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The Fed may purchase up to $2T of assets to stimulate the economy, says Goldman Sachs economist...

The Fed may purchase up to $2T of assets to stimulate the economy, says Goldman Sachs economist Jan Hatzius, and could announce QE2 on Nov. 3. Hatzius expects "an announcement of $500B or perhaps slightly more over a period of about six months. The key question, however, is not the size of the first step, but how far Fed officials will ultimately need to move to achieve their dual mandate of low inflation and maximum sustainable employment."
Comments (14)
  • What the Fed is trying to do is impossible. Further stimulus will simply prevent our economy from restructuring and keep unemployment high. It will create more bubbles and eventually lead to further crisies.

     

    What happens ater 2 Trillion of stimulus and unemployment is still 10%+? Will the Fed just keep printing money or find more creative ways to stimulate?

     

    If everyone just starts working for the government our economy will become even more unproductive and we will sink further into depression.

     

    I can't foresee the endgame here and it is scary. Gold looks cheap here though.
    25 Oct 2010, 11:31 AM Reply Like
  • The trick with stimulus is to do stuff that will improve the country. You are assuming 1 tril of stimulus will do nothing. Although I niether agree no disagree, I'd argue that the trillion or so spent on the war in Iraq could have been spent domestically on infrastructure, energy exploration, and renewables and the country would be much better off.

     

    Why? Well, better infrastructure means better efficiencies in the economy. Energy security means the wealth of the nation is not being exported and it is being consumed domestically. Renewables are a one time cost 20 year benefit (i have invested in solar hot water for multiunit residential housing and its awesome).

     

    All these things contribute to a better economy.

     

    Getting invoilved in a protectionist-fueled trade and currency war when we aren't in a position to repatriate manufacturing is a red herring. The trick is gradually shoring up the domestic economy so we can make things better and cheaper here than anyone else, and so that we buy things from our folks here rather than exporting our money out of the country.

     

    I think it's hard to argue against the fact that infrastructure provides jobs and benefits to the economy, and maybe we'll do good things like rebuild our aging electric grid.

     

    I don't think it's necessarily bad if 'everyone starts working for the government' as long as folks are working... period. Hell, in some cases government pays BETTER than private sector, I have a cousin who is an electrical contractor desperate to get government contracts since he pays his employees half of what the government offers.
    25 Oct 2010, 04:43 PM Reply Like
  • Ok, to your first point about stimulus should be for infastructure, etc, 2 points I will make:

     

    1) The government is not better than the private sector at allocating resources, therefore when they invest in infastructure they crowd out private investment and allocate the resources less efficiently. The funds are often distributed to project not based on profit expectation but political reasons.

     

    2) Infastructure is not by nature stimulative in the short run. It requires an investment which by definition means you forego consumption today by saving and investing so you can produce a return in the future. You cannot invest what you did not save unless you go into debt which is a further burden on the economy.

     

    To your next point about it not being so bad if everyone worked for the government because it pays more than the private sector:

     

    You are completely upside down on this one. Everyone working for the government is essentially communism. Government jobs are not productive and they usurp resources from the productive jobs. Eventually you run out of other peoples money. Your example with your cousin is a prime example of the government strangling the private sector.

     

    This is the road to poverty.
    25 Oct 2010, 05:01 PM Reply Like
  • I'll make my point more specifically:

     

    When I purchase a renewable system for say $60,000, i see a ROI after say 15-16 yrs.

     

    When the credits from gov't programs are added in, I see a ROI in about 5-7.

     

    A 15-16yr ROI doesn't interest me in the slightest. But if I take advantage of the federal state and county programs, it becomes very attractive. The knock-on effect is that I hire local contractors, to do a project which I otherwise would not. This is the type of gov't initiative I support.

     

    You are suggesting for example, that gov't initiatives to improve the energy grid would crowd out private initiatives. I'd suggest that renewables are an important part of the country's energy security and we could not get there without gov't investment. I'd also point out Spain's solar situation as supporting evidence of how gov't support of an industry encourages the private sector to invest in it.

     

    Perhaps we are discussing different things.

