U.S. Will Roll Out QE3 After S&P Rating Cut, Li Daokui Says

I certainly believe this will happen as well and I do believe I have said so on a number of occasions. QE3 is in the works. As the US has the printing press it is able to print new money out of this air and use it to finance its debt by buying their own short term low interest bonds.

Actually they are then taking all that space of treasuries purchase previously done by private as well as foreigner investors and thus shortcutting any attempt for the bond vigilantes to dictate any terms relevant for new purchases.

Issue – there is nothing in this worlds as inflationary as printing new money and then use it to buy your own bonds. Look for further devaluation of the US$.

Heads up - just the notion by all current holders of long term US treasuries that this is what the FED intends to do and even if they don't may be enough for currendt holders of bonds to sell of their holdings. This is the warning from China. In both scenarios (QE or foregin sell off) the dollar get debased. Question is what would happen to interest rates at point of a sell off and could that likely interest hike then be managed somehowe via more QE?

The U.S. Federal Reserve will extend its program to purchase the nation’s debts and stabilize long-term interest rates after Standard & Poor’s downgraded its credit rating, according to an adviser to China’s central bank.

The Fed will roll out quantitative easing 3, a tactic to purchase treasuries, Li Daokui, an adviser to the People’s Bank of China, wrote in his microblog weibo.com. Institutional investors will be forced to sell long-term U.S. debt, which may cause financial turbulence, he wrote.
http://www.bloomberg.com/news/2011-08-06/u-s-will-roll-out-qe3-after-s-p-rating-cut-li-daokui-says-1-.html

and maybye it can start quite soon?

"The whole world is mad" - so says Marc Faber when beginning his latest observations of the markets in the attached Bloomberg TV interview. "Stocks will be dropping 30%, then rallying 20%, and dropping another 30% - that's going to be the pattern. And whoever can't live with that shouldn't be buying equities at all." And while the publisher of the Gloom, Boom & Doom report, said "there is a case to be ultrabearish about everything, and markets are going to go lower" he notes that markets are "extremely oversold" and he expects a "snap-back" rally in the U.S. Standard & Poor's 500 Index of about 40-50 points. That said, Faber sees no new highs in 2011. He concludes that he can already smell QE3, and that the "next week will be important to see if Bernanke is a true money printer or an amateur, and if he is a true money printer he will start printing soon."
http://www.zerohedge.com/news/marc-faber-next-week-we-will-see-if-bernanke-true-money-printer-or-just-amateur

Then look at this chart. Clearly you se a very surprising correlation between longer term Treasury and QE. Everytime during QE rates increase and then they get lower in between.

Impact Of Quantitative Easing On Yields
http://www.businessinsider.com/impact-of-quantitative-easing-on-yields

So during a QE program aimed at the short term Treasuris, where the FED can buy at low interest rates, longer Treasuries interest rates increases. QE raises the appeal of risk assets. When there's no QE, the appeal of risk-less assets (bonds) rises.