The summer blockbuster
Commodity Bulls Rejoice! QE 3D may be coming soon to a screen near you! Your friends at the Fed seem to be unhappy with the commodity markets returns so why not raise the stakes and juice them up! QE 3D! If you liked QE2 then you are going to love the 3d version. Fed Chairman Ben Bernanke reaffirmed the possibility that the FED may get ready to run the printing presses again and in the process hey may be getting be getting ready to print another bottom in commodities and drive prices for commodities once again to spectacular levels. The Fed and its magic printing press can do amazing things for commodities and may be forced to act to provide cover for the US government that got another warning about its credit rating.
This time it was Moody’s that said that the U.S. AAA government bond rating and related ratings are on review for a possible default. The warning was because the possibility that the statutory debt limit may not be raised on a “timely basis”. While they say the risk is small it is no longer “De Minimus” which is a Latin term that basically means a risk so small that you barely even worry about it and came at a time when talks between the Republicans and the White House have become more contentious.
So the Fed feels it has no choice but to back up the economy by laying the bombshell of the possibility of a QE3. If the United States defaults it looks like bonds could crash and the Fed would start to print money like crazy to soften the blow. But what will a QE3 look like and will the Fed structure it in such a way where the money gets into the economy instead of the pockets of the Banks, emerging markets, and commodity traders.
Not that I have anything against it going into the pockets of commodity traders but I think the Fed may try a more inventive way of trying to force the liquidity into the economy. Perhaps they will dictate that the banks will have to lend the money that they get or not take it at all. Or perhaps the Fed will get in the business of lending money out directly to different entities. That’s why QE3 is 3D because if it is going to work it is going to have to have a different dimension to it. Scary! That is almost as scary as a possible default by the United States government.
In the meantime while we can speculate what a QE 3D might look like the one thing we know is that it will be bullish for commodities. A concept that when QE 1 happened was hard for me to convince people of. Even the Federal Reserve has been in a bit of denial about the wildly bullish aspects of quantitative easing. They focus just on the hard data such as the value change of the dollar or the different exchange rates but fail to acknowledge the psychological impact on price.