Rogoff sees QE3 tomorrow

Houses and Holes
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  1. Everyone thinks QE3 will spark a rally. Everyone. Usually when everyone is expecting the same thing, the market does the opposite. Worth keeping in mind.

      • Or, rumours of QE3 = rally. News of QE3 = another 100 points off the S&P.
        Of course, nobody knows.
        I am just pointing out that I find everyones buy in to “QE3 = rally” quite remarkable.
        When sentiment reaches 100% agreement, best you look the other way, I find. Or at the very least, protect yourself from too much damage if the alternative transpires.

        • Precious Bodily Fluids

          I’ve never bought QE3 (defined as something similar to 1 and 2, i.e. asset purchases). QE1 was needed to take toxic waste of balance sheets. QE2 was supposedly needed to thwart deflation. Which brings us to QE3, what is the justification? Surely we need more than a few days panic given that structurally things are quite different from prior QEs.

          Sure they can buy more treasuries but contrary to everything you heard during QE2, and everything you heard about the USA credit rating, everyone else wants treasuries. Demand for these things is strong. Bond holders can flip them and make some money but where do they put it? Answer, little bit into commodities I suppose and the rest just sitting in reserves earning 0.25%. And from here we go around in circles about inflation and inflation expectations: both solid though not high.

          So QE3 would have to look very different to its former incarnations to get a run.

    • Well the ASX is back into positive territory after being down 5.2% (!) earlier today.

      Just a tad volatile. A tad.

      • I’m anticipating Pascoe’s column tomorrow, maybe something like: Didn’t you know the selling was based on nothing but emotion, you idiots?

      • could be just dead cat rebound.

        major banks lead the rebound, looks like to me like short seeking cover.

  2. Deus Forex Machina

    “other policies later”

    aint gonna happen Rogoff and Reinhart have scared Governments all over the world so much so they don’t feel they can do any “other policies”

    “double dip is beside the point”

    tell that to the 19 million americans who have gone on food stamps since the crisis started

    I know what he means and the the work these guys did was really interesting but gee whiz…academics (not counting bill mitchell 🙂 )

    get thee back to the ivory tower

  3. Rogoff calls it “ … a great contraction, not a recession …” and I call it “the greatest consolidation in history is underway”

    What should I know as I don’t have his type of letters after my name.

    But I have read a little bit of history.

  4. Rogoff: “They [the authorities] need to deal with the problem, not keep kicking the can down the road”

    What an extraordinary statement!

    I think he meant to say:
    “They [the authorities] need to deal with the problem, in order to keep kicking the can down the road”

  5. There will be no QE3. Nothing. ASX rallied on rumours, hope and faith. Pathetic really.

  6. A few days of selling in the stock markets are not in themselves sufficient to induce a new wave of QE. In general, financial markets are not short of liquidity, even though the CDS markets are spiking all over the place. (I have to say, the CDS markets have even less in common with reality than the US Congress and S&P.) Consumer and producer prices are not tanking, so there is no imminent deflation risk.

    I have been watching the broadcasts and reading the news services. There is no plausible explanation being offered for the current market turbulence. This suggests to me that we are witnessing just another bout of speculative excess, this time on the downside – a global chain reaction, enabled by super-computers that is just as likely to reverse itself as to become entrenched.

    What is clear is the equity markets are now an arena for digital gladiators rather than for humble private investors. At an extreme, they are a form of theatre in which the players are numbers and the script is constantly improvised by endlessly iterating calculus.

    The underlying 3-D situation remains completely unchanged:

    We have major economies on positive-but-low-growth paths
    We have decelerating growth in emerging markets
    We have intractable fiscal problems in most advanced economies
    We have institutional/political dysfunction in these economies
    We have entrenched high unemployment, stagnant incomes and inadequate demand in most economies

    Nonetheless, we are talking about very wealthy economies, where in spite of all the problems, businesses, households and governments in principle still have recourse to all kinds of measures and do still control enormous assets.

    It is not time to throw in the towel. But it is time to stop trying to divine the forces that drive markets. And it is time to define the resources, policies and institutional frameworks that are needed to get the advanced economies back onto a sustainable growth path.

    This sounds like a call for intellectual and political leadership.

  7. Yeah But even Bernanke at last year’s Jackson Hole made the point that QE without some action on the fiscal side is a waste of time (or just buying time). If he lets rip with QE3 enthusiastic sentiments tonight then sure the markets may rally tonight, but that will still have the US no closer whatsoever to any sort of sustainable economic growth.