QE4 Could Start Sooner Than We Think

With the recent plunge in crude oil prices and the Russian Ruble, along with the decline in the US stock market, I wonder if the Fed regrets its decision to temporarily stop Quantitative Easing. It was the right decision in the long-term because the federal government and investment markets have become addicted to easy money, just like a chronic alcoholic or drug addict.

However, I don't think this will be the end of QE because so many individuals, companies and governments depend upon high asset prices and low interest rates. The federal, many state governments and big corporations need low interest rates to keep borrowing as cheaply as possible. Based on the most recent "Cromnibus" bill, it's obvious the federal government won't cut back on spending anytime soon.

Many publicly traded companies such as IBM sold bonds to raise cash and buy back stock so their earnings would look better. Even a slight increase in interest rates would be bad for the bottom line of many firms who did this "financial engineering."

The federal government wants to keep consumers spending as much as possible, which is based to a large extent on easy credit. Low mortgage rates have fueled the Echo Boom in residential real estate, and now sub-prime auto loans up to 84 months are available for car buyers.

The Federal Reserve is being diplomatic and coy about if (or when) it will raise interest rates. I don't think the Fed can or will raise rates unless they're absolutely forced to - just like Russia's central bank was forced this week into an emergency rate hike to 17%. The FedHeads have painted (or more like printed) themselves into a corner with all this easy money and low rates.

Jim Rickards has said he thinks we'll see QE4 in 2016. That would give the economy a pre-election boost and increase Hillary Clinton's chances to win the Presidency. However, I don't think the Fed or FedGov can wait that long if the stock market goes significantly lower. The ultimate collateral backing financial paper assets is the investing public's confidence in those assets.

That confidence is somewhat fragile right now, and the Fed will do everything it can to maintain that confidence in US financial markets. I don't think it can afford to wait too long to intervene if things go south. That's why we I believe we could see QE4 a lot sooner than the experts think.