Will the weak economy force the dollars devaluation?
"While the Fed's Open Market Committee downgraded its forecasts for gross domestic product and unemployment for 2012, 2013 and 2014, the policy-setting panel took a minimalist approach by expanding Operation Twist by an additional $267 billion (on top of $400 billion so far) and to the end of the year. At that point, the Fed will have swapped effectively all of its shorter-term securities for lengthier ones.
What that will accomplish is difficult to say, given that long-term borrowing costs already are at historic lows for investment-grade corporations and mortgage borrowers (at least those with sterling credit scores). But the risk markets apparently depend on outright purchases by the Fed-a third round of quantitative easing, or QE3-for further progress. St. Louis Fed President James Bullard averred in an interview with Bloomberg Friday that the bar is set pretty high for QE3. Bullard was among the first to call for QE2 in 2010.
Nevertheless, count on QE3 being launched, writes Stephanie Pomboy in her latest MacroMavens missive. While the Occupy Wall Street crowd has demonized the rich, they're the ones who drive consumption since they're the ones with the bucks to spend. And, she observes, their willingness to spend in turn depends on the stock market, which appears to be faltering. That's even with $1.3 trillion in corporations' dividend disbursements and share repurchases.
All of which raises the likelihood of another round of QE to pump up financial assets and "reinvigorate the now-flagging high end." To do that requires raising the specter of inflation and dollar debasement to get the rich to loosen their purse strings, Pomboy caustically observes. The 99% should take the opportunity to stock up on lower-cost food and fuel while they can."