The Federal Reserve has said it will maintain its QE3 program of printing $85b/month and using it in the markets to buy various instruments. The Fed has said in the past that this might not be limited to after-market Treasury bonds and mortgage bonds, but they haven't said what these 'other things' might be. The Fed's goal is to keep prices from falling and thus triggering an end of civilization death spiral of deflation.
A flurry of rumors over the past couple of weeks has suggested that this program could end 'any day!'. These prognostications are clearly intended to sway the market since they weren't based on any facts. This week they are trotting out old Republican Fed watchers to proclaim that Chairman Bernanke is a 'lame duck' who shouldn't be listened to. This is on the assumption that he won't be reappointed in January, only based on a poorly worded answer by the President in response to a live interview question.
The truth is that the economy continues to recover slowly, and the Fed's latest report gives a fairly optimistic outlook for the end of 2014, with unemployment falling and inflation rising toward the target of 2%. You don't suppose this has anything to do with all the unfounded and basically wrong speculation by pundits that happen to be Republican? I think I heard that there's an election at the end of 2014.
New unemployment claims fell to 334,000 for last week, it's not a fabulous number, but is well within the range where you might expect over 200,000 new jobs a month or better. Housing starts were up nearly 7% in May, and inventory of new houses is actually fairly tight. Some lenders are offering mortgages with only 10% down again. This could actually get the market going again if loan qualifications are relaxed across the board, that is if this is not just a promo for people who don't need a loan. Presumably this increase in lending is a result of the ongoing QE3 by the Federal Reserve.
China has launched an ambitious plan to move 250 million people from rural areas into newly built cities over the next 12 years. Think about this, it's nearly like moving the entire United States into newly built cities. Who's the super power again? We can't keep our bridges from falling down because the Republicans say we're broke! The usual suspects are predicting that this will surely collapse China's economy. No matter that China has moved 600 million people over the past 30 years while the US has drifted inexorably into third world status.
They are building fully modern cities that rival anything in the US, but with more modern infrastructure. China is building 300 mph trains with thousands of miles of track, we don't repave our roads. China is building high tech projects all over the world, making friends and building trade. We used contractors at five times the going rate to build some crap in Iraq that's falling down. China was building steam locomotives 30 years ago, now they're building a space station. We have a space station that we share with other countries, and we need to hitch a ride with the Russians to get there.
China is already buying Texas oil fields, if we don't get rid of the idiot Republicans next year, we'll be selling the rest of the country to China for food. Twitter @BruceEnberg I'm not tweeting in Mandarin yet, but we will all have to learn our master's voice.