The Full Bernanke

Helicopter Ben just pushed the Big Candy-like Red Button, kids.

The Federal Reserve launched another aggressive stimulus program on Thursday, saying it will buy $40 billion of mortgage debt per month and continue to purchase assets until the outlook for jobs improves substantially.

In a significant shift in the direction of U.S. monetary policy, the Fed has tied its unconventional bond buying directly to economic conditions, a move that is likely to be controversial among central bank critics.

“If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability,” the Fed said in a statement.

In an additional step that reflects just how concerned Fed officials have become about the health of the economy, policymakers said they would not likely raise rates from current rock-bottom lows until at least mid-2015. Previously, it had set such guidance at late 2014.

Not only is it QE3, but it’s got no set expiration date, apparently.  You know, exactly the kind of sustained growth program that everyone’s been screaming for now for a couple of years.  That sound you hear is Austrian-school economists exploding like microwaved giant jawbreakers, not to mention the sound of Mitt Romney’s campaign guys going “Umm…we argued that something had to be done, but we refused to provide specifics…now what?”

I gotta fiver says House Republicans will try to impeach somebody before the week’s out.

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131 replies
  1. 1
    Todd says:

    Shit. Maybe it is time for me to refinance.

  2. 2
    Hill Dweller says:

    While I’m thankful Bernanke is doing it now, I wish it would have come much earlier.

  3. 3
    Pinkamena Panic says:

    Can we get a TL;DR version for those of us who aren’t financial wizards?

  4. 4
    jwb says:

    Looks like Ben concluded that the race is over and so he can now get to work at doing his job. GOP reaction should be a good bell weather on the state of all the races.

  5. 5
    srv says:

    goldbugs have been saying we’re rolling into a recession, which seems reasonably accurate, so they’re going to go ape on this.

    Hyperinflation, black helicopters and all that by January of course…

  6. 6
    Soonergrunt says:

    “I gotta fiver says House Republicans will try to impeach somebody before the week’s out.”
    The office whack-jobs, also called Ron Paul supporters, have been going apeshit crazy for the last 20 minutes or so. Now I know why.

  7. 7
    Todd says:

    @srv:

    Hyperinflation, black helicopters and all that by January of course…

    Every gold bug I’ve ever known has spent years worrying about the hyperinflation and collapse that was inevitable from 1913 onward. Each cyclical downturn finds them rubbing their hands together like a bunch of demented houseflies over a big pile of fresh shit, squealing THIS IS IT, only to have their hopes dashed yet again.

    It is a form of mental illness.

  8. 8
    Alex S. says:

    Hmm, mortgage debt…. I guess this means a little more leniency for troubled mortgage owners and some billions to the banks. Let’s see how useful it will be. I don’t think that it’s the magical problem-solver some people think it is.

  9. 9
    Herbal Infusion Bagger says:

    Awesome! At last. Get those printers rolling, Ben.

    goldbugs have been saying we’re rolling into a recession, which seems reasonably accurate, so they’re going to go ape on this.
    Hyperinflation, black helicopters and all that by January of course…

    Gawd if only there was more inflation.

    But yeah, goldbugs are going to feel as the economy recovers and their investments are in nearly-useless shiny metal.

  10. 10
    Brachiator says:

    I guess it’s not true that you never go full Bernanke.

    @jwb:

    Looks like Ben concluded that the race is over and so he can now get to work at doing his job. GOP reaction should be a good bell weather on the state of all the races.

    May be another example of a word whose spelling is changed because we hear it but don’t read it.

    Bellwether

    I collect these examples. Thanks (unless it’s just spell checker gone wild)

  11. 11
    Belafon (formerly anonevent) says:

    I believe the title of this post is “Romney, When you’ve lost Ben Bernanke…”

  12. 12
    General Stuck says:

    Looks like republican Bernanke has escaped the nutter reservation and is collaborating with the enemy. Helping the economy is helping Obama get reelected. Traitorous stuff to the party with no conscience.

    And also too. Looks like Obama is no George Bush and can read stuff and understand it, whereas curious George needed the PDB national security written in crayon in the margins of My Pet Goat.

    It is Galt time for me. Too much stoopid in the air.

  13. 13
    Dave says:

    @srv: Hyperinflation…inflation is what, 1.4% year over year? The GOP obsession with inflation is killing us…

  14. 14
    FormerSwingVoter says:

    HOLY FUCKING SHIT. They’re not buying bonds, but directly buying mortgage debt???

    This could be huge.

  15. 15
    schrodinger's cat says:

    We need more stimulus, more jobs, easing the monetary policy is good but won’t do all the work. Interest rates are low as can be.

  16. 16
    Robin G. says:

    @Pinkamena Panic: This. Financial stuff zooms way over my head. Layman’s terms, please?

  17. 17
    PeakVT says:

    Good news. What’s interesting is that the FRB will be buying mortgage debt (presumably Fannie/Freddie, but I’ll have to check on that). I’d prefer Treasuries since the odds are much higher that they would stay permanently bought (meaning monetized), but by purchasing MBSs I suppose the FRB trying to strongly imply it will suck up excess money if/when the time comes.

    …exploding like microwaved giant jawbreakers…

    Do I dare ask how you know this?

  18. 18
    Soonergrunt says:

    @Pinkamena Panic: The Fed is putting cash into the economy by buying up mortgages and mortgage-backed securities. By doing so, they hope to increase the money available for people to purchase goods and services, thereby increasing demand for same, which will theoretically lead to increased employment as companies hire new staff to meet the increased demand, which people will then increase demand for goods and services themselves, thereby leading (in theory) to a “virtuous cycle”.

    I’m sure other, smarter people (IOW, damn near everybody else) can explain it better than that.

