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Two Charts Illustrate What QE2 Really Means

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The beauty of bureaucratic acronyms, at least from the perspective of bureaucrats, is that after a time they begin to lose reference to anything tangible. TARP very quickly destroyed reference to either qualitative or quantitative bailouts, instead becoming a self-referential signifier of itself. Quick, ask yourself what words comprise the acronym TARP... takes a moment, right? For normal people, at least. Finance geeks are exempted. After all, they are not the targets of clever government agency acronyms, the teeming masses are.

Of course, this function of economic acronyms, which are not really economics-related at all but nevertheless populate the lexicon of finance today as if they had always existed, could just be a fortunate coincidence. Take QE2, for example. It is very bulky to say and type quantitative easing. Quantitative is one of those words that never quite seems spelled correctly. Are not QE and QE2 simply convenient ways to express something quickly? Certainly. And the fact that QE2 almost immediately connotes something royal, majestic and enduring is no doubt a very welcome convenience for the dignitaries running the Treasury and Federal Reserve.

But I digress. What I want to show are two charts that illustrate what exactly is taking place with QE2. The first, from the Cleveland Fed, shows the Fed Balance Sheet over the past four years. Interesting here is not necessarily the outright increase in purchase of various assets by the Federal Reserve since late last year when this second round of quantitative easing... sorry, QE2, began, but the fact that the outright purchase of Federal Agency debt and mortgage-backed securities -- the primary culprits in the economic crisis -- never really stopped.



The next chart is more important, for it illustrates precisely what is meant by the acronym QE and QE2. This is a chart, from Bloomberg, of the cumulative value of total par amount of Treasuries accepted by the Fed to help reduce consumer lending rates. These auctions are not scheduled. This, in a nutshell, or rather a graph, is what is meant by QE2. The data begins on November 12 last year, when the Fed began the program. That's more than 400,000 million, which is a number that, much like acronyms, is conveniently disengaged from our reality. Imagine 400,000 anything. Try it. Imagine a million. Imagine 400,000 millions. It's meaningless, much like the acronym QE and TARP, TSLF and the rest. Fascinating isn't it?

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