Well I wasn’t in the know when Quantitative Easing (QE) 1 (Mar 2009 to May 2010 – $1.25 trillion in mortgage-backed securities from banks) and QE Lite (September 2010 – $300 billion – reinvest the proceeds of maturing mortgage-backed securities into Treasury bonds) occurred, but was well aware that QE 2 (November 2010 to July 2011) was happening and that the FED would buy $ 600 billion dollars worth of treasury bonds. So though Chairman Ben Bernanke stated on June 3rd 2009, that “The Federal Reserve will not monetize the debt”, he guaranteed that the FED would not create new money out of thin air to buy government bonds. But that is what has happened with QE 2, as explained simply in the below animated 3-minute video entitled ‘Federal Reserve Debt Monetization Explained’.
Since the start of QE 2, I have heard from many people that I follow that QE 3 will happen. The first of which was Jim Rickards, who during an interview with Eric King of King World News believed that the FED would secretively do it using the revenue from maturing debt from its balance sheets. The next time I heard about the possibility of QE 2 continuing was during a James Turk presentation at the Sound Money Conference [38:43-41:23] in January 2011, where he displayed a slide from his presentation [page 80] that showed the correlation of the FED monetizing to the S&P 500 Index. The slide clearly shows that the stock market is being carried by the constant money printing of the private Federal Reserve.
I then heard from my favourite economist/investor Peter Schiff who believes that the US financial system would crash if the FED ends QE, which he first stated in the May 17th episode of his Schiff Radio show, where he said, “There was a period of time where people looked at weak economic data as a positive, because it meant that QE 2 would continue and the FED would not cut it short. Now, I guess that mindset isn’t there any more, people are thinking the economy is weakening, the FED is going to end QE over the summer, which means we are headed back to recession. … What I think traders don’t understand, is that Ben Bernanke is lying. QE 2 is not going to come to an end. In fact if it did, we wouldn’t just be headed for a recession, we would be heading to depression. We would be headed for bank failures bigger than 2008, which is the reason that I’m so convinced that it ain’t gonna happen. The market correctly understands the economy is slowing down, but they don’t understand just how dependent it is on QE 2 and how it will not just slow down, but fall off the edge of a cliff, if it ends. … As it becomes obvious that the economy is weakening, low and behold the FED is going to come out and say ‘Oh no! Who knew about this. I guess we are going to have to do QE 3’ or QE 2.0 or whatever they are going to call it, but its going to happen.” [2:48-8:20]
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