  19. 19
    JGabriel says:

    Reuters via Zandar @ Top:

    The Federal Reserve launched another aggressive stimulus program on Thursday, saying it will buy $40 billion of mortgage debt per month and continue to purchase assets until the outlook for jobs improves substantially.
    __
    In a significant shift in the direction of U.S. monetary policy, the Fed has tied its unconventional bond buying directly to economic conditions, a move that is likely to be controversial among central bank critics.

    I fail to see how, as Atrios might say, give more money to bankers is either aggressive or unconventional at this point.

    Seems like give money to poor and middle class people who need it and will spend it would be a lot more productive.

    .

  20. 20
    Dave says:

    @schrodinger’s cat: Well, we can take care of the jobs and stimulus by taking care of things in November.

  21. 21
    comrade scott's agenda of rage says:

    @Alex S.:

    I don’t think that it’s the magical problem-solver some people think it is.

    It’s not by any stretch. But, it’s the only thing that will happen since the Repugs in Congress decided to do everything they could to undermine any recovery in their zeal to oust the Ni-CLANG!

  22. 22
    Maude says:

    Bernake said to Congress months ago that they needed to do something about the economy, like infrastructure. He said that the Fed can only do so much.
    He was right and yet, he gets put down because he is not delivering miracles.
    During the Great Depression, the Fed did nothing at all.

  23. 23
    Argive says:

    Bernanke better not go to Texas anytime soon. Ol’ Rick might want a word.

  24. 24
    Villago Delenda Est says:

    I have a better idea.

    Forgive $40 billion of mortgage debt per month.

    Let the parasite scum banksters eat it.

    Fuck them. Fuck their children. Let them suffer. It’s time for justice to be done.

  25. 25
    Belafon (formerly anonevent) says:

    @JGabriel: If I understand correctly, the Federal Reserve can only release this money through the banks. There’s no way it could directly give any money to people.

  26. 26
    srv says:

    TRUTH must be in moderation… anyway, another try:

    Keynesian response:

    http://seekingalpha.com/articl.....aid-of-qe3

    Goldbug thinking is embedded in that post.

    My belief is that it will pump up the market, make treasuries and bonds less attractive, and unemployment will still be 8% next year.

    woot

  27. 27
    Turgidson says:

    I gotta fiver says House Republicans will try to impeach somebody before the week’s out.

    I predict threats on Bernanke’s safety. Potentially from a teahadist congressman. And when asked for comment, Romney will refuse to repudiate it.

  28. 28
    PeakVT says:

    And before anyone brings it up: yes, stimulative fiscal policy would be better. We all know that. But the chance of stimulative fiscal policy being implemented anytime soon is exactly zero. So some kind of action by the FRB is what we’ve got left.

  29. 29
    SatanicPanic says:

    @Todd: Since they’re so certain I suggest they preemptively take all of their money out of their ATMs, put it in a wheelbarrow and take it to buy bread, or start burning it in their fireplaces to keep their houses warm. Get a head start.

  30. 30
    Alex S. says:

    @comrade scott’s agenda of rage:

    True, it’s better than nothing.

  31. 31
    Culture of Truth says:

    I heard some jackass on the radio that all the Fed cares about is employment, which is not their mandate. I was like, WTF??

  32. 32
    Commenting at Balloon Juice since 1937 says:

    Why didn’t they just wait until November to do this?

  33. 33
    Argive says:

    @Maude:

    Yeah, it’s enough to make one wish that Milton Friedman was still around to remind people of what happened the last time the Fed sat on its hands while the economy spiraled down the drain.

  34. 34
    EconWatcher says:

    I don’t think this kind of monetary policy could do much while we had massive excess inventory in the housing market.

    Now that some of that has been soaked up, and we’re seeing some signs of life in housing prices, this might actually spur some construction, which would immediately help with the unemployment number.

    And by the way, not buying that Bernanke is a political hack. You need to entertain the possibility that he’s been perhaps overly cautious, but acted in good faith with the limited tools available to him.

  35. 35
    comrade scott's agenda of rage says:

    @Villago Delenda Est:

    I have a better idea. Forgive $40 billion of mortgage debt per month. Let the parasite scum banksters eat it. Fuck them. Fuck their children. Let them suffer. It’s time for justice to be done.

    I’ve just unlocked the warehouse with all the torches and pitchforks. Release the hounds!

    In all seriousness, the question comes back to would forgiving $40 billion of mortgage debt per month have any impact on the job market? It might if it let people walk away from their homes and, theoretically, move to a place where they can find a job. Not that I believe that’s the panacea some on the right and left seem to think it is.

  36. 36
    PeakVT says:

    This looks to be the key line from the statement:

    To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.

  37. 37
    ant says:

    so, this will help the balance sheets of banks so they can in turn issue more debt yes?

    I’m unejamactated on economics, an all that, but it seems to me that freshly created money would have lower inflation and higher productivity if it were spent on long lasting infrastructure, rather than handed to banks. But wudda I know right?

  38. 38
    Robin G. says:

    @Soonergrunt: Does that mean mortgages are being forgiven? Or that interest rates will be lower?

  39. 39
    Villago Delenda Est says:

    @Culture of Truth:

    Indeed, employment is specifically one of the things they’re supposed to be concerned with.

    But then jackasses on the radio don’t let reality get in the way of their idiocy, ever.

  40. 40
    eyelessgame says:

    If I were a speculator, I would wait about a week and start shorting gold. Because every paultard in the known universe is about to fly in from the Gamma Quadrant to buy it, and there’s going to be a huge spec bubble.

  41. 41
    Villago Delenda Est says:

    @comrade scott’s agenda of rage:

    In all seriousness, if you want to get a consumer driven economy running again, you give free money to consumers. Not to banksters.

    Consumers will, astonishingly, amazingly, and totally predictably use to do do several things. Buy shit, for example, and pay down their debt, which denies the parasites their 15% interest on consumer debt.

