Here Is The Simple Reason Why QE Is Unnecessary

Tyler Durden's picture

As the following chart from David Rosenberg demonstrates, consumers are retrenching, and "just saying no" to both residential and consumer loans. Earlier, we also showed that Small Businesses also contracted, demonstrating that credit demand is collapsing at every vertical of US society. As such, QE, or ever cheaper money, has and always will be a "push" phenomenon, for which there is simply no demand, in a society that has trillions more of deleveraging to undergo. And banks realize that with retail investors not participating in the stock market, and thus having nobody to offload risky exposure to, using reserves to bid up risky assets will merely result in more pain down the road once profit taking time comes and everything goes bidless. As such, as debate over the utility of QE is moot. The only question is what the Fed's persistent desire to debase the dollar will do the perception of monetary aggregates (i.e., the stability of the dollar) and whether the demand for alternatives (such as gold) will offset the need to liquidate said alternatives as a last-ditch source of capital to cover margin calls in a deflationary vortex. Everything else is smoke and mirrors.

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godfader's picture

QE is irrelevant. It won't do any harm, nor good. Japan has clearly demonstrated that monetary policy becomes compeltely ineffective once the economy is caught in a liquidity and debt trap simultaneously.

It won't cause higher inflation anytime soon nor will it stimulate the economy nor will it have any measurable effect on GDP or unemployment. One big non-event.

SDRII's picture

Agree, fundamentals don't matter. They are merely a punchline to the narrative spinning (churning) which makes Bernanke assuredly vague objuscations critical to perpetuating the ponzi. Inflation is his mandate.

hungrydweller's picture

However, Japan has sold most of it's own QE debt to its own citizens and not to foreigners.  This has allowed them to play the QE game for an extended period of time.  With their aging population looking to cash out here soon, the game is just about over for them.  The US, on the other hand, is highly dependent on foreigners to buy its debt.  Once our creditors see that the only real market for debt is our own FRB, they will cash out licketysplit.  Down crashes the worthless and once mighty US$.

godfader's picture

The biggest holders of US Treasuries are now American households and corporations, no longer foreigners. Foreigners as a group now hold less than 50% and their share is declining.

DosZap's picture


I cannot believe there are still that many stupid Americans.

50% and their share is fading...............

Fade to Black...

hamurobby's picture

Japaneese buying their own debt, Americans buying their own debt. We really believe the citizens of Japan are actually buying their treasuries and there is no monetizing going on there too? I mean hold the phone but 1% on a ten year is an amazing return, guess "households" here will soon find that appealing as well.

GoinFawr's picture

+1 @ hungrydweller

GodFader: 'households' is a category employed for obfuscation, don't take it literally.

And that decline if foreign ownership action you've noted is all divestment while the divesting is still good.


IBelieveInMagic's picture

Not to worry, we have something even more powerful -- the printing press to the global reserve currency!

aerojet's picture

Crashes it against what?  Should I buy AUD?  How about Euros?

TraderMark's picture

Green shoots not working for the 60+ crowd aka the US is no country for old men. As we wonder where all the people are, as labor force participation plunges, we see many are taking forced early retirement aka early social security benefits. Especially sharp jump for males aka ex construction, manufacturing workers.

DoChenRollingBearing's picture

Trader, green shoots not working for me either, although I am not looking for work.

I want to PROTECT my family's capital in the storm we are in, which looks like will get worse.  Maybe much worse.

I myself would like to see HIGHER interest rates, then my savings would at least grow.


Re credit, I know of very few who want credit, whether small businesses or folks.  If a bank came along and offered me a loan at 0%, I probably would not take it.  Maybe I would take one if I was convinced that I could buy some Treasury, hold it to term, and pay the loan back.  Maybe.


Only two more days does ZH have to put up with the below anymore:

Please pull $500 (or your local currency in other countries) out of your local ATM on Thursday if you are MAD at .gov and the banksters worldwide for messing everything up.

Please participate by showing THEM that we can send signals too...

"Let's Deflate the Bitchez"

/rant off

spekulatn's picture

Ms. Baum per usual gets it,


The Federal Reserve’s near-zero percent interest rates and $2.3 trillion balance sheet, almost three times its pre-crisis level, haven’t translated into growth in broad money and credit. Banks are holding $1 trillion in excess reserves in their accounts at the Fed. If policy makers want those reserves to be fruitful and multiply, they could lower the interest rate they are paying on reserves (currently 0.25 percent) or stop paying interest entirely. That’s just one option Fed officials will, or should, consider when they meet today in Washington.

Sudden Debt's picture

Tyler.... I'm in Marketing. And the first thing to do when you want to sell your product that nobody really needs = create demand.

That is what consumerism is all about!

Tyler Durden's picture

I dont think Americans need someone to sell them the concept of "credit"

realtick's picture

@TD You mean that "I don't BELIEVE Americans need someone to sell them the concept of "credit".

We know you think, and deeply, too.

Don't sell yourself short!

cougar_w's picture

To the extent that "credit" is now a synonym for "bail out" we all agree. But olde skool credit that one intends to use for strategic purposes and pay back without fail in order to maintain one's credit rating and ensure future creditworthiness ... perhaps not so much.

