Will QE 3 really bring any sense to US economy? - Reymount Investment

Markets embraced Fed for the QE 3 announcement it made on last week after Ben Bernanke assuring

that Fed will continue open-ended purchase of $ 40 billion of mortgage debt every months with fed rate

near zero. There was massive rally across riskier assets with treasuries falling on hope of value erosion

expected in longer term fixed income holdings. Fed’s motive behind this bond-purchase program is clear

– to hold the momentum for short run, at least until November election. But, has QE 3 really works well

for Americans who are mess up with unemployment. Let’s look whether QE 3 has any impact on

unemployment in US.

Unemployment in US still is in the upside trajectory which started its journey from Jan 1, 2008 the year

that saw recession to US economy. From that time onwards, Fed started its first phase of Quantitative

Easing program known as QE 1 announcing $600 billion in agency Mortgage-Backed Securities (MBS)

and agency debt. Before announcement, unemployment was at 5%.On March 18, 2009, FOMC came up

with an additional $750 billion purchase of agency MBS and agency debt along with $300 billion

Treasury purchase program. At that time, unemployment level saw sharp rise of 8% (exactly 8.7%). Fed

continued its Quantitative Easing known as QE 2 on November 3, 2010 with an announcement that it

would buy $600 billion of longer dated treasuries which would be concluded in June 2011. At that time,

unemployment has touched 10% marks for the first time in last 10 years. The surprise QE 3 which was

announced on September 13, 2012 was the ultimate one with a $1.7 trillion bond buy to support the

wounded economies which is now in a bad shape. But the question of the hour is that, why Fed is not

able to control unemployment rate which still hovers above 8% mark. Unemployment rates in US for the

last 10 years is given below by which you may know what Fed has really do to the Americans (Years are

plotted in x-axis and Unemployment rate as percentage terms are plotted in y-axis).

After Japan, US are the major developed nation with its debt as a percentage of GDP constantly rising

for the last 5 years. US which is running budget deficit of $ 1 trillion for three consecutive years has

caused much concern for major countries regarding its repayment ability. Recently, German Finance

Minister Wolfgang Schaeuble in his speech on lower house of parliament said that US debt levels are

real burdens for the global economy.US has borrowed its majority from China, Japan and major Oil

exporting countries in terms of treasury securities and money being printed inside US is now going

outside the country where US citizens not benefited even for a single cent. Hence, problem on

unemployment still lingers to US and it causes unrest in the US economy. Stock markets really enjoyed

Bernanke’s comments as it was staying with Institutional investor’s positions and slump in dollar value

once again, while not considering long-term economic impact of economy.

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