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Bernanke must do QE3 or he’s a dope

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by Peter Switzer

Wall Street ended cautiously higher but not by much as we now wait for the Federal Reserve’s Ben Bernanke decision on the much talked about QE3. Let me say this, if he doesn’t do QE3 he is a dope!

Economists such as Jan Hatsius of Goldman Sachs thinks it’s a 50:50 decision and AMP Capital Investor’s Shane Oliver thinks it’s needed. But there are those who argue that it could be seen as too political for the central bank to stimulate the economy ahead of an election. What a load of crap!

What the USA needs

It’s the central bank’s job to create economic growth to produce jobs and that’s what the USA needs badly. In fact, it would be a dereliction of duty to even worry about an election when the economy and real people without jobs are being put on hold from economic salvation just to appease the likes of Barack Obama and Mitt Romney.

Overnight the Dow was up nearly 10 points or 0.07 per cent to 13,333.35 while the S&P 500 was up three points or 0.32 per cent to 1436.56.

If Bernanke disappoints, the stock market could slide 10 per cent and so President Barack Obama would face the people with a hopeless job creation story and a scared stock market.

And while the latter should not concern Bernanke, it doesn’t help the economy and job creation if the stock market is slumping. At least Bernanke, as a central banker, respects the importance of stock market sentiment, unlike our Reserve Bank boss, Glenn Stevens.

By the way, even if Bernanke does opt for QE3, the market could sell off because markets often buy the rumour and sell the fact, however, it would be a small run down before new buying would take the market higher again.

The snowball

What we’re seeing is the makings of a positive confidence snowball which started with Mario Draghi’s “whatever it takes” promise, then the ECB plan to buy bonds to bring down borrowing costs for debt-laden governments such as Spain and Italy. Then the Chinese said they would spend more, the German Court decision last night that said the bailout fund was compatible with Germany’s constitution kept it rolling and now Bernanke has to add to the snowball.

All of these will add to a more positive economic environment and this will underpin better stock prices going forward.

However, one false move and the snowball will stop rolling, anxiety will be recreated and stock prices will slide. That said, 2012 has brought progress but we need more and that’s why Bernanke cannot afford to be a dope.

I really hope tomorrow morning I can write in praise of Ben — I really do.

Published on: Thursday, September 13, 2012

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