QUANTITATIVE EASING 3 NOT IN SIGHT FOR NOW

This article is contributed by Chan Cheh Shin 

QE, QE where are you….?

On 25 Jan 2012, US Fed made its statement: ” In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

This is an admission that past monetary policies had not achieved its desired effect as expected (i.e failed). Let us look at the chart below :

QE1 was done in 2009, QE2 was done in 2010. Yield spiked up to 4.5% for both instances…. and fell back like a stone. Clearly, QE is of no help in turning market economic weakness to “strongness”.

Below are the graphical representation of Fed actions to stimulate the economy/lending/credit :

 

Money supply exploded due to QE……

 

But bank loan/money supply ratio fell off the cliff (this implies banks did not make new loans or cut back even on old loans).

Money supply had exploded, but US GDP grew less than 2% in the past 3 years. But yet the loan/GDP ratio was still negative in the same period. 

 

Another evidence, credit is not growing. It could be worse…. It is shrinking.

Thus, QE is dead and gone. US will now turn more to fiscal policy to stimulate the economy.

Meanwhile, Federal Reserve Chairman Ben Bernanke told a congressional panel on Feb. 2, 2012 that shrinking the deficit "should be a top priority", saying that projections over the next decade are "clearly unsustainable." 


This means those who want QE..........can wait for a longer time than they hope for.