QE ready for deployment, I repeat, QE is ready for deployment
Dumping Short Dated Paper is QE3? The Fed has 1.2 Trillion at least by their own admission in short dated paper, they are buying 400 billion in Long Dated Paper. Does this look like Zimbabwe aka Helicopter Ben in motion to you? They dump 1.2 Trillion of Short Dated Paper into the market what will be the effect? The Fed is a consortium of banks so that holds this paper on their balance sheets, so the banks are raising cash, as in dumping short dated paper, for a 2/3 less long dated paper? 1.2 Trillion Short Dated paper for 400 Billion Long Dated paper. By next June. So this is a flood of cash?
My question is: Just who is buying all the short term paper?
Who has that much money and since its short term and if there are no buyers then that means Uncle Sam must come up with the money. Right?
Let me rephrase my question... Who will the FED sell its short term paper to?
If FED is forced to sell the short term paper then in effect short term interest rates will rise and if short term interest rates rise higher than long term rates then the yield curve becomes inverted...
And every time the yield curve inverts then a recession ensues...
Help me understand as to what the heck is gong on.
Fed is trying to flatten the yield curve so that long term rates are lower and short term rates are higher. I doubt they are targeting a curve inversion.
Lower long term rates is intended to marry the monetary policy with the fiscal policy - watch for Obama/Fannie/Freddie to come out with a wierd underwater home refinancing scheme to coincide with the twist. They are trying to refi underwater homes into lower rates to lower monthly payments and increase consumer spending.
Higher short term rates will make short term holdings on bank balance sheets deteriorate, providing an impetus to lend long via mortgages. Most likely banks will sell as much as they can to fannie and freddie to capitalize the transaction and earn there while passing off the risk.