The Fed’s Predictable QE3 Move Will Fail

Last Thursday, the Federal Reserve did exactly what we expected it would: announce QE3. It will “print” $40 billion a month out of thin air and use the funds to buy mortgage backed securities (MBS).

Indefinitely.

The goal is to reduce the supply of these types of bonds, thereby making them more valuable.

This SHOULD cause their interest rate to go lower, which would theoretically cause the cost of financing a new mortgage to go lower because the borrower would have to pay less interest.

This SUPPOSEDLY will cause more people to buy homes because they pay less interest.

Hmmm…

In order for this to be effective it would have to be true that hundreds of thousands – if not millions – of potential home buyers have been holding off buying because interest rates have been too… high.

Yep. For the Fed’s plan to work there has to be a lot of people out there (as recently as last week) saying, “I’m not buying a home yet because, at 3.70%, mortgage rates are just too dang high!”

Do you know anyone like that?

Me neither.

That’s because they don’t exist.

Let me be crystal clear about this: the Fed won’t reach its goal, which is to cause a spike in housing activity that leads to higher home values and more home building, thereby increasing employment.

But it will have an effect… That is, you and I get the pleasure of paying more for stuff.

Gas, food, education, healthcare… all the basics will move up in price as the Fed steals more of our value right out of our pockets. Just brilliant!

The good news is this should be temporary.

For some time we’ve been calling for a spike in the price of gold and other commodities in response to an anticipated QE3.

We’ve got it.

The move higher has been dramatic and, in our view, overdone. That makes now the time to take some chips (or nuggets) off the table as we await the inevitable downdraft in the markets. People WILL realize that the latest round of QE will have the same (lack of) effect as the previous measures.

It is debt deleveraging folks… and slower and lower demand.

No interest rate or bond buying policy is going to change that.

Think about it. When was the last time you looked at what the Fed was doing before you bought a house, a car or an iPad?

Rodney

P.S. Ultimately, there is ONE force that the Fed is powerless to stop. This one force is driving the slowdown in spending. This one force will lead us straight into the icy grip of deflation.

 

 

Ahead of the Curve with Adam O’Dell

What QE3 News Meant for Gold and the U.S. Dollar

Just as the Fed’s announcement of QE3 came as no surprise to us, we’re also not mystified by the subsequent reactions of gold and the U.S. dollar.

 

 

What Killed the Middle Class?

Today real incomes of the middle class are 5% lower than they were in 1970 and 12.4% lower than in 2000… when they peaked! How could this be?

In our new infographic What Killed the Middle Class?, we take a look at some shocking numbers to show how bad it’s become and what has been fueling this middle-class revolt.

 

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Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.

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