“Investors should prepare themselves for a third round of quantitative easing, Simon Maughn, co-head of European equities at MF Global, told CNBC Wednesday.
“The bond market is going in one direction which is up-falling yields which is telling you quite clearly the direction of economic travel is downwards. Downgrades. QE3 (a third round of quantitative easing) is coming,” said Maughn. “The bond markets are all smarter than us, and that’s exactly what the bond markets are telling me.”
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QE is net deflationary, I am sure Bernanke knows this.
QE was a giant market stabilizing attempt, successful. QE2 was a giant head-fake trying to get markets to quit freaking out, also successful with an inflationary overshoot.
But I am not sure that Bernanke is likely to spring another round of soemthing ultimately harmful to the economy in the hopes of another head fake… maybe at S&P 1150…
How is it net deflationary?
maybe in 30 years or whatever when the principal plus interest is due, but you could say that about every loan in the history of the financial system… yet here we are and prices of every asset class have gone up since we severed the tie between gold and dollar in 1971. It’s because if I loan you $1M and as a bank you lend it to someone who buys a house for 10M putting the $1M in a house and putting 10M in the hands of the home seller, he then has $10M and the bank he deposits the 10M now can loan 100M from that $10M of reserves plus there’s 10M in the system from the loan.The system creates more money, even if there is principal plus interest due. To keep the system going more money will be created to cover the interest and most likely they will overdo it then. There have been bailouts every decade pretty much to inject liquidity and keep the system going, they will continue with this as long as we are a FIAT currency.