Goldman: The Fed Needs To Print $4 Trillion In New Money

A brand new analysis by Jan Hatzius, which performs a top down look at how much monetary stimulus is needed to fill the estimated 300 bps hole between the -7% Taylor Implied Funds Rate (of which, Hatzius believes, various other Federal interventions have already filled roughly 400 bps of differential) and the existing 0.2% FF rate. Using some back of the envelope math, the Goldman strategist concludes that every $1 trillion in new LSAP (large scale asset purchases) is the equivalent of a 75 bps rate cut (much less than comparable estimates by Dudley, 100-150bps, and Rudebusch, 130bps). In other words: the Fed will need to print $4 trillion in new money to close the Taylor gap.

ZH presents yet another eye opening article a lot of which, admittedly, is beyond my low level comprehension of economics. Regardless 4 trillion dollars is a jaw dropping amount of paper. QE2 looks to finally hit the table in the first week of November and the talk out there is anywhere from 500 billion to 1.5 trillion. We know what happened with QE1 in that any reluctance would inevitably drag the US economy into a deep recession or worse depression. Sinkholes including Freddie/Fannie Mac and the auto industry have pretty much proven that QE1 did not work as expected, how will this be any different. Clearly this will devalue if not collapse the US dollar and drive commodity prices to the moon, but what exactly are Benny and inkjets along with Geithner trying to accomplish here ?

Even Germany had the cajones and was quick to chastise US ambitions:

The Federal Reserve’s push toward easier monetary policy is the “wrong way” to stimulate growth and may amount to a manipulation of the dollar, German Economy Minister Rainer Bruederle said.
...
It’s the wrong way to try to prevent or solve problems by adding more liquidity,” Bruederle told reporters yesterday, saying that emerging-market officials were among the critics. Bruederle, a member of the Free Democratic Party, the junior partner in Chancellor Angela Merkel’s government, stepped in for hospitalized Finance Minister Wolfgang Schaeuble at the meeting.

sources
source1

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brill

Isn't Goldman a banking house.

They use the word 'we' a lot.
I don't think it means what they think it means.
What are they gonna do with all that cash anyway.
Buy influence?


David Grouchy