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Wednesday, June 22, 2011

The Federal Reserve Plan for QE3

The Federal Reserve Plan for QE3 : Here's what I see: Instead of printing more money, the Fed is likely to start reinvesting the proceeds of maturing debt. Ultimately, that won't reduce our government's bloated, toxic balance sheet. But it will change the makeup of that balance sheet - and not for the better.

I believe the Fed will also attempt a freeze of some sorts that effectively removes pressure from the U.S. Treasury markets that would otherwise crater it.

At the same time, I can easily envision continued demand for U.S. Treasuries from abroad that will confound such well-known Treasury bears as Pacific Investment Management Co. LLC (PIMCO) star Bill Gross, who has been wrong on Treasuries before.

The European euro is in real trouble - and so are the institutional investors who have parked their money there. This, in turn, means that the so-called "PIIGS" of Portugal, Italy, Ireland, Greece and Spain truly do run the barnyard - a fact that will help sustain U.S. Treasuries, as well.

As for the so-called "nuclear option" that is so popular on the late-night chat boards sponsored by card-carrying members of the tin foil hat club ... don't waste your time worrying about it. China can't dump U.S. dollars, and neither can Japan. Nor can either country dump U.S. Treasuries en masse. The reality is that there is simply not another alternative on the planet capable of absorbing the proceeds if they did so. So both nations are effectively stuck.

The final reason that I'm sure that QE3 is a done deal is, ironically, a political one. Despite the fact that so much is wrong with this country on so many levels, the fact is that this is an election year and that means the status quo is likely to remain in place until the new guy reaches the White House. And the status quo speaks to the inevitable Federal Reserve Plan for QE3 - even though it's in the "stealth mode" that I'm predicting. For the latest updates PRESS CTR + D or visit Stock Market news Today

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