With QE2 “Sealed”, Next Rate Hike Won’t Come Until 2015 Says Goldman

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homeDARPAcontributorsnewsforumszh-tshirtstoredonaterssmanifesto A Different Direction for the Foreclosure Mess? Posted by: Bruce Krasting Post date: 10/10/2010 – 22:36 I have to believe this is happening. The only question is,”How much?” 2 Big 2 Foreclose–Is The Subprime End Game Approaching? Posted by: williambanzai7 Post date: 10/11/2010 – 04:31 After a bad opening, there is hope for the middle game. After a bad middle game, there is hope for the endgame. But once you are in the endgame, the moment of truth has arrived. – Edmar Mednis (Grandmaster) The Heads I Win, Tails You Lose Market. Posted by: madhedgefundtrader Post date: 10/11/2010 – 07:15 Ben Bernanke has privatized the upside of the global stock, bond, currency, commodity, energy, and precious metals markets, and socialized the downside, with his much publicized move towards quantitative easing. While former Treasury Secretary Hank Paulsen spoke about a bazooka in his pocket, Helicopter Ben is hinting that he has a 100 megaton thermo nuclear weapon. Navigation PollsDonate To Zero HedgeRecent posts Shopping cart View your shopping cart. User login Username: * Password: * Create new accountRequest new password Zero Hedge Reads Angry BearBearish NewsBoom Bust BlogChina Financial MarketsChris Martenson’s BlogContrary InvestorCoyote BlogCredit WritedownsDaily CapitalistDaneric’s Elliott WavesDealBookDealbreakerDr. Housing BubbleFalkenblogFibozachiFund My Mutal FundGains Pains & CapitalGlobal Economic AnalysisGonzalo LiraImplode-ExplodeInfectious GreedInvesting ContrarianJesse’s Café Américain Market FollyMax KeiserMinyanvilleMises InstituteNaked CapitalismOf Two MindsPension PulseShanky’s TechBlogThe Daily CruxThe Mad Hedge Fund TraderThe Market TickerThe Technical TakeThe Underground InvestorWall St. Cheat SheetWashington’s BlogWealth.netWhen Genius Prevailed Home With QE2 “Sealed”, Next Rate Hike Won’t Come Until 2015 Says Goldman Tyler Durden's picture Submitted by Tyler Durden on 10/11/2010 08:00 -0500

Ben BernankeCore CPICPIFree MoneyGross Domestic ProductJan HatziusMonetary PolicyOutput GapQuantitative EasingRecessionrecoveryReserve CurrencySan Francisco FedUnemploymentYield Curve

Jan Hatzius pretty much slams the door on any possibility for a liquidity moderation (let alone exit): “We found that under our own economic forecasts it might take until 2015 or longer before a rate hike became appropriate.” In other words, the US economy will very likely just go down in flames, as the Fed makes sure that each and every American is infinitely “rich” courtesy of zero cost debt denominated in worthless dollars. The only salvation from this outcome is for the rest of the world to stage a Fed intervention before it all burns down. Of course by that point, the next reserve currency will be in tow, and few if any will care what happens to that particular former superpower. And just the message is heard loud and clear, Hatzius says that even with a QE of over $100 billion (but under $150 billion) monthly will hardly proceed to rescue the economy: “Even after the next 6-9 months, we still see still plenty of headwinds that will keep the growth pace slow by historical US recovery standards.  And in an absolute sense the economy is unlikely to look good for a long time to come, especially from the perspective of unemployed workers who will continue to face difficulty finding jobs.” This, however, will not prevent speculators, now awash with more free money than they could ever imagine, from opening commodities limit up each and every morning until the end consumer finally realizes that $5 gas/$10 milk does not quite jive with the core CPI lies.

Full Hatzius note:

