I’ve said many times before that QE 3 won’t be coming any time soon unless the market Crashes or a major bank goes under. The reason is that QE (and Ben Bernanke for that matter) have been politically toxic: we’ve already seen that the Fed will be a major political issue in the 2012 Presidential election.
The Fed is aware of this; at least the more astute members who have an interest in preserving their careers.
A top Federal Reserve official who opposed the U.S. central bank’s move last month to ease monetary policy signaled Tuesday he may balk again if fellow policymakers opt for still more stimulus this month.
“The data in August did not justify the additional accommodation provided at that meeting,” Minneapolis Federal Reserve Bank President Narayana Kocherlakota said in remarks prepared for delivery at the University of Minnesota’s Carlson School of Management. “It is unlikely that the data in September will warrant adding still more accommodation.”
Kockerlakota now joins Dallas Fed President Fisher in establishing himself as a hawk: one who opposes additional easing. I fully believe Bernanke will be stepping down within 18 months (even Obama won’t shelter him). When that happens, a more hawkish Fed Chairman will be picked. Looks like Kockerlakota is putting himself in the running for the job.
So all claims that QE 3 is just around the corner needs to consider what will happen if QE 3 isn’t announced in September. What happens if the markets DON’T get the additional easing that the bulls are hoping for?
Have a look at what happened in early August and you’ve got your answer. Indeed, I fully believe we have reached the End Game for Fed Intervention: a time when the Fed can no longer maintain control of the markets. What will follow will make 2008 look like a picnic.
Indeed, I fully believe that the financial system is now more in danger of systemic collapse than at any point in history (including 2008). Do NOT be fooled by the rally of the last few days. We saw rallies of 8%, 11%, even 17% during 2008. Those investors who bought into them got taken to the cleaners.