Why "QE3" is guaranteed

From The Daily Capitalist:
... There are two factors which lead me to believe that it is more likely that we will see more quantitative easing (QE).
While Shostak concludes that the Fed is wary of price inflation (that they are causing) and that this will deter another round of money pumping, I think the primary motivation behind QE is unemployment, not price inflation.
The consequence of taking their foot off the money pedal will lead to higher unemployment and I do not think this is politically acceptable to the Fed or to the Administration. I think they will institute a new round of quantitative easing (QE3) because politicians will demand that the Fed "do something."
Which is, of course, the worst thing they could do. It will lead to...
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More Cruxallaneous:
This should scare everyone in America
Pimco's El-Erian: "Financial repression" coming to the U.S. soon
Master contrarian Jim Grant: "There will be a panic and it'll seem as if the world's ending..."
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Must-read of the week: The White House unveils new plan to slash federal deficit

By The Daily Crux:

Earlier this week, a White House commission revealed a plan to reduce the federal budget deficit by hundreds of billions of dollars a year, or $3.8 trillion over the next 10 years.

We're all for cutting the size and cost of the federal government , but it's important to realize the projected annual deficits over the same period total $7.7 trillion... meaning the government will still be adding another $4 trillion to the $13.7 trillion and growing federal debt.

It's also important to note that while 75% of the savings come from cuts to Social Security, Medicare, and defense spending, 25% comes from increased taxes... most of which are expected to target the middle class.

Naturally, the plan has drawn criticism from both liberals and conservatives... and highlights just how unlikely it is any meaningful reductions to the deficit will be passed.

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More from Washington:

Gov't budget expert reveals U.S. debt far worse than Greece

Obama shocker: White House now in talks of reducing taxes

Gov't OUTRAGE: Fannie and Freddie to were paid to "manage" the Wall Street bailout

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Federal Reserve President says rates have to be raised

From Bloomberg:

Federal Reserve Bank of Kansas City President Thomas Hoenig said the central bank needs to increase interest rates to foster a more solid U.S. economy.

"I believe that moving rates modestly off of zero, where they have been since December 2008, still represents highly accommodative monetary policy," Hoenig said today in the text of remarks at a real estate conference in New Orleans. "More importantly, such action is necessary if we are to ensure a more stable economy that can thereby foster a more sustainable housing market."

The Federal Open Market Committee on Nov. 3 said it will buy an additional $600 billion of Treasuries through June, expanding record stimulus after it failed to bring down an unemployment rate stuck near a 26-year high. Hoenig this week cast his seventh straight dissent, the most at consecutive regular policy sessions since 1955.

Hoenig was concerned the "continued high level of monetary accommodation" may "destabilize the economy" by increasing long-term inflation expectations over time, the FOMC statement said.

"With regard to promoting housing through interest rate policies, I have many times publicly expressed my views about the dangers of using monetary tools and the Federal Reserve's balance sheet to pursue low interest rates and fund mortgage- backed securities," Hoenig said.

"For home financing to follow a path that is sustainable over time, the Federal Open Market Committee must begin taking steps to normalize monetary policy," he said.

Reduce Subsidies

Hoenig also said that the U.S. needs to reduce government intervention and public subsidies in housing because they have "distorted the market" and the nation can't afford to continue with such expenditures as the federal budget deficit grows.

Fannie Mae and Freddie Mac, the mortgage firms operating under federal conservatorship, may cost taxpayers as much as $685 billion as the U.S. covers losses and overhauls the housing-finance system, Standard & Poor's said yesterday.

"Given the costs and market distortions these government- supported institutions brought with them, we should be confident that they should not be allowed to operate in the future as they have in the past," Hoenig said. "We must move toward a system with fewer subsidies and misdirected incentives."

To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

More on boondoggles:

Credit Suisse: These industries will get crushed by the Fed's "money printing"...

Tea Party founder: The Tea Party has become "an absolute joke"

Must-read letter from top manager Jeremy Grantham

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