1. Friday’s jobs numbers put the seal on a quantitative easing announcement at the November 2-3 FOMC meeting.  Excluding Census layoffs, the economy lost 19k jobs in September, the weakest since December 2009.  The private sector logged a 64k employment gain, but this was more than offset by an 83k drop in state and local jobs, concentrated among teachers.  In addition, the preliminary benchmark revision (to be finalized early next year) suggests that the economy lost 366k more jobs between March 2009 and March 2010 than initially estimated.  In contrast to the weak establishment survey, the household survey was mixed but on balance slightly better than expected.
2. What will the Fed do?  The data over the next three weeks will matter for the details, but right now we expect an announcement of something like $500bn in purchases through the spring or summer of 2011, coupled with a strong signal that they are prepared do more if needed.  Indeed, it is also possible that they will announce a monthly purchase rate of perhaps $100bn until their inflation forecast returns to levels closer to their mandate.  Whichever way the announcement is structured, we expect the monthly purchase rate to be below the $150bn pace seen in the spring and summer of 2009.
3. The FOMC is also still thinking about other ways to ease financial conditions, in particular via changes in its communications.  While the point of asset purchases is to bring down the term premium at the longer end of the yield curve, the point of changes in communication is to convince the market that the funds rate will stay low for even longer than is now discounted.  So the two policies are very complementary.
4. To achieve a further drop in fed funds rate expectations, we have argued that the chairman might want to give a detailed speech about “optimal monetary policy” models showing that it might take several more years before a hike in the funds rate becomes appropriate.  We found that under our own economic forecasts it might take until 2015 or longer before a rate hike became appropriate (although we emphasized that this was a scenario projection rather than a formal forecast).  Another example is the article by Glenn Rudebusch of the San Francisco Fed available at http://www.frbsf.org/publications/economics/letter/2010/el2010-18.html, which currently would also seem to imply no hikes until late 2012 or early 2013 (the precise date depends on the FOMC’s new forecasts to be released in the November minutes).  If the Chairman presented his own version of this type of analysis, this would not be a “commitment” because it would be based on uncertain forecasts.  But a detailed explanation by Bernanke of just how long the funds rate might stay near zero could nevertheless help lower bond yields and ease financial conditions further, and thereby complement the QE2 announcement.
5. So will it work?  QE2 and its impact on financial conditions is one key reason why we expect the economy over the next 6-9 months to be only “fairly bad” (1%-2% GDP growth, a gradual increase in the unemployment rate, and modest further disinflation) rather than “very bad” (a renewed recession with outright declines in GDP).  Other reasons are that bank credit quality is improving gradually and activity in the cyclical sectors of the economy is already so depressed that renewed large-scale declines are unlikely.  There are still some significant recession risks out there, most notably (a) a bigger-than-expected house price decline driven by the large-scale supply overhang and (b) a sharper-than-expected turn to fiscal restraint, i.e. a full expiration of the 2001-2003 as well as 2009 tax cuts.  But barring these risks, the more likely outcome over the next 6-9 months is below-trend growth rather than recession.
6. Even after the next 6-9 months, we still see still plenty of headwinds that will keep the growth pace slow by historical US recovery standards.  And in an absolute sense the economy is unlikely to look good for a long time to come, especially from the perspective of unemployed workers who will continue to face difficulty finding jobs.  Also, because of the large output gap, inflation is likely to fall somewhat further and the funds rate is likely to stay near 0% for a very long time to come.  But if we get through the next 6-9 months, the growth pace is likely to pick up in the remainder of 2011, from clearly below trend to about a trend pace.  So the pattern should look more encouraging than in 2010.

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by Hondo
on Mon, 10/11/2010 – 08:08

If that come true it won’t matter as true anarchy in the streets will be well underway. Wahington and the Fed will be gone by then and the family farm will make a come back.

Login or register to post comments by Kina
on Mon, 10/11/2010 – 08:11

The sky is full of black swans, Goldman are opptomists.



Login or register to post comments by Deep
on Mon, 10/11/2010 – 08:14

I could be dead wrong, i dont think the FED does QE this November. Not with the SP at 1165, and commodities going thru the roof and the dollar tanking.

I think they will hold.

In the long run, does not matter, the average guy was not taking on debt at record low rates, what is another 50-100bs gona do. NOTHING.

They are trying so hard to revive an old system that no longer works. Our economy is built on credit expansion, that is over. Most people are broke or living pay check to pay check. Most baby boomers are done spending.

Anyone who is bullish has to ask themselves, why is the FED gonna do another QE?

When everyone is on one side of the trade (QE will save us), I will gladly take the other side



Login or register to post comments by SheepDog-One
on Mon, 10/11/2010 – 08:18

Me too, when everyone has Q/E2 signed, sealed and delivered I’m taking the other side of that crap. This level of certainty of future events is nonsense, far too simplistic, and doesnt take into account these guys are all basically a bunch of Batman villains.

Login or register to post comments by macholatte
on Mon, 10/11/2010 – 09:35

Hold on a moment.

Isn’t the November meeting to get “approval” and/or support for QE2 but not necessarily implement it?  I mean they’re not going to print $100b per month no matter what. Isn’t the idea that once BB gets the authority, he will be able to act as he chooses at will?  We should expect some kind of announcement that tells us that they approved it “for use when necesary” or other such smoke and fog.