    People buying shit creates jobs to meet the demands of people buying shit. This is fucking Econ 101 that the arrested in Econ 101 crowd never comprehended, because the were too busy jacking off to visions of the Free Market fairy.

    I am absolutely for watching Jamie Dimon and others of his vile ilk writhe in searing pain.

  42. 42
    JGabriel says:

    __
    __
    FormerSwingVoter:

    They’re not buying bonds, but directly buying mortgage debt? This could be huge.

    Maybe it could be huge, if the Fed implements some form of loan forgiveness or cram-down once they possess the mortgages, but I doubt that’ll happen.

    .

  43. 43
    Zandar says:

    Layman’s terms?

    The Full Bernanke is not the Full Krugman, but it’s a damn good start. $40B/month in direct mortgage security buying on top of $45B/month in Operation Twist treasury bond buying, and a commitment to keep both going until employment gets the hell fixed and stays fixed.

    Housing market gets a defibrillator. Rates stay low, home prices go up, banks AND homebuyers have every reason to get in the game.

    Short of Republicans having their souls reinstalled and legislation passed, this is about as good as it’s going to get.

  44. 44
    Bill Arnold says:

    …exploding like microwaved giant jawbreakers

    Good to know.

  45. 45
    roc says:

    @FormerSwingVoter: Nope. They’re still just buying “mortgage-related” bonds.

  46. 46
    Greg says:

    @PeakVT:

    To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.

    That is HUGE. The Fed basically tries to ignore the part of it’s mandate to keep unemployment down to its “natural” rate as much as it possibly can. Actually saying that trying to do something about unemployment is their job, AND implying that they’re actually willing to put up with some inflation in order to do so indicates an enormous shift in policy.

  47. 47
    JGabriel says:

    __
    __
    Belafon (formerly anonevent):

    If I understand correctly, the Federal Reserve can only release this money through the banks. There’s no way it could directly give any money to people.

    You may be right, I don’t know. But if so, then it sort of undercuts Helicopter Ben’s nom de mockery.

    .

  48. 48
    mattH says:

    Aw. How nice. Now it doesn’t matter who wins, the next president will be credited with whatever results from this. Glad to know the fucking bastard finally feels safe enough to do this, but fuck him.

  49. 49
    Dave says:

    @Villago Delenda Est: If only the Fed could give money to consumers…which they can’t.

  50. 50
    hueyplong says:

    First the GOP effectively shuts down Congress so it can’t do anything to help the economy. Then it literally shuts down the government so as to cause affirmative harm.

    And we can expect it to call for the impeachment of Bernacke now that the one remaining entity with the ability to affect the economy has taken a step, however small and late.

    They’re definitely showing an impressive will to power, though the difference between that and pure sociopathic nihilism is escaping me.

  51. 51
    Turgidson says:

    I almost think Bernanke is acting politically here (although the case for Fed action is overwhelming too), given that they waited this long and could have kept punting until November. I think the prospect of a Robot/Granny Starver White House, taking orders from the teabaggers in the House, probably terrifies that everloving shit out of him. As it should any rational person.

  52. 52
    trollhattan says:

    @FormerSwingVoter:
    Yup, not only has real estate bottomed out, in many areas the economy’s biggest sector is home construction. There are gazillions (an actual figure, look it up) of approved, undeveloped and partially developed lots in inventory–many picked up at bargain prices–awaiting the green light to start building.

    Now, builders can perhaps supply the takeout financing.

  53. 53
    Villago Delenda Est says:

    @Dave:

    If the Fed bought up high interest consumer debt, instead of mortgages, it would accomplish two things: freeing up consumer cash to be used to drive the economy, and starve the banksters.

    Which is another reason why it won’t be done. The parasites must be appeased.

  54. 54
    Suffern ACE says:

    @Dave: It would be entertaining to see the response if they tried. “Hey, we’ve been telling you that we need coordinated fiscal actions for years now. Since you are gridlocked, we’ve decided to make that fiscal policy for you. Also, we’ll be collecting taxes from now on.”

  55. 55
    trollhattan says:

    @Bill Arnold:
    I’m stowing away this tidbit myself.

  56. 56
    JGabriel says:

    __
    __
    Zandar:

    Rates stay low, home prices go up …

    Is that really a good idea, returning home prices to the overvalued state they were in circa 2005-2008?

    Maybe it is, I don’t know, but it seems counter-intuitive to me — unless there’s inflation to match it.

    .

  57. 57
    Sly says:

    @Pinkamena Panic:
    Shorter Ben Bernanke (to Lenders): The beatings will continue, now indefinitely, until morale improves.

    The Fed is going to buy up mortgage securities at purchasing rate of $40 billion per month. The lenders who sell these securities to the Fed will increase their loanable reserves and, in theory, push that money out through the credit system. If done correctly (i.e. the right amount of purchases are made), it will become less profitable for banks to sit on their reserves than to lend.

    This the third time the Fed is doing this in three years. The first two times (QE1 in 2009 and QE2 in 2010) the Fed set a hard limit in terms of total purchases. Now they aren’t. They’re basically saying they are going to buy securities until employment improves or inflation starts to increase.

    The hubbub is over the fact that this isn’t an exact science. If the Fed makes fewer purchases than needed to lower the cost of lending, lenders will simply sit on those reserves, in part to make their balance sheets look nicer. If too many purchases are made, it puts too much money into the economy and increases the rate of inflation. With QE1 and QE2, though they did have an impact, the effect was less than expected.

