QE 3?

 BarroMetrics Views: QE 3?

On Thursday, the ECB said it will coordinate with the Federal Reserve, and other central banks to conduct three separate dollar liquidity operations. This idea is to ensure European banks have enough of the currency through the end of the year. The three-month loans are in addition to the bank’s regular seven-day dollar offerings, and will be fixed-rate tenders with full allotment.

But, here’s the rub, this is a temporary fix. To keep afloat the banks who balance sheets are in critical shape, we will need to see more and more injection in of funds. In the long run, we’ll have to face the consequences of such action. More the point, this action shows that the probability of QE3 is more than likely. We’ll know on Wed, Sept 21, 2:15 EST.

And as the article in Greenfacet “Is The Euro Crisis Over Or Just Getting Started?” shows, technically we have reason to suspect that the problems with Europe will remain.

Speaking of articles…

John Mauldinin his excellent post “Twist and Shout” suggests that if QE3 come about, we’ll see a US stock market rally; and if not, we’ll see a sell-off. While I agree with the latter, the former is not a foregone conclusion. The stakes are rising for QE3 to be effective. We shall have to see some extraordinary measures; and while this is certainly possible, all that does is raise the certainty of an even more acute inflation problem later in 2012.



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