Bernanke Goes All In

      They said it would never happen. And it often seemed that way. Many thought that he'd never do this with an election coming up.

      This premise was reasonable especially as the Fed was so conservative over the past 3 years. Today though Ben went into full shock and awe mode.

      "The Fed said it will buy $40 billion of mortgages per month in an attempt to foster a nascent recovery in the real estate market."

      "The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve."

     http://www.cnbc.com/id/49018964

      This is what's really key. It will be open-ended and he won't stop until unemployment comes down. This was the kind of aggressive approach that had been lacking previously, where the Fed always seemed to feel that the worst thing it could possibly do was do too much.

      "There's strong hints that they'll do Treasurys next," Joe LaVorgna, chief economist at Deutsche Bank Advisors, said in a phone interview from London. "They're pulling out all the stops to try to get this economy to gain some traction and, most important, to get unemployment down."

      "Enacting the third leg of quantitative easing, or QE3, will take the Fed's money creation past the $3 trillion level since it began the process in 2008."The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions," the Open Market Committee said in a statement."

     The Fed left its funds rate unchanged at near-zero but offered one change in that regard, saying the rate would stay at "exceptionally low levels" until at least mid-2015.

     So how does the market feel? The immediate reaction was great. The Fed is at the present up 225 points.

     "The language of its policy stimulus leaves us in little doubt that the central bank is trying hard to allay fears over the prospects for inflation, which it continues to see as a low likelihood, as well as its exit strategy," said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York. "The Fed is going all out to say that easy money is here for a very long time. Will markets warm to its latest actions? We think so."

      "Doug Roberts, chief investment strategist at Channel Capital Research, said small-cap stocks, technology shares and precious metals probably will be the chief beneficiaries of QE3.

"What QE3 does is inject liquidity," he said. "Right now what you do is follow the Fed."

     As to politics, I think Bernanke made the unpolitical decision. I know some will see it the other way around. However, how can it be that if the Fed wants to ease but chooses not to because of an election this shows it's politically independent? Isn't it the other way around? What could be more disquieting than for the Fed to choose to let the economy stagnate just to help the campaign of Mitt Romney?

     So will it help and how much? I don't know. There are those who worry about "galloping inflation" and other market "distortions"-though I suspect that the kind of inflation they fear most is inflation of the President's poll numbers.

    Then there are those who just don't think QE does anything. I can't claim to know definitively myself. However, I'll say this. There's an old saying: No atheists in foxholes