QE3?

I think everyone will generally agree that the economy continues to struggle in the U.S., the EU is struggling with some members seriously considering the option of restructuring debt, Japan is simply out of the picture for now, China is doing its best to avoid a real estate bubble of its own and overall things are not so honky dory economically for the world. Certainly looking better than say 2007 or 2008, but not out of the woods yet by any means. And so as QE2 comes to an end next month, the question must be, what will the Fed do?

Let me start by noting I was no fan of QE or QE2 and am not supporting any QE3, but last I checked Bernanke is not reading my blog so what I think is in some respects irrelevant. I am a fan of taking our pain now, getting it out of the way and not saddling generations ahead with massive debt. Now I have to note a caveat here. I am financially OK and I know that most in the U.S. are not, so saying take the pain now is much easier for me to say than for many others. I think the pain, accordingly, needs to not all come at once and needs to be taken over time, but I do think it is better to take it now to the extent we can and not simply delay it, which makes it worse for everyone. With that aside, let's discuss a minute whether there will be QE3.

I think there will be QE3. QE2 is coming to a close next month. It has been a resounding failure in my view. Note that this view is tied to its publically announced purpose,, not its real purpose, but from the perspective of the announced purpose it has done nothing. Big banks are still not lending, it is not helping the average American and it is worthless. Now I am not dismissing the prospect that there was a covert purpose here of propping up problematic big banks to help them weather the storm, but that was not the announced official purpose.

So will there be QE3? Well, since QE2 did not work, why the hell not. After all, if it does not work the first or second time the third should be a charm. I am sure there are those in the Fed against QE3 but I suspect Ben has enough natural charm to get the votes he needs for QE3, which will be announced to great fanfare in July. His job is no longer jobs or inflation, it is stock prices and he will do what he needs to support them. Presently he has plenty of ammo to defend such a decision. The economy is still sluggish, jobs are not coming back fast enough, real estate is not rebounding like it should, inflation is still low (if you look at core CPI), and the like. So in my book QE3 is in the cards. I think it will in the long term do much more harm than good, but I think this cake is already baked. Thanks Ben - NOT!

Disclosures: None