         Or did I get that all wrong?

Login or register to post comments by unum mountaineer
on Mon, 10/11/2010 – 08:16

is forclosure-gate (did somebody get a new catch-phrase yet?.I did not get the memo) add more gas to QE2 fire? -i.e., heli-ben to self: “self, shit is bad, but with these forclosures…more importantly the CDS deals are worthless defrauding products, the PDs/banks are really roasted.”


will populace view this then as the pitchfork moment? or will they catch it in time? Since when does the FED care what the “populace” thinks? inquiring minds…

Login or register to post comments by SheepDog-One
on Mon, 10/11/2010 – 08:21

Yep now that everything is totaly bankrupt and the banks are back in deep trouble and the FED holds trillions worth of junk stock, I guess thhey’ll pull $5 trillion out of a magic hat to pay everyone off and keep stocks rising.

If people cant see this fraud has no place to go but very bad real soon, well good luck to em they’ll need it.

Login or register to post comments by Fagin_Lives
on Mon, 10/11/2010 – 08:24

Actually, we may be passing the whole pitchfork phase in it’s entirety and moving directly into ropes and lamp posts. 

Login or register to post comments by Billy Ray Val
on Mon, 10/11/2010 – 09:08

Now that no one buys our votes, the public has long since cast off its cares; the people that once bestowed commands, consulships, legions and all else, now meddles no more and longs eagerly for just two things—-Bread and Games!

Juvenal, Satire 10.77–81

Login or register to post comments by FreddyInBangkok
on Mon, 10/11/2010 – 10:04

since the bank gets to conjure into existence the amount of the loan & write it into the borrower’s account I’m unclear as to why they don’t unconjure the thin air owed & just carry on as normal. 

iow, if the money didn’t exist in the first place what does it matter if it doesn’t get paid back.

Login or register to post comments by unum mountaineer
on Mon, 10/11/2010 – 08:22

idk, fairly irrelevant at this point..it helps to ponder some of this shit some of the time…definitely not all the time

Login or register to post comments by Kina
on Mon, 10/11/2010 – 08:22

I cannot understand how the Fed thinks QE will work, just as a stimulus was doomed to failure in the end. Everybody is lent or borrowed up to the hilt.

They are pumping fuel into a flooded carburetor. All that fuel has gotta drain first.

Login or register to post comments by American Dreams
on Mon, 10/11/2010 – 09:44

The Fed’s plan is working as designed – loot the treasury, devalue and debase the currency over multiple generations then keep the spoils. 


there be no shelter here

Login or register to post comments by Yikes
on Mon, 10/11/2010 – 08:22

The article in the Telegraph that TD posted sugests that BB wants QE2 in order to force China to revalue the Yuan.  FWIW

Login or register to post comments by Mad Mad Woman
on Mon, 10/11/2010 – 08:28

What are these people at Goldman smoking?  Damn, I forgot to bring my boots along this morning.

Login or register to post comments by Yardfarmer
on Mon, 10/11/2010 – 08:32

A fairly decent assessment of the chicken coop by one certainly definitely sly fox. The characteristic feature of these financial prognostications from the dominant financial institutions such as Goldman and the international hegemons such as the IMF is, to a large degree what is left unsaid as much as anything that is actually enunciated. Now that the Pandora’s Box of endemic MBS security fraud tied to the real monster of fraudulent OTC derivative counter party contracts has blown wide open, Hatzius’ somewhat sanguine and disingenuous assessment of “the pattern should look more encouraging than in 2010” is little more than a whimper in a howling gale of approaching Cat 5 hurricane. Batten down the hatches. 

Login or register to post comments by kaiserhoff
on Mon, 10/11/2010 – 08:34

So all along, Goldman has had a five year plan?  Who knew?

Login or register to post comments by cjbosk
on Mon, 10/11/2010 – 08:34

My vote is for austerity, it would be faster (perhaps more painful) but austerity works…instead we’re going to die a death by 1000 cuts in stead of a dagger to the chest. 


Login or register to post comments by lynnybee
on Mon, 10/11/2010 – 08:35

our older generation will be wiped out.   they saved & saved fiat money for their old age & it will just evaporate.    how the hell will they even pay for their utility bill & food !   the whole thing is just a damn outrage.   Does anyone else remember going to the bank when we were teenagers, making a deposit into our savings account & the bank teller would take out a little rubber stamper, ink the stamper on an ink pad & just STAMP IN OUR NEW BALANCE on a savings passbook ?    

