Fed and ECB Realities

 If you have noticed global economic fears and fed easing have been competing with each other for the last six months. So when we see a economic report that is not very good, markets do not react to the report. This is happening because the worse the reports get the more likely the fed is to provide QE3. Well a few days ago the fed finally announced QE3. The markets rocketed along with other news that came out from Europe. In reality,  fed easing is having less of an effect on interest rates than people like to believe. The more the fed buys bonds the less people can sell to them which forces the fed to buy less bonds than before. On the positive side the fed is buying mortgage bonds. This will help stimulate the mortgage market that is now in deep trouble. The only thing that worries me is the 10 year interest rate has not reacted to the fed news. Treasury bond interest rates actually went up on the news. Although treasury interest rates have not reacted, I still think they will do so soon.

I would also like to address the ECB bond buying program. I do not believe this program will work because the ECB is lending at the markets interest rate level. The countries that are in debt need cheaper debt so they can pay the money they already owe. The only problem with lending these countries money is that they are not making enough cuts to support themselves. As Jim rogers said, "Someday Europe is going to run out of other people's money."