  58. 58
    mattH says:

    Oh, and O/T, but from the guardian live-blog:

    US law enforcement identified Nakoula Basseley Nakoula, 55, as the film-maker behind Innocence of Muslims, portions of which appeared on YouTube, where one clip has been viewed more than one million times. The AP interviewed Nakoula on Wednesday at a location near Los Angeles (the film has been tied to a non-profit production company called Media for Christ based in Duarte, California, east of LA). During the interview, Nakoula, a Coptic Christian, admitted involvement but denied he was in charge:

    “Nakoula denied he had directed the film, though he said he knew the self-described film-maker, Sam Bacile. But the cellphone number that the AP contacted Tuesday to reach the film-maker who identified himself as Bacile traced to the same address near Los Angeles where Nakoula was located.”

  59. 59
    roc says:

    @Villago Delenda Est: Indeed. What we really need is a functional re-fi program that allows people who are suddenly underwater and too paralyzed to spend, to actually re-fi their mortgage at today’s low rates and drop their monthly payments to a point where they start shopping again.

    But shit like that requires an act of Congress. And Congress can’t act. (lest things get better and the uppity blah person in the White House get four more years)

  60. 60
    FormerSwingVoter says:

    @ant:

    so, this will help the balance sheets of banks so they can in turn issue more debt yes?

    Yes. More specifically, it will remove mortgage debt specifically from the balance sheets of banks (making this quite different, IMHO, from QE1 and QE2, which were focused on long-term treasuries), reducing the risk in lending for homeownership.

    Mortgage rates are going to drop to ridiculously low levels, allowing existing homeowners to refinance and get out from their debt overhang and let them build up equity. Meanwhile, those who don’t own are going to find that getting a house built may actually be cheaper than renting, given that current mortgage rates make that a close race in some areas already. Homes are built, construction workers are employed, people move in, durable goods (stoves, dishwashers, fridges) are purchased, manufacturing picks up to keep up with the demand, all while the folks who refinanced finally have a significant amount of spare cash to spend on whatever the hell they want.

    This is a Good Thing.

    …if it works. Given what we saw from QE2 I’m pretty damn confident, though.

  61. 61
    Dave says:

    @Villago Delenda Est: I’m pretty sure the Fed cannot buy up consumer debt. Whereas they can buy up mortgage debt from the banks since that is allowable under the rules.

    No sense in wishing for things that can’t actually happen just to damn the things than CAN happen.

  62. 62
    EconWatcher says:

    @Turgidson:

    The thing is, you can explain his actions without needing to posit any motive to manipulate politics.

    He did QE1 and QE2 to address the worst of the crisis, but then came to the conclusion that monetary policy couldn’t do much more (“pushing on a string”), until other conditions changed.

    Now that they have (eg, potential in the housing market), and unemployment is still horrific, he’s acting again.

    As I mentioned earlier, the easiest explanation is that he’s just trying to do his job.

  63. 63
    Applejinx says:

    I want to hear what Krugman thinks about this!

    Whatever the details, I have a feeling that ‘Austrian school economists explode’ is good news for me (as a small business guy weathering another nasty economic dip, barely)

    If this is indeed a break in the austerity, it’s probably going to translate into sales for me. Seeing as I sell things to people, people who have money to buy things with. It’s a concept called a ‘business’.

    Wait. ‘sell things to people’. Sell things to people! Rather than manipulate financial instruments to build hypothetical capital! THERE’S where I went wrong the whole time!

    Guess I’ll continue being my kind of fool :)

  64. 64
    GregB says:

    I hope he doesn’t use black helicopters for this round.

  65. 65
  66. 66
    Zandar says:

    @JGabriel:

    You’re right. There has to be a balance, but given how far home prices have fallen since 2006, some lead foot action on the accelerator is warranted.

    If anything, the last 5 years has proven there is such a thing as “not enough juice” in these stimulative actions.

  67. 67
    jayackroyd says:

    @Brachiator: Oh we like sheep.

    I suppose the Candy like button reference should have been on the quantum teleportation thread.

  68. 68

    @Dave:

    If only the Fed could give money to consumers…which they can’t.

    It could, however, give (more) money to banks, earmarked towards reducing consumer debt.

    Which it won’t.

  69. 69
    Punchy says:

    saying it will buy $40 billion of mortgage debt per month and continue to purchase assets

    To a finance dumbass like me, can I get a layman’s explan here? Buying this debt from whom….banks? Is this just lining the banks pockets or am I wrong?

  70. 70
    srv says:

    Since we will never get the alien invasion Krugman wants, maybe the creative destruction of a civil war is the best stimulus policy.

  71. 71
    roc says:

    @JGabriel: Home prices won’t be at the 2005-2008 levels for quite some time. There’s just too much inventory. But there’s a long way between where we’re at and the peak. And the closer you get, the fewer people who are underwater and can refi and free up monthly funds for consumer purchases.

  72. 72
    The Moar You Know says:

    And so ends Romney’s campaign to become the next President of the United States.

  73. 73
    jayackroyd says:

    @FormerSwingVoter: No, they are buying mortgage backed securities. You know, the securities banks are not marking to market because they would be less solvent.

  74. 74
    Raven says:

    @Turgidson: No, political! Say it ain’t so.

  75. 75
    Culture of Truth says:

    @Villago Delenda Est: Then he started panicking about inflation. I’m like, dude, how panicking about unemployment, ya know!? I don’t the person’s name but he sounded like a wingnut.

  76. 76
    The Moar You Know says:

    But yeah, goldbugs are going to feel as the economy recovers and their investments are in nearly-useless shiny metal.

    @Herbal Infusion Bagger: They will, but only a small number of the idiots who’ve run the gold bubble up in the last four years are Americans.

    More than 75% of gold sales over the last four years have been to only two countries, China and India. They are going to get hammered.

  77. 77
    Culture of Truth says:

    As I mentioned earlier, the easiest explanation is that he’s just trying to do his job

    Everybody needs a change of pace in life

  78. 78
    jwb says:

    @Brachiator: No, not spell check. Just missed it.