Login or register to post comments by Dr. Dre
on Mon, 10/11/2010 – 08:38

Another approach — fed may announce a staged program — we will buy whatever it takes qquarter by quarter.  This will cover everyones ass.  They can buy more if they need to and buy less if they need to, or if there is no consensus.  Maybe they announce the first figure — $250 BLN remainder of 2010 or something so as not to freak out markets.  But someone above is right they may get spooked by the unintended consequences (ie commodity inflation while wage deflation continues — ie lower standard of living) so they have to tread carefully.

I agree with other posts – the QE will not bring about jobs.  It will inflate assets and this is not great for the US.  But dont fight the tape.  Just trade and invest.   Right is a totally different matter.


Login or register to post comments by sushi
on Mon, 10/11/2010 – 08:40

An estimated 50% of FRNs are held outside the US. What happens when Joe Borski and Francois Fu get out of greenbacks before they take another 20% down? And if the world is repudiating the dollar what does Ben do to keep the mob from leading him to the guillotine?

Login or register to post comments by Widowmaker
on Mon, 10/11/2010 – 09:29

It should be quite obvious that the mob is Ben while taxpayers get the guillotine.


Login or register to post comments by John McCloy
on Mon, 10/11/2010 – 08:46

This is what Ben has always wanted. To play out his most danergous experiment in real time. To ensure that hundreds of future economins books and history books are written about his undertakings.
It is simply vanity. In his version he believes they will write how Bernanke proved once and for all that Keynesiasm Voodo when implemented on a scale parallel to insanity that the world can indeed be saved.
He also has hopes of his record unprecedented actions leading to the conferring of a new name.
Bernanke is now more powerful that the President. I’m sure the founders had this in mind

Login or register to post comments by kaiserhoff
on Mon, 10/11/2010 – 09:10

Right as rain.  Obummer has been fired, but he will never admit it.  He won’t get a resolution in favor of the girl scouts through Congress, so stupid pet tricks of the fed are his only real option.  We are now officially, guinea pigs of the fed, and Soviet style central planning.

How hard is it to gain citizenship in Tahiti?


Login or register to post comments by LeBalance
on Mon, 10/11/2010 – 08:47

Black Swan sez: ZIRP ZIRP ZIRP

Login or register to post comments by tom
on Mon, 10/11/2010 – 08:56

The bets that QE2 won’t be inflationary keep doubling up. No rate rise till 2015, so go long those junk bonds! How about some 20-year, 30-year or 50-year corporates, those should be even better! Look out for some serious havoc when these bets go bad. I’d say by the end of next year.



Login or register to post comments by Widowmaker
on Mon, 10/11/2010 – 09:20

Fraud:  4,219,817,642,024

US Citizen:  0

Login or register to post comments by alexwest
on Mon, 10/11/2010 – 09:38

stupid asshole thinks everybOdy is clueless as he seems

# perhaps $100bn until their inflation forecast returns to levels closer to their mandate.

inflation.. INFLATION MY ASS…


NOW fed cares only  about FEDERL DEFICIT.. and guess

what MOTNHLY DEFICIT IS EXACTLY 130-140 bln .. so does anybody think


this is the nd folks.. net year its gonan be 200 bln per month… id give 2-3 max  years before whole thing blows off..

be ready


Login or register to post comments by Whatta
on Mon, 10/11/2010 – 09:56

Did anyone else catch Ben’s speech on 10/4, and then Gary North’s take on the speech.

Basically it appears that Ben may have been giving an ultimatum on US fiscal responsibility to Congress and that there IS an endpoint to FED intervention and loaning the US money (or issuing IOMe’s???).

Diva Ben’s aria:

“Almost by definition, unsustainable trajectories of deficits and debts will never actually transpire, because creditors would never be willing to lend to a country in which the fiscal debt relative to the national income is rising without limit. Herbert Stein, a wise economist, once said, “If something cannot go on forever, it will stop.” One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point.”



Login or register to post comments by Battleaxe
on Mon, 10/11/2010 – 09:56

Goldman: “Now that we’re guaranteed to make obscene amounts of money, our only worry is how to count it all!”

Login or register to post comments by trillion_dollar…
on Mon, 10/11/2010 – 10:22


Login or register to post comments by gwar5
on Mon, 10/11/2010 – 10:24

Good to know we’ll all be millionaires. Slumming it for me though, I already have in my hands several 100 trillion Zimbabwe dollars to buy out all the lower-middle class millionaires out.

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