil will probably trump any gains from the exports.
cain,
you hit the nail on the head
the clam just mentioned high inflation today different from when QE2 was implemented ergo YOU must win in order for QE3 to gain traction
keep your insights coming
thanks again