  79. 79
    Cermet says:

    @JGabriel: The Fed can’t do that (lend to people directly)- only congress. The Fed is trying to do what it can and buying mortages is a good way to free banks so they will have money to lend.

  80. 80
    catclub says:

    @Soonergrunt: Now might be a good time to ask if they are so smart, why they did not predict it — and make money off the announcement.

  81. 81
    catclub says:

    @jayackroyd: Isn’t is _Agency_ MBS that they are buying, so Fannie Mae and Freddie Mac?

  82. 82
    Enhanced Voting Techniques says:

    @JGabriel:

    Is that really a good idea, returning home prices to the overvalued state they were in circa 2005-2008?

    the magic of controlled inflation – a few years of that and suddenly “over valued” becomes the normal and the people burred so find life easier. That’s what happened to my dad when his $20K in 1973 became $150k house in 1980.

  83. 83
    Turgidson says:

    @EconWatcher:

    Oh I’m not saying I’m convinced it was political, and the aciton announced is certainly in keeping with Bernanke trying to do his job. Just that I wouldn’t be shocked if political considerations were involved, given the Fed’s recent “we’re still thinking about it” approach, which they seemingly could have kept going with until after the election.

    In any event, I’m glad for the move. Hopefully it’ll give the economy a nudge.

  84. 84
    Eruch says:

    @srv: Huh. You be trollin? Krugman argued (facetiously) that the belief of an immanent alien invasion would spur government spending, and end this depression now. Did you somehow misunderstand?

  85. 85
    roc says:

    @trollhattan: HARP is why I specified functional. The requirements exclude far too many people to be effective. As one can see from the rates at which people use the program. (abysmal)

  86. 86
    Brandon says:

    While I like the action, buying MBS’s instead of treasuries is a bad move and could have serious negative repurcussions. First, the measure continues to protect asset prices and the rentiers, at the expense of investment and risk taking. Second, it will drive up yields on Treasuries, which increases borrowing costs to the government at precisely the time we need to be thinking about fiscal policy, not monetary. I see this as a strategic move to hamstring Obama’s second term towards making concessions on spending and entitlements, while keeping taxes low, all in the name of economic recovery. Because at this rate, the only thing that is going to get this economy going again is fiscal policy and this move by the fed makes future fiscal stimulus much harder, while making US debt costlier. Forgive me for being cynical, but at precisely the time that banks will need to start meeting Basel III capital requirements and nearly all American banks had still not written down their bad assets from the bust, the Fed decides to turn itself into a ‘bad bank’ and just accept all these assets for free? When we know for a fact that the last time the banks got a capital injection from TARP, they didn’t use the money to lend but instead used it to make foreign acquisitions? Talk about debasing our currency. The Fed basically agreed to do everything Krugman et al were asking for, but structured it in such a way to maximize itd obnoxiousness.

  87. 87
    catclub says:

    @Commenting at Balloon Juice since 1937: No idea.

    Also, someone said that Helicopter Ben could not just forgive
    mortgages. If true, how about promising to buy MBS securities of mortgages that have been forgiven, and make a market for that.

    Third, it still looks like the only thing in the dual mandate that actually matters in inflation. Unemployment, meh.

    Imagine instead a case where inflation was over 8% and unemployment at 2% — for four solid years! I suspect they could find some tools in that case.

  88. 88
    randolf hurts says:

    @comrade scott’s agenda of rage:

    debt relief leads to having money to spend, which generally leads to spending it, which is frequently done by buying things, which includes selling things, which happens when things are made, which is done by people with jobs.

  89. 89
    FormerSwingVoter says:

    @roc: It’s really ramped up over the last couple of months – they’ve removed a LOT of the restrictions.

  90. 90
    Culture of Truth says:

    In the Fed’s first round it purchased $1.25 trillion of mortgage-backed securities; in the second round, announced in November 2010, the Fed bought $600 billion of Treasuries.

  91. 91
    Greg says:

    @Brandon:

    While I like the action, buying MBS’s instead of treasuries is a bad move and could have serious negative repurcussions

    It’s about 50% MBS’s and 50% treasuries ($40B in MBS’s through December, and $45B in treasuries). So don’t worry, treasury rates aren’t going anywhere in the short term.

  92. 92
    jayackroyd says:

    @Judas Escargot, Acerbic Prophet of the Mighty Potato God: Of course they can give money to consumers. They could give every adult an ATM card, put ATMs in every post office, and, if they wanted, send out money to those accounts. Even without the send money part, this is obviously good public policy. It creates a competitive bar for commercial banks, and puts various usurious practices, like payroll loans and check cashing services, out of business.

  93. 93
    Davis X. Machina says:

    In all seriousness, if you want to get a consumer driven economy running again, you give free money to consumers. Not to banksters.

    They’ll just buy t-bones and 40’s of malt liquor and menthols and 22″ rims with it.

    This way we know it’s going to worthy people…

  94. 94
    jayackroyd says:

    @catclub: Hah! I don’t know. Do you have some support for that? Because it’s not clear from what I’ve read. But everything I’ve read is third hand.

  95. 95
    ThatLeftTurnInABQ says:

    @hueyplong:

    They’re definitely showing an impressive will to power, though the difference between that and pure sociopathic nihilism is escaping me.

    __
    Pure sociopathic nihilism has way better aethestics. The NSDAP would never have come to power in 1930s Germany if they had been forced to rely on cast off costumes from travelling circuses and paintings on black velvet for their uniforms and agitprop.

  96. 96
    Ben Cisco says:

    @Villago Delenda Est: Well, the children won’t actually suffer since the bankers are already sitting on a pile, but yes, I concur.

  97. 97
    jayackroyd says:

    @catclub:

    Imagine instead a case where inflation was over 8% and unemployment at 2%—for four solid years! I suspect they could find some tools in that case.

