why further qe is unlikely, page-7

Hi Timber,

You wrote:
' That would be a poor bet, in my humble opinion, given that there is little evidence the QE1 or QE2 generated much inflation at all.'.

I'm not sure I agree with you here.

While Bernanke did use QE to temporarily provide a liquidity injection into a mostly frozen financial system (a large motivator I agree especially since the Fed was set up by the banks, for the banks and is of the banks) to say it was not inflationary is quite wrong.

Inflation is foremost an increase in the money supply. When you look at charts of base money, or the feds balance sheet, they have both grown very strongly. In terms of the feds balance sheet I think more than tripled. The Fed is also now the largest buyer of US government bonds.

Now while price inflation hasn't been as severe as many here forecast(although I think they are substatinally higher than the offical government figures) it is only a matter of time until this money works it's way through the system.

I also think you underestimate the quandry the Fed is now in. If they don't keep purchasing about 60% or so of all US government debt then interest rates will have to go up dramatically to entice other buyers to step in. If that happens then the following will occur:

1. Higher interest rates will crash the housing market again as well as slow busines activity and consumer spending in general. This will lead to far higher unemployment.
2. The banks will suddenly be sitting on huge losses in their fixed interest portfolios. Their capital positions will be severely hurt by that and falling asset prices in the stock market and housing and they will be forced to seek more capital or risk collapse.
3. There will be havoc in the CDS markets.

I don't think the Fed will willingly let this happen. In my mind they will keep bankrolling the federal government for a long while still.

Bernanke is still one of Gold's best friends.

Twinsen