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QE2: the world’s biggest shelf offering?

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Photo illustration: Bernd Thissen / dpa / picture-alliance / Newscom

(Read caption) What's on the Fed's shelf? Some have speculated that QE2 is less a jobs endeavor and more an opportunity to prepare a defense against a future downturn.

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"The only real defense is active defense."

- Mao Zedong

There's a newish meme making its way around the blogosphere and The Street concerning the actual purpose of QE2 and boy, is it an ominous one. I say newish because the Legion of Doom has long suspected the theory I'm about to lay out, it's only now getting a bit more play in mainstream venues.

It goes like this...

When a company senses an upcoming opportunity or an open stretch in the foreseeable future in which a large capital raise may be possible or advantageous, it files what's known as a Shelf Offering. This can be a bond offering, a secondary stock offering or some combination thereof (a mixed shelf). The company now has its filing details out of the way so that upon arriving at the perfect moment (after a spate of good news drives up the share price, let's say) it can issue shares or debt at the drop of a hat.

This is what smart management does - the shelf allows for speed, opportunism and flexibility.

At face value, Bernanke and the rest of the Easy Street Irregulars would have us believe that QE2 is about creating juuuuussssst enough inflation for at least one person in this country to want to hire one other person. But Bernanke is not stupid, so in light of all the evidence that monetary policy cannot move the jobs needle, it's getting harder to believe his stated intent.

And because his motives are now suspect, even the non-nihilists are beginning to talk about the "real reason" for his $600 billion QE2 shelf offering. They say that the Fed sees housing rolling over, the banks taking another round of body blows and the next Lehman-like meltdown somewhere around the bend.

They conclude that the Fed is not truly expecting jobs or economic growth to emerge from QE2. Rather, it is the reserve buying power to defend us that the Fed truly seeks.


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