    +1

  98. 98
    schrodinger's cat says:

    @catclub: Monetary policy is effective at curbing inflation not so good at creating jobs while also keeping the inflation low. BTW you can thank Lucas and Friedman of the University of Chicago for the ongoing obsession with inflation.

  99. 99
    trollhattan says:

    @roc:
    My bride is a loan officer and has successfully used HARP with a number of clients, including some with rather breathtaking LTV ratios. It’s not a huge program, however.

    The banks themselves throw out innumerable barriers to refi-ing, basically the inverse of what they were doing five years ago, and the appraisal process has become a magical black box of mystery.

    Added up, the home loan system is crippled beyond belief.

  100. 100
    Culture of Truth says:

    @jayackroyd: From the official statement:

    “the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.”

  101. 101
    var says:

    Pushing on a string. The velocity of money is low right now so pumping this out is not going to help Joe Sixpack. Banks will just take the money and sit on it. He’d have been better off getting the choppers flying and dumping the cash.

    I’ve already refinanced twice and I’ll need a 3.0% rate to make it worthwhile. Of course if it hits 3.0% I may just start borrowing for shots and giggles and turn myself into a leveraged bond fund.

  102. 102
    Bulworth says:

    Isn’t it about time that our teabag congress passed another bill repealing obamacare? /

  103. 103

    @jayackroyd:
    I won’t argue with any of that, since we’re on much the same page. But I also think that I’ll get a pet unicorn that shits gold bricks before Congress or the FIRE sector would allow such obvious aid to consumers to ever happen.

    I’m surprised Bernanke is taking this kind of action at all, much less right now, before the election. Wishing I could read his mind (or at least had access to the same info he does).

  104. 104
    catclub says:

    @schrodinger’s cat: “Monetary policy is effective at curbing inflation not so good at creating jobs while also keeping the inflation low.”

    Well, of course not when part of that statement is ‘keeping the inflation low’: that is a threat that whenever inflation might possibly, in some future dystopia, rise above our target, we will clamp down with all our tools.

    The point is that if they said we can stand higher inflation than our target until unemployment comes down, then there is less fear ( and uncertainty). They are not doing that, but still emphasizing that inflation must be kept low.

    It is similar to the needed size for the US defense department relative to other nations. Ask someone if having it be 15 times as big as the nearest other nation and they might say that is big enough – but it is even bigger, and growing.

    Ask for inflation to be lower than than it was in 1989 ( say 4%) and that is impossibly high,
    even though we managed to survive it then. 4% inflation is not the same as the Weimar hyperinflation, but that message is not getting out, or even being tried by the Fed.

  105. 105
    JGabriel says:

    __
    __
    Cermet:

    The Fed can’t do that (lend to people directly)- only congress.

    What if they give it away? Can the Fed do that?

    ‘Cause that’s where I was going with it, not lending.

    ETA: And I see jayackroyd has been pushing the same idea for much of thread.

    .

  106. 106
    catclub says:

    @JGabriel: Any rule can be got around, if the motivation is there. I suggested buying MBS of mortgages that have been forgiven. Result should be more forgiven mortgages.

  107. 107
    Legalize says:

    Would make sense for existing homeowners – who are good on their mortgages – to roll credit card debt into their mortgages, since, theoretically, home values will go up? I have some clients who would be interested in that.

  108. 108
    Brandon says:

    @Greg: Thanks for that info. It is helpful to know because what I’ve read so far seemed to indicate that they were buying MBSs instead of T-Bills. I would still rather QE3 be restricted to T-Bills because I think the Fed already did a “trash for cash” during the crisis and it did nothing to lift commercial or consumer lending. And I’d like to point out that the decline in consumer lending has more to do with consumer retrenchment and even if the banks had cleaner balance sheets and did offer to lend at attractive rates, consumer demand wouldn’t necessarily follow. I am more convinced it is more of a subsidy for ailing banks to meet Basel III capital requirements, than anything. But beyond that, as a recent homeowner who stands a lot to lose, I firmly believe that continuing to protect asset prices, which is what got us into this situation in the first place (thanks Alan) is the wrong move. Sadly though, aggressive fiscal policy just doesn’t seem possible under the current political environment. I do appreciate though that the Fed is willing to finally stick its neck out for a higher inflation target, which helps debtors, however they cannot seem to fully turn their backs on policies that favor the haves, by continuing to prop up assets.

  109. 109
    Brachiator says:

    @Legalize:

    Would make sense for existing homeowners – who are good on their mortgages – to roll credit card debt into their mortgages, since, theoretically, home values will go up? I have some clients who would be interested in that.

    What? Where is this coming from? If home values go down and people lose their homes, this stuff of rolling credit card debt into home mortgages can be disastrous.

    Anyone seriously recommending this is a financial charlatan.

  110. 110
    PeakVT says:

    @Legalize: Um, have you been asleep for the past decade? Homeowners shouldn’t bet on home prices doing anything more than keeping up with inflation, because over the long run that’s about all they have done. Planning on anything else can lead to disaster.

  111. 111
    fledermaus says:

    I’m sure the banks will get right on that economy thing, right after they finish counting all their free money. Or maybe they will do nothing about the economy because they can keep paying taxpayer funded bonuses to themselves with free money as long as things remain bad.

    Nah, they’d never be that self serving

  112. 112
    catclub says:

    @Brachiator: I will grant that many of the people pushing this will be charlatans, but the idea is sound, if you have available net equity in your house, the interest on a home equity loan will be less than that on the credit card. But the real point is that after you get it, you do not increase debt again on the credit card,
    which is also the hard part.

