Primary dealers driving the printing presses
The U.S. Federal Reserve’s hotly-contested $600 billion renewal of its quantitative easing programme is roughly the size of the Gross Domestic Product of Switzerland.
Expectations by forecasters in Reuters Polls on how much more bond purchases the Fed will conduct beyond the $1.7 trillion already conducted varied widely running up to the Fed’s announcement that it would go ahead with QE2.
But the high end of forecasts has been consistently driven by the 18 primary bond dealers which deal directly with the Fed. Perhaps that’s no surprise, given that they are selling bonds to the central bank at a very good price.
— The median estimate for QE2 from the Wall Street primary dealers was $1 trillion on Sept 22.
— That median estimate declined to $625 billion about a week before Nov. 3, when the Fed announced $600 billion in new government bond purchases over the next eight months.
— In a poll taken two days later, the median estimate from the primary dealers rose again to $1 trillion for the eventual spend on QE2.
— But the majority of economists in the latest Reuters monthly long-term economic poll, which includes many banks that are not primary dealers, saw the Fed capping QE2 at $600 billion. Only fourof the primary dealers say it won’t go higher.
— The $600 billion second round of QE2 announced by the Fed is worth more than the 2009 GDP of 165 countries of 182 tracked by the International Monetary Fund.
— Only five countries, the United States, Japan, China, Germany and France, have economies bigger than the Fed’s total $2.3 trillion planned QE spend ($1.7 trillion, plus $600 billion more announced).
— Only 12 countries have a GDP greater than the latest median primary dealer estimate of $1 trillion for QE2.
— Only seven countries have a GDP bigger than Goldman Sachs’ QE2 estimate of $2 trillion.
Thanks to Yati Himatsingka and Ruby Cherian in Bangalore for compiling the data.