QE Is Coming Soon
I am in the “QE is coming soon” camp. Probably in January.
The Fed injected $29.4 billion of liquidity into the banking system on October 31st and another $13.5 billion on Monday.
Why do the banks lack liquidity? Two reasons. First, the banks gorged on Treasuries and MBS when Fed Funds was at zero in 2020 and 2021. Those securities largely sit as unrealized losses on bank balance sheets to this day (Bank of America, $BAC, case in point).
Second, the Fed took the bank reserve requirement down to zero percent in 2020 where it sits today. Bankers are like addicts, if you remove restraints, they will operate to the extreme and throw risk management out the window. Therefore, many banks do not have sufficient reserves on hand should customers come calling on deposits. Talk about moral hazard.
Expect the bailout economy to kick into high gear beginning in 2026. 2026 could be a year where GDP falls, yet unit prices moves higher on account of dovish monetary policy and yet more aggressive deficit spending on the fiscal side.
Washington D.C. desperately needs serious people at the Fed and in the White House. Something we have not had since Paul Volcker and Ronald Reagan. If you were to push back and say Calvin Coolidge was the last serious President we had from a fiscal standpoint, I would not argue.