  113. 113
    trollhattan says:

    @Brachiator:
    And it’s pretty much what folks were doing through 2008. I don’t agree with eliminating the mortgage interest deduction but that behavior is one unintended consequence. But of course, until the Reagan Revolution(pbuh) all consumer interest was deductable. And now it’s just mortgages.

  114. 114
    Maude says:

    @JGabriel:
    Never read the Federal Reserve Act huh? I have and what you are saying utter nonsense.
    Only the House can appropriate money. Not the Fed, not the Senate, not the President and not the tooth fairy.
    This bit about giving people money is idiotic fantasy.

  115. 115
    Brandon says:

    Just read through the transcripts of the press conference and Bernacke says point blank that the whole point is to drive up asset prices to create a wealth effect to get people to spend more. If reinflating the housing bubble (precisely at a time when young professionals are facing unprecedented student loan debts and higher underwriting standards) and using your house as an ATM is the sum total of economic policy in our country and the best that our greatest minds can conjure up, I truly feel pessimistic for our future. Apparently Bernacke was in a coma during the years preceding his appointment. I guess we can count as a victory the fact that at least Bernacke is willing to consider inflation at higher than target. In this environment I am surprised that he has not been called a commie for proposing a policy that is not a total sop to the banks.

    Also, Bernacke acknowledged that the core problem is the lack of demand, however the Fed has very few demand-side tools and policies designed to make Treasuries less attractive a place to park money before the government has a chance to at least attempt fiscal policy seems foolish. Why constrain fiscal policy with a monetary policy that cannot do what is needed to be done?

  116. 116
    Villago Delenda Est says:

    @Maude:

    This bit about giving people money is idiotic fantasy.

    Hey, Bernake has been giving money to banksters for years now.

    Just not to the people who actually drive the economy. Banksters do not do that. They hoard it. They once were in charge of efficiently allocating capital. Now they are just parasites.

  117. 117
    danielx says:

    All together now, 1…2…3…

    About Fucking Time

  118. 118
    Ben Johannson says:

    This won’t improve the economy. All it will do is add more reserves to bank balance sheets, which they are already swimming in. The point of the program is to try and make people feel better. Tthat’s it.

  119. 119
    👽 Martin says:

    @Brandon:

    Why constrain fiscal policy with a monetary policy that cannot do what is needed to be done?

    Because as you note, they have few other tools. Congress does, but they’re off having a 2 year long tea party and can’t be bothered to use the very powerful tools they possess.

    But the effect here doesn’t need to be as you describe. Yes, there’s a risk of using your home as an ATM, but I don’t think that’s likely to happen. That phenomenon came out of homeowners recognizing that their equity had grown significantly and looked likely to keep growing. Today, the goal is to help underwater homeowners. The market is such that the conditions for using your home as an ATM don’t exist. They will, eventually, but the Fed is presumably feeling they can head that off when the time comes.

    We’ve got friends that we talked to just yesterday. They were asking us how we make ends meet. I work for the state, I make (relatively) shit money for the area, and I’m in a $700K home. We got there because we took every advantage of the runup and never took on more debt. We always assumed the run would end tomorrow. They’re in a similarly valued home, bought in 2007, and are paying $3500 a month – almost 3x what we are. They’ve got a kid in college and one in private school (disability). They’re strapped – right at their limit, and have been for a few years now as they’re underwater in their home (we bought in 2003 and are well ahead). But they’re also in the process of refinancing (we already did a few months ago) and that refinancing is going to be a MASSIVE help to them. They’re still going to be tight, but they’ll no longer be paycheck to paycheck. And the housing market here is firming up due to the lower interest rates so they should be above water soon and can decide to stick it out, or sell, move a few cities away where it’s cheaper, and really get a bunch of breathing room.

    Yes, if the housing prices go up, people like me that aren’t underwater can start doing the HELOC thing, but we never did it before – which is why we aren’t underwater. We’re not going to start now. So, I don’t think a repeat of 2004-2008 is inevitable in the near term.

    And all of those things aside, the Fed HAD to do this. They had to back up Europe’s plan to do the same thing. The most critical thing to do now for the whole damn planet is to find a way to break through this austerity mindset. Until that happens, we’re fucked and Europe is fucked.

  120. 120
    jayackroyd says:

    @schrodinger’s cat: You can thank Lucas for the Fed’s, and the neo Keynsians, including Krugman, concern about expectations. The desire for the Fed to credibly commit to an inflationary regime is directly descended from the Lucas Critique of Keynsian macro modeling of the 70s.

    I think FDR’s program of throwing money at the problem, and employing everyone who wanted work is a better strategy, but the Fed credibly declaring a willingness to buy bonds for the foreseeable is better than nothing.

  121. 121
    schrodinger's cat says:

    @jayackroyd: Yes the neo-Keynsians are kinda pathetic, they are the econ version of the both sides do it, Punditubbies.

  122. 122
    jayackroyd says:

    @Judas Escargot, Acerbic Prophet of the Mighty Potato God:

    Yeah, good public policy like this is not on the table. I could lecture you about the dominance of centrists in our policy discourse. (In fact, stuart zechman and I do that every week at Virtually Speaking A-Z.) But it should be on the table, and we should talk about it. At the very least, it should be the case that the Fed creates a competitive baseline for the banks, with an account that allows you to cash your checks, withdraw cash and make debit payments.

  123. 123
    Brachiator says:

    @catclub: :

    I will grant that many of the people pushing this will be charlatans, but the idea is sound, if you have available net equity in your house, the interest on a home equity loan will be less than that on the credit card. But the real point is that after you get it, you do not increase debt again on the credit card

    Turning debt for items with a short life (most credit card purchases) into long term obligations is idiotic. It can also expose a person to ruinous consequences if the value of their home declines and there is a foreclosure.

