So, you'd like to know what an alternative to QE would be after the fact that the Fed blew it with failing to nip the problem before it blew up? Lol! I'm afraid it's a bit late at this point don't you think?

As I've said before, they've painted themselves into a tight corner at this point with limited options. I'm for letting the Zombie banks fail. It's going to happen regardless if something isn't done about them. But to be specific and answer your question, they (the Fed) should've broken these big Zombies apart and created a better, more sound banking system. But no, the facade plays on.

The only thing that QE is accomplishing is the destruction of the USD. All the other asset classes are just responding accordingly. Finance 101 teaches you the inflation trade. The Fed is blowing it again by not recognizing the inflation they've created. Bernanke has repeatedly said that this is "transitory". But that's been for quite some time now, I'm thinking this has become a bit more permanent vs. transitory. But I'm not surprised as his track record speaks for itself.

I'm interested in learning more as to why you think raising interest rates to curb excessive speculation is questionable. I've never heard anyone say this before and would like to learn the rational behind that idea.

Cheers,
PB

so you're saying they should have let the banks fall, no QE and we would be better off now? lol. that was a joke, right? of course is printing money creating inflation, that's a well known side affect. that's the risk they were willing to take. or I should say had to take. just like the japanese and the english did before. maybe the destruction of the usd would not be as bad if the government would stop some of the ridiculous spending.

why do I think raising interest rates would have been a bad action? actually pretty simple. unemployment was rising. the economy was heading down hill rather fast. not really a good moment to raise interest rates, wouldn't you agree?

but here's the irony. of course it would have been better under all circumstances to stop that real estate bubble, including raising interest rates. but be honest now. lets say by raising interest rates and other actions they were able to stop that bubble, but the economy went straight into recession. guess what? sources like zerohedge or zerocoke or whatever would hammer bernanke for being so stupid to let us slide into another recession because of these actions. of course nobody would have a clue how severe that real estate bubble would have affected us. no hindsight.

I'm not saying bernanke is a genius. but I'm saying it's always easy to criticize after the fact.

Thanks for your response. My thoughts were to have had the big banks broken up before they were to fail. It's pretty clear you aren't very savvy on this topic and have turned this into more of a who's right argument so, I'll leave it at that respectfully.

Cheers,
PB

that was not my intention. I really should have put it in different words, sorry about that. for what's it worth, I still don't disagree with you.

always enjoying your posts. very valuable imo.

I'll leave it at that as well, since I'm not able to clarify exactly what I mean. (sorry for my bad english)

1. Here are two of the many things that could have been done:

First, the completely obvious answer to what could have been done better is the Fed should have recognized the real estate/credit bubble when it was occurring. They in fact, did but pretended it was of no significance and allowed it to continue. This really began with Greenspan and then when Bernanke became Fed President, it was most likely made worse. I distinctly remember all of Bernanke's testimonies where he stated that he felt "Real Estate was not in a bubble, would not crash and if anything would simply plateau for a few years until everything else caught up with RE prices". Lol!!! They could have simply raised short term interest rates enough to stop the excessive speculation that was occurring in the Real Estate market. They could have also reduced the monetary supply by selling U.S. Treasuries and bringing long(er) term interest rates higher until the speculation in Real Estate cooled down.

The second important thing they should have done was to put a clamp down on the banks' excessive use of derivatives (Collateralized Debt Obligations, Credit Default Swaps and other covenant lite/Mezzanine financing arrangements) and the high risk taking that was affiliated with it. This would have stopped the massive securitization machine that came to be and would have made banks use far less risk because the mortgages that did not fit into the FNMA/FMCC criteria would have had to be held on their (the banks') balance sheets. As we witnessed, the fallout from the use of derivatives resulted in massive bank failures, money markets "breaking the buck" and giant mounds of garbage securities that have absolutely no secondary market and no bid to speak of.

The entire meltdown could have been prevented if they would have acted early enough. But we're talking about the Fed here. They're in it for themselves first and foremost. This meltdown afforded them with an even larger power grab.

2. We would obviously be way better.
3. I can't even imagine how you arrived with your conclusion, please explain.

Bernanke: There's No Housing Bubble to Go Bust - washingtonpost.com

"That view mirrors Greenspan's. He and Bernanke have both said it is unrealistic to expect the Fed to identify a bubble in stock or real estate prices as it is inflating, or to be able to pop it without hurting the economy. Instead, the Fed should stand ready to mop up the economic aftermath of a bubble.

Greenspan, for example, has rejected suggestions that the Fed should have raised interest rates in the late 1990s sooner or higher to slow soaring stock prices. He says the Fed got it right after that boom by cutting its benchmark rate deeply in 2001, in response to falling stock prices, the recession and the Sept. 11 terrorist attacks."

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I find it amazing that Greenspan won't acknowledge the mess "he" created. First with not raising rates during the techboom, and then keeping rates unnecessarily low after 9/11.

As for Bernanke, I guess you have to remember that fundamentals were strong:


I am happy we have such trustworthy and competent people in charge. Some people called it though, I remember Jim Rogers saying Citi would be a buy at $5:

Stock market 'winter' is moving in - MSN Money

"Technically, it's bankrupt, with gigantic off-balance-sheet derivatives positions whose value it cannot possibly know," he says. Though he believes some large banks can and will go under in the next year or two under the weight of billions of dollars worth of bad loans and blown-up derivatives positions, he doubts the government will allow Citi or Fannie to fail. "They'll nationalize them in some way. It's wrong, but they can't let the two largest lenders in the nation go down."

The fund manager, who has traveled extensively in emerging markets and lives part of the year in Asia, says sovereign wealth funds in Abu Dhabi and Singapore that recently made large investments in Citigroup and UBS AG (UBS, news, msgs) are likely to lose a lot of money on their ploys. "They're making a big mistake; these banks have many more problems still ahead. They should wait until these companies are really on the ropes a few years from now . . . and trading at $5 a share."

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It looks like his call for Gold at $2000 is on its way too:

Roubini Says Rogers?s $2,000 Gold ?Utter Nonsense? (Update1) - Bloomberg

Nouriel Roubini, the economist who predicted the global economic crisis, said a forecast by investor Jim Rogers that gold will double to at least $2,000 an ounce is “utter nonsense.”

There is no inflation or “near-depression” to drive gold prices that high, Roubini said today at the Inside Commodities Conference in New York. If a severe depression came to pass, with investors buying canned goods and hiding out in log cabins, “maybe you want some gold in that scenario,” Roubini said.

“Maybe it will reach $1,100 or so but $1,500 or $2,000 is nonsense,” Roubini said.

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Sometimes trading/investing is so easy it's difficult. It's not that I have followed Rogers advice, but in times of weakness I have revisited some of his interviews to gain confidence enough to still "hold". To quote Livermore: "It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!"
With QE3 on the horizon it appears to still be the way to go....

I completely agree with your post, and I think it's shameful how everything transpired. It's too bad the general population don't have a basic understanding of economics, otherwise maybe things could've been different.