Tags: us | economy | Bove | Fed | Pushes | US | Brink

Bove: Fed Pushes US to Brink of New Recession

Thursday, 09 Jun 2011 08:36 AM

The Federal Reserve could throw the country back into recession through its quantitative easing program and by calling on banks to raise more capital, says Rochdale Securities banking analyst Dick Bove.

Quantitative easing, known widely as QE2, a $600 billion bond buyback designed to spark economic activity, has inflated assets such as stock prices but has failed to make serious improvements to the overall economy.

Furthermore, the Fed’s reserves have jumped by $568 billion to more than $1.5 trillion via quantitative easing, as banks are not lending their newfound money out.

“These numbers indicate that the banking system never put the QE2 money to work in the economy,” says Bove, according to CNBC.

Dick-Bove-3-thumb-200.jpg
Dick Bove
(file photo)
“They simply re-deposited it back in the Federal Reserve itself. However, the new money did have one clear impact. It drove up asset values.”

Some Fed officials have a said banks should raise more capital in order to have a financial cushion to protect themselves from future economic shocks, a suggestion that Bove wholeheartedly rejects.

“I unfortunately believe these people may have lost their minds just as the U.S. Congress did when it passed the Dodd/Frank Act,” Bove says.

“It spells dangers for bank stocks.”

Daniel Tarullo, a Fed board governor who supervises regulatory affairs, has called for tougher capital requirements.

“The failure of a systemically important financial institution, especially in a period of stress, significantly increases the chances that other firms will fail,” Tarullo says, according to the New York Times.

But because those firms have “no incentive to reduce the chances of such systemic losses,” higher capital requirements are necessary “to make those large, interconnected firms less prone to failure.”

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The Federal Reserve could throw the country back into recession through its quantitative easing program and by calling on banks to raise more capital, says Rochdale Securities banking analyst Dick Bove. Quantitative easing, known widely as QE2, a $600 billion bond buyback...
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2011-36-09
Thursday, 09 Jun 2011 08:36 AM
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