Gonzalo Lira: How Likely is QE-Three?

03-25-2011 • Gonzalolira.blogspot.com

Over at Zero Hedge, they are past masters at timing the funding needs of the Federal government. But we don’t need to go into the monthly figures of POMO purchases and Treasury auctions and all the rest of it. All due respect to Tyler and his wonderful team at ZH, all that is merely the mechanics of Federal Reserve monetization. What we should look at is the simple, macro question: If the Fed ends QE-2 in June as they have said they will, who will take up the slack? Who will purchase between $75 and $100 billion worth of Treasury bonds at yields of 3.5% for the 10-year? Is there someone? Anyone? The answer is, No one will take up the slack. Who, Japan? They’ve got some well-known troubles of their own—they’re all about selling Treasuries and buying up yens, both now and for the foreseeable future. The Chinese? They’ve been quietly exiting Treasuries for a couple of years now, and going into every commodity known to man. Europe? Are you serious—Europe? Please don’t make me laugh that hard—it hurts. The fact is, there is no one outside the United States that I can think of who would willingly buy Treasury bonds—not to the tune of +$75 billion a month. Therefore, if no one outside the United States would willingly give money to Washington to fund the deficit, then someone inside the U.S. will have to step up.