QE4, 5, 6 (Ctrl+P)

[superfrank]

so we finally got QE3 today from the FED today.

they are gonna buy "additional agency mortgage-backed securities at a pace of $40bn per month"

that's MBS that would be worth next to nothing to the banks that own them without FED intervention.

the problem is that, with every round of printing, it's not only the assets the FED wants to boost that rise (stocks and property) but everything else too (which acts as a limiter on any prospects of growth as disposable incomes fall and business input costs rise.

economics of the madhouse imho.

fin20120913.jpg

ZeroHedge - The One Big Problem With QE To Infinity
http://www.zerohedge.com/news/one-problem-qe-%3F

[Iron]

I love the BBC's typically impartial headline: Federal Reserve to buy more debt to boost US economy

[superfrank]

I love the BBC's typically impartial headline: Federal Reserve to buy more debt to boost US economy

yeah. i'd have gone with "FED prints yet more money risking future hyperinflation to make the rich richer and f*ck everyone else"

a bit verbose maybe!, but closer to the truth.

[staker72]

Sorry guys, hyperinflation is no where near the issue, QE creates (or tries) to create liquidity. Japan has been doing QE for years and whilst it has probabaly reached the end of that road it has been spectacularly unsucessful in reducing deflation.
If you accept moneterist theory (which I beleive to contain some truth but not the whole truth) Money supply is not just the amount of money but it's speed of circulation and it just ain't circulating. Those with cash are sitting on it. A few months ago there was a story that Apple had more cash than the US government.
It was making a point but in effect that's QR (quantative reduction) I have neither the time or resources to work it out but would guess nett money supply is static or falling in the western world.

[Euler]

I'm not sure TBH, I studied the great depression a lot to see what lessons could be learnt from that and the main lesson was the deleveraging added to the problems and it was lack of confidence and demand that imploded the economy. Inflation didn't return for a long time. But history also tells us that when you print money you end up in a massive mess.

Here is an excerpt from a newsletter I read: -

I thought this was an interesting quote to keep in mind in light of the Fed's open-ended QE announcement today. If we ever start to reach “that phase”, someone please remind me of this excerpt. From a Bridgewater piece with the title “Asset Class Returns in Deleveragings” (April 19, 2012):

“It takes an awful lot of printing to convert the naturally deflationary forces of a deleveraging into a highly inflationary deleveraging. It rarely happens, but when it does, it happens in a classic manner that is worth noting. In all deleveragings (both deflationary and inflationary) the average maturity of debt is shortened as the risks of either default or inflation rise. As buyers of bonds have less demand for them, central banks lengthen the maturities of their purchases, increasing debt monetization. At first that is beneficial, though it is a modest negative for the currency. If taken too far so that it is out of balance with the deflationary forces of austerity and debt restructuring, it will drive lenders out of the currency and out of longer-duration bonds, which will require the central bank to tighten to stem that flow. This is when bond vigilantes are in control and the central bank has little or no maneuverability. You can tell when that phase occurs because the yield curve steepens with long rates rising. The collapse of the currency pushes inflation, nominal growth and interest rates up, and the currency down, in a self-reinforcing spiral. Bonds and stocks perform terribly in this ugly inflationary environment, particularly in real terms, because the currency in which their cash flows are denominated collapses and inflation rises more than discounted. The collapse in the currency produces high returns in storeholds of wealth like gold, which rise is value in local currency terms, reflecting the decline of the value of the currency in gold terms.”

[superfrank]

a 2nd day of FED induced inflation...

fin20120914.jpg

they've got nothing left now. we've got indefinite zero rates and open ended QE. the next time there's a panic what are they gonna do?

what are central banks in Asia gonna do with their surplus cash? - they certainly won't be buying anymore US debt with it, they'll be buying gold.

what's gonna happen to the oil price? i wouldn't be surprised if we have an oil shock in the next couple of years and that really will have a big effect on inflation (up) and growth (down).

what if we have another global recession? the next stock market crash will make 2008 look like a blip (because they'll be nothing they can do about it).

this monetary madness is all because they are still in denial about the causes of the credit crunch and their part in causing it. economies have to be rebalanced and countries have to live within their means. extending the credit bubble merely delays the tough action required and solves nothing in the longer term (in fact it makes things much worse and much more dangerous).

[staker72]

I absolutly agree that re-balancing is the issue. However easier said than done. Gemany and China Japan (until recently)don't seem to think their huge surpluses are as much a problem as Greece's deficit. In fact if China would spend some of it's reserves (ideally 1 million Chinese tourists to Greece) half the problem would go away.
However QE removes the opportunity for China and others to gain high interest on top of that deficit and helps weaken US dollar to rebalance so although it's not a stated aim I suspect at least part of it's objective is along those lines

[Euler]

Another nice peice here: -

http://fpafunds.com/docs/special-commen ... f?sfvrsn=2

[superfrank]

Oil price near four-month high after Fed move
http://www.bbc.co.uk/news/business-19620962

[superfrank]

Lord Turner calls for 'unconventional' economic policies
http://www.bbc.co.uk/news/business-19917480

"QE alone may be subject to declining marginal impact," he said.

He called for "a willingness to employ still more innovative and unconventional policies".

He did not expand on this, but it is understood he believes the Bank of England should consider telling the Treasury it never has to repay some of the £375bn of government debts the Bank acquired through quantitative easing, BBC business editor Robert Peston says.

outright monetisation, as predicted here.

[superfrank]

Firms and households shunning new debt, says BBA
http://www.bbc.co.uk/news/business-20040793

Households and businesses have "no appetite" to take on new debts as the UK economic outlook remains uncertain, a banking body says.

that's why, as far as the real economy is concerned, QE is like pushing on a piece of string.

despite the best efforts of policy makers to solve a debt problem with more debt, individuals and businesses are not quite so stupid.

[Euler]

It's difficult to find anybody that likes QE other than the policy makers.

http://www.businessinsider.com/seth-kla ... ed-2012-10

[mulberryhawk]

i would presume that most variable rate mortgage holders are pretty happy with qe,especially those in the south east. Falling real take home pay and stagnant wages are biting so having lower morgage repayments is a big help i suspect. its obviously not ideal but better than having a self induced depression than that being experienced in europe.

[superfrank]

a policy that conveniently helps those with assets.

what about those struggling to pay rent (to landlords who already own their own place usually)? no help whatsoever, and rents still sky-high because house prices have been propped up by said policy.

QE is not just flawed, it's immoral.

[mulberryhawk]

I dident say it was a perfect fix but i can see why its being employed by central bankers in the US nad the UK. All your points are valid, but which option is more politically palatable and supports an economy thats 70% consumer based (with most peoples wealth tied up in their property).

Morally hazardous possibly but still probably the lesser of two evils.