    @trollhattan:

    And it’s pretty much what folks were doing through 2008. I don’t agree with eliminating the mortgage interest deduction but that behavior is one unintended consequence. But of course, until the Reagan Revolution(pbuh) all consumer interest was deductable. And now it’s just mortgages

    Having credit card debt deductible helped dig people into a deeper hole (again, see admonishments about turning short term obligations into long term debts), especially as interest rates rose and incomes declined. The later tightening of the rules related to bankruptcies tightened the screws on many taxpayers.

    And, Christ on a shingle, if Obama is not re-elected and the Mortgage Relief Act not extended, more homeowners hanging by a thread will be cut loose.

    Damn, it’s like people are hoping for another crazy ass housing bubble to magically rescue them.

  124. 124
    Brandon says:

    @👽 Martin: the only reason the Fed “had” to do anything was to try and prove in vain that it is still relevant. When I was an undergrad taking political economy and macro for fun, the big takeaway was that monetary was the preferred engine for economic growth and that fiscal policy was vastly inferior. The worst thing that could happen to the Fed is that people stop belieiving in the power of the Fed and stop assuming the righteousness of monetary policy. They “had” to act as a desperate ploy to preserve their credibility, nothing more. We’ve already seen that this type of solution only leads to massive profits at banks and does nothing to restore real economic growth.

    You are right that Congress is incapable and unable of taking responsibility, however that is another story and it shouldn’t be within the remit of the Fed to try and make up for the deficiencies of a branch of government.

    But I think the example of your experience misses the point. Bernacke himself said during his press conference that he wanted to inflate asset prices to promote wealth effects and spur consumer spending. It is exactly the Bush economy and it is awful a economic policy and unsustainable. Better economic policy would be to punish asset hoarders/rentiers and promote risk taking. That would mean promoting policies that would continue to drive down asset prices, not reinflating them and promoting household savings, not debt-based consumerism. It is difficult to go from where we are today to there, but this is a step in the wrong direction.

    And all for the sake of pride, so that the Fed doesn’t look impotent. It would be better if the Fed just promised to switch from an inflation target to a GDP or jobs target before considering raising rates. And then putting the pressure on politicians to promote policies that increase demand beyond what a weak dollar does for promoting exports.

  125. 125
    priscianusjr says:

    @Hill Dweller:

    While I’m thankful Bernanke is doing it now, I wish it would have come much earlier.

    I has been expecting this all along, i.e. that there would be a stimulus just prior to the election. I strongly suspect it was agreed on as a quid pro quo four years ago at the same time they worked out the earlier stimulus. That;s why Obama did not “fight harder” at that time for a bigger stimulus, at least not publicly. He had it but he couldn’t say he had it.

    So, ironically, while we all wish it would have come earlier, I think it was held up by the president’s own choice as a kind of insurance policy, if you see what I’m saying. It’s kind of like, “Do you want it in one lump sum, or in distributions?” And strategically, this way of distributing it makes the most sense. Of course it had to be secret because there would have been wailing and gnashing of teeth on all sides.

  126. 126
    Mike Lamb says:

    @Brachiator: In no recourse states, rolling your credit card debt into a lower rate HELOC is far from idiotic.

  127. 127
    Pen says:

    Quite frankly, as someone saving up for his first home, the idea that skyrocketing prices back to the level they were during. The housing bubble is a good thing… No thanks. The average home price in the area I grew up in, which is means wealthy, is about $200k if you want anything but a trash heap you’ll have to sink tens of thousands into to repair. That means that in order to buy my first house I need to have between $15-40k in cash for a downpayment.

    How many first time home buyers who are paying rent do you see able to come up with that kind of money? Raising prices may be great for people underwater but for us newcomers they flat out fucking suck.

  128. 128
    Sasha says:

    More likely, the GOP will go all out to win so that they will get the credit for the inevitable improvement of the economy.

  129. 129
    Brandon says:

    @Pen: Exactly. It penalizes everyone that is trying to do things ‘right’, by protecting existing asset owners. I am personally really frightened for the future of college grads today. Barely lucky to get jobs and in undischargeable student loan debt up to their ears with no hope of saving a down payment to buy a house and start their lives. And punished by a tax code that provides massive incentives for married couples with children and property owners. There is no limit on the mortgage interest deduction, student loan interest is only deductible up to $2500, with an income limit/cap attached. Our countries economic policy and tax code is deliberately screwing an entire generation, which I assume is for the purpose of getting them to hate government and entitlements. And I wouldn’t blame them.

  130. 130
    Villago Delenda Est says:

    The other thing here is, he’s buying these idiotic mortgage “securities”.

    Not mortgages.

    Individual mortgages would be pretty easy to just forgive and move on. But the securities are tied up in all sorts of ways that have nothing at all to do with the physical pieces of real estate that they represent.

    So, the MERS mess remains. The entire breakdown of centuries of legal precedence in titles remains. Banks don’t know, and cannot prove, that they hold mortgages because of this system. They try to forclose, and if the homeowner fights back, they lose, because they have no proof at all that they hold a lien to the property in question. These things were moved around quickly, to collect the fees, with the actual collection of the interest on the mortgage utterly forgotten in the process.

    This mess is HUGE. It creates, for the profit of a very small few, uncertainty for the rest of the economy that cannot be easily fixed by the normal due process means that were deliberately sabotaged in creating it to make some quick bucks on fees…not the interest on the mortgage itself.

    The incentive system was totally fucked up and a few people walk away rich (I won’t be here, you won’t be here) the rest of us are left to clean up the monumental mess.

  131. 131
    imonlylurking says:

    @Legalize: It usually is never a good idea to roll consumer debt into home equity. Something like 75% of those who do run up the cards again. (That’s the number Bankrate.com used to have, ages ago. I don’t know what it is now.)

    It would make sense iff the people involved had already stopped using the cards.

    (I used to hang out on the Motley Fool consumer debt message board, a very long time ago.)

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