As per usual, Bernanke has most of the media and Fed watchers looking at the wrong card.
Forget about QE3, keep your eye on excess reserves. Excess reserves are funds that are not in the system bidding up prices, but when they enter the system by banks using them to make loans, have the potential to result in a multiple of their size, when they impact the money supply. Because of this potential for multiple size impact, excess reserve entering the economy are considered high-powered money.
Excess reserves, when they are used by bankers, are no longer "excess", but actually become part of the money supply and are then out there bidding up prices. Thus Bernanke has plenty of these excess reserves on the sidelines to increase the money supply by, literally, many trillions.
Keep an eye on excess reserves and the money supply, that's where the real action will be, not the QE3 card. That's just a Berenanke diversion. BTW, I analyze every Fed money supply report and excess reserve report in the EPJ Daily Alert.
Bernanke is perhaps the most passive-aggressive personality on the planet, he will say one thing and appear to be doing that thing, but because of the creation of his various new monetary "tools", he may actually be doing the exact opposite. Before Bernanke started paying interest to bankers on excess reserves, there hardly were any--maybe a few billion. Now, the size of the excess reserves is more than 200 times what it used to be. That is a tremendous pool of money to be sitting on the sidelines, one false move by Bernanke and he could very quickly blow up the entire economy. Very scary.
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