The beatings will continue until morale increases

"The Fed just changed the game.  Whereas in the past, the Fed always set a defined amount of Fed purchases, this time they're saying that the easing will continue until morale improves."

--http://www.businessinsider.com/why-this-fed-decision-is-a-huge-change-from-every-decision-the-fed-has-made-in-the-past-2012-9

The recently announced QE3, which will buy mortgages, will only continue the economic morass that we are in, and I will explain why.

But first, look at what we would need for a true recovery, which requires only 2 things: 1) sound money, and 2) clearing off the over hang of bad debt either through repayment, forgiveness or default.  By sound money, I don't necessarily mean the gold standard, but a currency that would depreciate only about 10% per year against gold, plus would provide interest to savers to make up for the loss.  If savers could get 5% guaranteed, that would go a long way towards restoring investor confidence.

Instead this program will reduce returns on investment even further.  It is declaring war on investors and savings.  It doesn't clear off the mountain of debt, instead it makes it easier to maintain which will cause it to grow.  Which means the crash, when it comes, will be even more disastrous.

Reducing the interest rates on mortgages will help nobody but the zombie banks.  Nobody thinks that mortgage rates are too high. ("Honey, the rate is now 2.875% but that's too much.  If it were only 2.5%").  Banks can't afford to lend at that low a rate, because there is too much risk, so this will result in the Fed taking over the entire mortgage industry.

This may not even help real estate prices.  Nobody wants to buy real estate because it isn't a good investment, and because people are worried about losing their jobs.

One thing this will do is increase inflation by increasing the money supply.  Look at how gold has jumped.  It was below 1600 just a couple of months ago and now it is above 1770.  It will increase speculation and help stock prices.  It  will create new bubbles, which will then inevitably pop.

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Update:  Long-term interest rates soared after this announcement.  The 10-year treasury yield jumped almost immediately from 1.72% to 1.80%, because of expectation of inflation.   EPIC FAILURE.

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"Our quote of the week award recipient is none other than Atlanta Fed's Dennis Lockhart for the following pearl of wisdom:

• LOCKHART SAYS FED WILL BUY BONDS UNTIL U.S. EMPLOYMENT IMPROVES.

Considering that employment is bad because of Fed "bond buys", which are preventing price clearing and discovery, and perpetuating the worst capital misallocation environment in the history of the world (if not for Apple's professional line waiters), one should just replace "buy bonds" with "continue beatings" and "U.S. employment" with "morale."
--http://www.zerohedge.com/news/quote-week-1