Tags: Rogers | Fed | QE3 | easing

Jim Rogers: Fed Has Already Begun QE3 to Avoid 'Egg on Their Face'

Tuesday, 04 Sep 2012 07:17 AM

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International investor Jim Rogers says that the Federal Reserve is secretly printing money to avoid "getting egg on their face again" after previous attempts to kick-start the faltering economy with more than $2 trillion of quantitative easing failed.

Since the downturn, the Federal Reserve has twice sought to spur the economy by buying assets like Treasury holdings or mortgage-backed securities held by banks, a monetary stimulus tool known as quantitative easing that pumps vast amounts of liquidity into the financial system to spur recovery.

Two previous rounds of quantitative easing (QE1 and QE2) pumped a collective $2.3 trillion into the economy and Fed officials say they remained poised to roll out a third round (QE3) if recovery doesn't gain steam.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

Don't wait for that announcement to occur.

"I do not know if they will announce it. I know they are going to print more money. They already are," Rogers told India’s Economic Times.

"If you look at their balance sheets, you will see that something is happening, assets are building on their balance sheets and they are not coming from the tooth fairy," said Rogers, who co-founded the Quantum Fund with George Soros.

Mere talk of quantitative easing can send the dollar tanking and assets like gold and stocks rising, as the tool seeks to stimulate the country by flooding the financial system with liquidity in a way that pushes down interest rates across the economy to encourage investing and hiring.

Supporters say the policy steers the country away from deflationary decline and rising unemployment rates, while critics charge the move is merely printing money out of thin air and plants the seeds for inflation down the road.

Some critics like Rogers say the first two rounds didn't really do much to help the economy, as unemployment rates remain high while growth remains tepid.

"I do not know whether they will announce it or not. They are a little bit embarrassed because they announced QE1 and QE2, and it did not work. So they may try to discuss it," Rogers said.

"They may just continue to do it without getting egg on their face again, but they are going to print money, they are all going to print money. It is the wrong thing to do, but that is all they know to do."

Rogers also told Britain’s The Daily Telegraph: "They probably have learned how to do things off balance sheet. I have nothing to confirm this but everyone else has learned how, so they probably have too. This is just a comment on human nature."

Fed Chairman Ben Bernanke said in his annual speech at Jackson Hole on Friday that the country's high level of unemployment — it climbed to 8.3 percent in July — is a "grave concern" and that the "economic situation remains far from satisfactory."

Fed officials remain split on whether to roll out a third round of quantitative easing, with one camp arguing monetary policy tools have done enough and that future action will only fuel inflationary risks, and the other camp pointing out that the country will slide into decline if they don't jolt the economy one more time.

Some Federal Reserve board members say if a third round of quantitative easing comes, policymakers shouldn't announce a fixed amount of assets to be purchased as was the case in the first two rounds — QE1 saw the purchase of $1.7 trillion in mainly mortgage-backed securities from banks, while QE2 saw the purchase of $600 billion in Treasury holdings from banks.

"In the past we have done the lump sum, the announcement of $600 billion of purchases over a fixed period of time. I think that worked well at that time," John Williams, president of the Federal Reserve Bank of San Francisco, told CNBC.

"Personally, I think we should be moving towards what we call an open-ended approach basically saying instead of 'here is a certain amount over a certain period of time' that we will be purchasing assets at a certain rate and we expect to continue to do that for some time," Williams added.

"A basic principle good monetary policy is you adjust policy based on what's happening in the economy and the outlook. The open ended approach allows you to do that better, I think."

Rogers also believes there is no end in sight to the eurozone's problems.

"There are going to be more problems coming out of Europe," he said.

"You have got countries that are essentially bankrupt. Nobody is dealing with the problems in Europe. You look at everyone out there. They all have higher debts and all of their projections, maybe Bulgaria and one or two more countries do not have higher debts in their projections, but everybody has got increasing debt. The solution to too much debt is not more.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

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