Jim Grant Explains Why QE3 Is Coming
Submitted by Tyler Durden on 04/21/2011 17:34 -0400
Once again we are reminded why we like Jim Grant so much. From his latest
Grant's Interest Rate Observer (which, trust us, is worth the subscription):
"Almost 30% of the respondents to a poll conducted by UBS a few weeks back
said they anticipate a third round of so-called quantitative easing... We
count ourselves among the expectant 30%. To its congressional directed dual
mandate the Bernanke Fed has unilaterally added a third. It has undertaken
to make the markets rise. The chairman himself has more than once taken
credit for the post-2008 bull market (on one such occasion in January, he
reminded the CNBC audience how far the Russell 2000 had come under Fed
ministrations). Could he therefore stand idly by in the face of a new bear
market. Byron Wien, vice chairman of Blackstone Advisory Services, went on
record the other day predicting a summer swoon in stocks following the
scheduled winding down of QE2 in June. Let us say that Wien is right, and
that, furthermore, drooping stocks are accompanied by sagging house prices
and a weakening labor market. Bernanke was hard put to explain why he chose
to let Lehman go while acting to save Bear Stearns. He would be harder put
to explain why he chose to implement QE1 and QE2 but, in another hour of
need, refused to launch QE3." And "Sooner or later, gravity turns
speculative markets into investment markets. When this transformation occurs
, the Fed will confront the need to bail out the innocents it had previously
bailed in. Hence, QE3." And therein lies the rub. Simple, sweet, and, for
the US dollar, suicidal.
