Expect to "Think the Unthinkable" About "Monster" Quantitative Easing

A recent piece in the Telegraph highlights a warning from Andrew Roberts, RBS credit chief, to his clients that Bernanke may soon get going with “monster” quantitative easing.

What’s that in dollar terms? Perhaps up to $5 trillion… a number cited from a Bernanke speech as “pencilled in by the Fed Board as the upper limit for quantitative easing.” There’s only been about $1.75 trillion spent so far, so there could be a lot more money printing in the pipeline.

From the Telegraph:

“Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE).”

“Investors basking in Wall Street’s V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing. The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster than at any time in the post-War era…

“…Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on ‘monster’ quantitative easing (QE). ‘We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable,’ he said in a note to investors.”

As author Ambrose Evans-Pritchard describes, “the latest batch of data is disturbing.” Which is the case, of course, despite previous efforts to blast the problem with over a trillion dollars. The idea of almost tripling the attempt reeks of using the same ineffective and dangerous medicine to cure a global economy already brought to a “cliff-edge.” If these are the distortions brought about by just $1.75 trillion, then you can only imagine how far off the cliff a full $5 trillion will take us. Sheesh.

You can read more commentary in the Telegraph’s coverage of RBS warning clients of “monster” money printing.


Rocky Vega,
The Daily Reckoning