So The Fed is “all in.” QE3, the third round of quantitative easting, will continue until the unemployment rate drops to an acceptable level.
The implication is that buying bonds will improve the unemployment rate, which has been over 8% for a record 43 months. Yet if unemployment remained high after QE1, QE2 and Operation Twist, why should QE3 be any different?
The unemployment rate, of course, is bound to drop sooner or later. When it does, will The Fed take credit and claim that QE3 is the reason?
Granted, this round of QE is different from the others, as The Fed will be buying $40 billion worth of mortgage-backed securities a month.
Added to existing bond buying, that will come to $85 billion a month through the end of the year. If unemployment doesn’t drop, the Fed said it will buy even more bonds!
So we’ve come full circle since 2008, when the financial system nearly went bust by … investing in mortgage-backed securities.