QE3?

[superfrank]

Looking at America's checkbook: What the U.S. makes and spends

http://am.blogs.cnn.com/2011/08/12/look ... nd-spends/

Frightening stuff.

But Bernanke won't give up on reflation...
http://www.bloomberg.com/news/2011-08-1 ... icies.html

[superfrank]

Quantitative easing 'is good for the rich, bad for the poor'
http://www.guardian.co.uk/business/2011 ... sing-riots

In other news the pope is revealed to be catholic.

[Iron]

I disagree with that.

QE could be bad for most rich people as well as most poor people. QE causes inflation, which is a tax on us all. If you manufacture widgets, and your distribution costs skyrocket due to increases in the cost of oil, QE will probably hit your bottom line, for example.

But IMHO, the main winners are the producers of the commodities whose price rises, and people who bet successfully on prices rising (such as trend followers)...

Jeff

Quantitative easing 'is good for the rich, bad for the poor'
http://www.guardian.co.uk/business/2011 ... sing-riots

In other news the pope is revealed to be catholic.

[Iron]

Stock markets rise on hopes of more US Fed stimulus - http://www.bbc.co.uk/news/business-14625918

Mr Bernanke seems like the proverbial man with a hammer who sees every problem as a nail!

Jeff

[staker72]

The key point that seems to have been missed it that QE reduces the value of a currency, as one of America's issues is balence of trade a weaker currency should create or save American Jobs. This keeps earnings from consumption at home instead of fuelling Growth in Japan and China. How do you think Japan keeps it's currency weak, with a hugh level of QE. China must be doing something similar to control their currency although their system is different.

Whats killing the eurozone is a high currency casued at least in part because QE is negligible in the Eurozone. Drop Euro back to dollar parity and European growth would rocket.

[Iron]

The key point that seems to have been missed it that QE reduces the value of a currency, as one of America's issues is balence of trade a weaker currency should create or save American Jobs.

Increased domestic consumption may help to an extent. But is that not offset by the inflationary effects of QE, and the possibility that it may cause bond holders to demand higher interest rates in future? Higher interest rates would not only hit home owners, but they would also make it harder for businesses to take out loans for investments.

How do you think Japan keeps it's currency weak,

It doesn't, as the USD/JPN weekly chart below shows.

The Yen is up there with gold and the Swiss franc as a safe haven instrument.

Jeff

[staker72]

QE isn't necessarily inflationary, again in that case Japan wouldn't be struggling with deflation. Money supply is a combination of the amount of money in circulation which is increased by QE and it's speed of circulation which at the moment is pretty slow, evidence the slow housing market. As long as low activity and unemployment etc. keep US costs down they should gain a comparative advantage.

Whilst The Yen is increasing at the moment a feature of the of the run up to the crisis was the carry trade where Japanese investors bought dollar investments which gave better rates of interest than Yen as Japan had low interest rates and as the Yen continually weakened against the dollar they gained even more.

Without QE it is likly the Yen would have been substantially stronger, in fact low japanese interest rates and the carry trade were a contributory factor in the sub prime crisis that has caused so much of these problems

[Iron]

Speaking of Japan, Moody's have cut their rating - http://www.bbc.co.uk/news/business-14625969

Admin - I hope this doesn't sound paranoid, but was my earlier reply to Staker72 deleted? It probably didn't appear either due to a technical error or me forgetting to press 'Submit', as AFAIK there was nothing objectionable about it!

Jeff

[rubysglory]

QE falsely provides liquidity within the market. It could be argued that this helps control the 'cost' of money and keep inflation under control. The real issue begins if the US wakes up one morning and realises they can not pay there debt, the cost of money increases in line with the risk of default and the inflation genie is unleashed.

rg

[superfrank]

QE falsely provides liquidity within the market. It could be argued that this helps control the 'cost' of money and keep inflation under control. The real issue begins if the US wakes up one morning and realises they can not pay there debt, the cost of money increases in line with the risk of default and the inflation genie is unleashed.

rg

QE has failed, but it's just done a good job of protecting (nominal) asset prices for the rich while economies burn.

The money didn't go into stimulating the real economy, but rather into stock markets, emerging markets and commodities - fuelling inflation through increased import prices (already rising because of the trashed $/£).

If QE was necessary the new money should have been spent into existence by governments on infrastructure programs.

Interesting that atm US 10 year treasuries yield negative 1.48 percent after accounting for 3.6% CPI - that shows the level of confidence in the real economy... investors are willing to lose money rather than risk their capital. I guess you can't open a super saver a/c with billions!

[superfrank]

btw, anyone who thinks that it's a coincidence that markets have have crashed in the last few weeks (ahead of Helicopter Ben's QE3 Jackson's Hole speech on Friday) is more gullible than the average retail investor who gets screwed by the bankers every time.

[Iron]

At the risk of sounding gullible, I think concerns about the Euro and poor economic news were the cause of the steam.

I'd have thought that the expectation of QE 3 would cause equities to drift, in anticipation of a decision that would probably cause inflation in the main equity indices.

Jeff

[superfrank]

without QE poor economic news is a given; and the sovereign debt problems are nothing new - they were just given msm prominence at exactly the right time.

[Iron]

You seem to be suggesting a conspiracy...

I'm not a big believer in conspiracy theories - I don't believe that Wall St has been dancing to the tune of a few real-life Gordon Gekkos - but anything's possible!

Jeff

without QE poor economic news is a given; and the sovereign debt problems are nothing new - they were just given msm prominence at exactly the right time.

[superfrank]

You seem to be suggesting a conspiracy...

I'm not a conspiracy theorist generally, but in the case of finance I make an exception. Consider the extremes that investment banks go to in order to make HFT effective and it's hardly a leap of faith to suggest they'd do anything in their interests to make money.

There's a fox in charge of the hen house.

edit: I re-read what I wrote, and I agree it's a bit far-fetched, I'm just surprised it took so long for stock markets to drop because the poor economic news had been around for quite a while and they are supposed to be forward looking indicators. Maybe what happened is that QE3 had been priced in but that, in the run up to Jackson's Hole, people got nervous about whether is would actually happen (and whether it would 'work' this time).