     

    As to the comment RE: everyone works for the government. The point was mostly to illustrate inefficiencies in the current system. Government wages and entitlements need to be tuned in to the "new normal" in my own opinion, i.e. the actual wages my cousin pays out, not the numbers the gov't does. Please don't throw the "communism" word around like that, as what I described would more accurately be socialism...

     

    Anyway, like I said, I neither agree with nor disagree with stimulus. I'd like to see programs I can take advantage of not killed, but meh, either way I'll survive. My own position is mostly that we should look at excesses in gov't spending (gov't has gotten bigger and bigger and bigger) - pull out of expensive overseas military action which may have been stimulative in the 70s but sure as hell is not now since we outsource so much of our manufacturing, and if security is an issue, hell, hire more FBI agents. I bet they're cheaper than maintaining bases overseas.
    25 Oct 2010, 05:17 PM Reply Like
  • Hey, maybe the Fed can buy my dirty gym socks. People around me keep complaining about my 'olfactory stimulus plan'.
    25 Oct 2010, 11:33 AM Reply Like
  • No, the key question is how far will Bernanke go to destroy the $USD, destroy the middle and working class, and destroy the hopes and dreams of a few hundred million people so that this ongoing stealth transfer of THEIR former wealth to the Too Big To Jails (who will be the ONLY beneficiaries of this despicable act) will continue.

     

    The "liquidity" he produces will go where QE1 and QE "lite" went - mostly into the jumbo banks' FED excess reserve accounts, trading the yield curve, and skimming billions of pennies and nickels off the equity markets through High Frequency Trading front running algorithms. And the rest will simply leak offshore to the higher yielding currency countries, the emerging markets which will take that money and build factories to take more jobs from American workers and provide higher rates of return on the banks' free money... money that will STAY offshore because to repatriate it would mean the profiteers would have to pay the differential between U.S. taxes and the lower foreign taxes used as inducements to get our corporations offshore in the first place.

     

    How far will he go? Just as damn well far as he pleases, because nobody has the cajones to stop him.
    25 Oct 2010, 11:33 AM Reply Like
  • "The key question, however, is not the size of the first step, but how far Fed officials will ultimately need to move to achieve their dual mandate of low inflation and maximum sustainable employment."

     

    Jeez. I'll live with 1.5% inflation and 4% unemployment. Shall we vote now?
    25 Oct 2010, 11:39 AM Reply Like
  • Can anyone shed some light on the 700 bps Goldman is referring to beyond the 'zero bound' rate? Is this a theoretical or perceived value?

     

    Thanks,

     

    John
    25 Oct 2010, 11:43 AM Reply Like
  • www.zerohedge.com/arti....

     

    Your answer is here.
    25 Oct 2010, 12:19 PM Reply Like
  • www.hussmanfunds.com/w...

     

    "Simply put, monetary policy is far less effective in affecting real (or even nominal) economic activity than investors seem to believe. The main effect of a change in the monetary base is to change monetary velocity and short term interest rates. Once short term interest rates drop to zero, further expansions in base money simply induce a proportional collapse in velocity. "
    25 Oct 2010, 11:49 AM Reply Like
  • If he prints $3Trillion, BAC, Citi and JPM will be bailed out as well as some cities and states (think California). There will be a big announcement that this is necessary for the nation's financial security or some other BS excuse; but it will be principally to extend the TBTFs continued rape of the American economy (and taxpayer).
    25 Oct 2010, 11:49 AM Reply Like
  • How STRANGE that Seeking Alpha should "miss" the other announcement by Goldman Sachs - on the SAME issue, on the SAME day...

     

    "Goldman: Fed needs to spend $4 trillion in QE2"

     

    www.bullionbullscanada...
    25 Oct 2010, 11:50 AM Reply Like
  • "The key question, however, is not the size of the first step, but how far Fed officials will ultimately need to move to achieve their dual mandate of low inflation and maximum sustainable employment."

     

    Obviously, they don't see any mandate for a sustainable debt position.
    25 Oct 2010, 11:53 AM Reply Like
  • We've heard that business is down and way down in Atlantic City and Las Vegas. But I have never heard that casinos are ever permanently shut down.

     

    The innate Human nature is akin to gambling. So, naturally, the gambling continues.

     

    Take the Ride until...
    25 Oct 2010, 11:55 AM Reply Like
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