QE 1 and QE 2 = QE 3?

Quantative Easing 1 and Quantitative Easing 2 (QE1 & QE 2)

I’ve previously expressed my concerns about Quantitative Easing and The Fed’s holdings of US Treasuries but that isn’t complete picture. Before the credit crunch the Fed held about 800B of treasuries securities. In response to the recession kicked off by the credit crunch in November 2008 the Fed started purchasing Mortgage Backed Securities (MBS’), significantly adding to their balance sheet. This was called Quantitative Easing One, or QE1, and is illustrated as series MBST (red line) in the chart above. In November 2010, due to the severity of the recession The Fed started purchasing treasury securities at the rate of $30B a month, adding $600B to their balance sheet by Q2 2011. Sometimes called Quantitative Easing Two, or QE 2, this is illustrated in the chart above as series TREAST (blue line).

But once again the US economy is slowing and seems destined to dip back into recession. Can QE 3 be far off? The chart below shows The Fed’s total balance sheet, both Treasury and Mortgage Backed Securities.

The Federal Reserve's combined balance sheet, 2002 to 2012

The Federal Reserve's combined balance sheet, 2002 to 2012

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