Douglas Hammond
For those who are logic-minded, the current state of the world can, unfortunately, be seen as a function of Europe. The age of decoupling has ended, and the era of globalization has begun. The effect of the EU on the U.S. is quite obvious, and I will give two simple examples from just within the past couple weeks.
European Central Bank President Mario Draghi announced July 26 that the ECB is prepared to do whatever it takes. On this simple statement, the markets rallied with hopes of a faster recovery. The S&P 500 rallied an astonishing 3.59 percent July 25-27! If that doesn’t show the fear currently in the market, then I don’t know what does.
Draghi made another announcement Aug. 2 that revealed to the markets the daunting truth —that there is no real plan in place. This negative news shot the markets much lower, only increasing the volatility in the market from traders whose strategy was to “buy on the rumors and sell on the news.” So, what is my point, you may ask?
With the world pending a solid plan out of the EU, the U.S. is forced down an inevitable, ill-fated path. We must worry about our own economic strength and future growth; thus the Federal Reserve must stimulate our economy. Well, they don’t have to, but the indecisive, foolish and petty squabbles in Washington in preparation for the 2012 election are certainly not helping. All of these political games have trumped an agreement on a sustainable fiscal policy. The result is that the state of the U.S. economy has been put solely on the shoulders of the Federal Reserve.
Regardless of Federal Reserve Chairman Ben Bernanke’s recent announcement, which did not fulfill some analysts’ predictions of round 3 of quantitative easing, 48 percent of economists surveyed by Bloomberg News said that they expect a new round of asset purchases (mostly mortgage-backed securities) to be announced at the Fed’s Sept. 12-13 meeting. We have already gone through QE1 and QE2 as well as a prolonged operation TWIST, which have given us a slow, modest recovery.
Asset-purchasing programs will have diminishing returns on the market. With the current state of the U.S. economy and no plan from the EU, the Fed committee doesn’t really have any choice other than not to announce QE3 in September. Therefore, I would love to see them publish a comprehensive cost-benefit analysis for additional quantitative easing.
It seems we are shooting ourselves in the foot either way, and as of now I see no real end to this predicament.
Douglas Hammond is an economics major of the class of 2014 and can be reached at op-ed@thetriangle.org.
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Just prolonging the inevitable. It's all going down. The house of cards is crumbling and the powers that be are scrambling for the exits. There will be riots in the streets before this is over…
"U.S. is forced down an inevitable, ill-fated path."
Maybe we should not go down an ill-fated path. If the path is ill-fated maybe we should consider an alternate path.
Another question why someone would make an effort to force the US to go down an inevitable path. If the path is inevitable, no force should be necessary for the US to follow the path.
We should analyze why this path became inevitable and make an attempt to create alternate paths so that the ill-fated path is no longer inevitable.
this may be the dumbest comment i've ever heard. Read more and comment less.
I need to make a minor observation here. Roughly 85% of market volume over the past 6 months or so has been generated by robot computers shaving pennies from each other. So when Draghi or anyone else makes an 'announcement' and the markets jump, let's keep the realities in mind here. It isn't 'investors' betting that there will be a faster recovery. The system has already collapsed and is being fed trillions merely to keep the carcass from rotting.
Same as has been done in the past, expect some sort of non-financial event to cause the markets to collapse so they can shift the blame, keep the public in fear, start more wars (prob with iran), and meanwhile the guys that perpetrated the whole thing will never be brought to justice. And even worse, those same guys will them come marching back with some new system they had already created and trot around the globe as our saviours. Hold on folks, a wild ride is just around the corner!
'the Fed committee doesn’t really have any choice other than not to announce QE3 in September.'
OK got a lot of negatives tied up in this logic.
I interpret this statement as saying ' The Feds only choice is to NOT announce QE3'.
However the whole article is about QE3 coming at us.
Does this mean there is no QE3 coming or it will come, but it won't be 'announced' ?
There really is no remedy for this. No presedential election, president or federal reserve is going to fix this nation. In reality all of the above mentioned are broke. All of these entities play with the citizens money and oppress tax payers. No wonder all corporations have left the U.S. its a sad day when the American Flag is made in China!
i know i'm in the distinct minority but i totally agree with ron paul, in that the government should abolish the fed. post abolition, however, i do however think the fed should be re-established & allowed to exist, under new banking rules established by university economist & sociologists from across the nation. I think the nation needs a two banking system. the one money system is too fragile & takes too much manipulation to thrive, and, as history tells us, they fail very frequently. it also needs public money to stay afloat, talk about entitlements breaking the bank!!!!!! the system reminds me of us being panda bears, if something happens to the bamboo forest we live in, we will starve to death. if we have the option of the fed & government owned banks, the competition would probably insure low interest loans, more jobs, a more stable infrastructure (our politicians would determine where our money is invested, not banking fat cats), no need for for-profit prisons, an end to the drug war (as if it ever existed), & this are just the domestic by-products of this idea. internationally, i seriously doubt there will be global melt downs or as many wars, & the military industrial complex that Eisenhower warned us about will dissolve. wars, from a financial perspective, do nothing but drive nations deeper & deeper into debt! & debt is why we are here reading this news letter.