QE3 and Lifting the Smokescreen of Bernanke’s Intentions

“You levy a straw tax on the poor and impose a tax on their grain. Therefore, though you have built stone mansions,  you will not live in them; though you have planted lush vineyards, you will not drink their wine.” – Amos 5:11

I’ve picked up on stock market chatter of late regarding the possibility of another round of Quantitative Easing – the third round, or “QE3” – where the Federal Reserve prints money to “boost” the economy. I’ve got to get to work in a few, so I don’t have time to pull down every article, but everyone’s talking about it and better economic analysis of causes and outcomes can be found at Mish’s Blog, and there’s plenty of commentary from the crowd over at seeking alpha.

There are basically two camps to the argument. (Note that neither camp is necessarily full of “believers” – just folks trying to figure out what’s coming next since the Fed drives market prices more than ever before.) In the first camp, we have the pro-QE3 crowd (and by “pro” I mean they think it will happen, not necessarily that they favor it), who says “the economy is slumping, therefore the Fed will pump liquidity and we should all buy stocks because some of the new cash will make its way into the market.” Then there is the anti-QE3 crowd (again, they believe it won’t happen, whether they oppose or favor), who says “the stock market is at a peak, bond yields are at record lows, why on earth would the Fed pull the trigger on QE3 in this environment as it can’t possibly have a positive economic impact?”

Now,  I don’t know whether QE3 will happen, but I do oppose it (actually, I oppose the Fed and its rob-from-the-poor-to-give-to-the-rich policies). But we will find out in the next few months where Ben Bernanke and the Fed fall. Here’s the thing though, if the Fed does unleash QE3, when it cannot possibly improve general lending conditions (again, bond yields can’t go much lower, and even if they did it is unlikely to spur lending), then the only purpose can be to prop up stock prices (and perhaps prop up the bankers in the background). Of course, the vast majority of equities are owned by the super rich (among whom are a fair number of bank bond holders).

What will Bernanke do? What will he do with policies that can’t achieve the smokescreen goal of improving economic conditions but can pad the pockets of the uber-rich? It’s a cat and mouse game. When things are bad he has cover to push money to the Wall Street 1% in the name of “economic recovery” … but when those policies have reached the end of the line? Can he still pull it off and risk more people coming to the conclusion that he is a shill for the new robber barons? Time will tell, and we will be watching.

(I personally suspect QE3 won’t happen, not in a big form that folks expect, because Bernanke will protect the cover story and wait until later to enrich his buddies.)

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