New_Meat's picture

Sudden Debt, I used to do honest work, now in marketing--"where the rubber meets the sky."

but "create demand" works when trust can exist: belief in a better future.

but Our Dear President and gang do not believe in a future where conditions are better (at least in the U.S.--maybe Bernadette thinks that things will be better in Gaza on her next excursion).

so Spengler did "Decline of the West," and O is doing "decline of the consumer."

- Ned

Marla--Captcha requires *char[4], but the mask is only for 3.  I'd bet it will let this message through, though.

(OT-through, though, tough--hard to teach my ESL associates).

assumptionblindness's picture

I agree that today's announcement will be a big juicy nothing-burger.  How sad is it that the entire world is waiting for what the Fed has to say....

Anonymouse's picture

The search for yield was one of the main reasons for the CDO bubble.  Insurance companies  and the like had to try to earn what they could in a low rate environment (courtesy of the Fed) and had to take ever higher levels of risk to meet their fixed obligations.

It's deja vu all over again.

Here's an article from today's WSJ:

""With the Fed keeping rates down low, it's forcing people to search for yield."....And many investors are still smarting over those triple-A tranches of collateralized debt obligations. Most investment-grade corporate bonds may never be so unlucky, but the rewards are still trifling compared to the risks."

Caviar Emptor's picture

QE is the only stimulus possible in The Zombie Economy, aside from giant Congressionally approved rescue packages. It will permit extend and pretend to go on. Otherwise expect rising defaults on CRE and RRE debt and more gloom as credit demand contracts in general. If QE is too large, however, expect rising prices to offset growth and crush consumers and small business. The Double Whammy. Where incomes can fall as prices rise, margins fall as cost inputs go up. 

Misean's picture

"It will permit extend and pretend to go on."

It will keep the payment system running...until it doesn't.

powersjq's picture

Exactly.  This is no longer a technical question; it is a political question.  The "full faith and credit" of the US is under pressure, and it will become increasingly fragile until US households and coporations (including CEOs) either voluntarily bear the pain of austerity (I wouldn't bet on this), or get tossed into a messy collapse of some kind due to an endogenous shock.  Extend and pretend has no internal cost or control--it simply stretches our systemic risk to infinity, so that in the future an ever smaller shock is needed to break things.  Supporting austerity is political suicide since no population will ever voluntarily cut back on its standard of living, therefore extend extend and pretend until the bull gets into the china shop.  Destruction will be neither immediate nor complete, but it will be substantial.

Freebird's picture

Synchronising deficits & watches...

the grateful unemployed's picture

the Refi leveraged Credit Card debt, and small businesses run off Consumer Credit, so if we can put Humpty Dumpty together again, Refi everybody at market rates, we unleash 50B or so, that much is already mentioned. But true if no one is initiating (bad) mortgage loans in the first place, there is no string to push on. And the Fed holds the MBS, which should appreciate with a push down in mortgage rates, so the whole thing makes sense in a perverted way. The Feds balance sheet gets marked to market, housing prices rise, and they take on more bad debt, which solves the problem, but it doesn't get the patient out of bed. Now if the Fed were to do a mortgage cram down, and raise rates incrementally, enough to force the banks to do something with the money, (and the Obama people would restore Countrywide et al, hopefully with some speed bumps) then we can get this thing going, but levitating asset valuations alone are not enough to restore the economy, but it is enough to raise inflation, and that is the best they can hope for, avoid the deflationary spiral.

ElvisDog's picture

There is no fricking way the Fed or anyone else can make housing prices levitate again. If you believe that, I have a skittle-pooping unicorn for sale.

lsbumblebee's picture

Pretty neat how gold is lower and the USD is higher immediately prior to the next dollar debasement announcement.

cougar_w's picture

Deflation is a self-enforcing death spiral. Once it starts there is virtually no escape until every last drop of speculative money is wrung from the system. At the bottom is subsistence living, the search for things of real value amid monetary ruins, and economic reset.

QE2 will have zero effect on the deflationary blackhole we are currently in the grip of. Deflation devours speculation, and QE1 went almost 100% into speculative bubbles and QE2 will do exactly the same unless BB can somehow get all that money into the hands of people who have actual bills to pay. That will NOT happen, not even close. BB and TPTB will invoke the unnamed forces of Hell to support the banks and TBTF financial apparatus, until not two stones are left standing together anywhere in the Western world.

QE2 will buoy the equities markets and a speculative bubble another 5% over 9 months or less, real deflation will drag the real economy downwards a like amount, and that will be the end of it.

Caviar Emptor's picture

Yup. QE reinforces the Double Whammy due to misallocation of liquidity. Given prologue of 3 decades of relentless credit expansion with outsourcing of the productive economy, QE can't solve deflation. But the degree to which it introduce inflationary forces (commodity spike) can crush the economy further than a deflationary spiral

Caviar Emptor's picture

Yup. QE reinforces the Double Whammy due to misallocation of liquidity. Given prologue of 3 decades of relentless credit expansion with outsourcing of the productive economy, QE can't solve deflation. But the degree to which it introduce inflationary forces (commodity spike) can crush the economy further than a deflationary spiral

New_Meat's picture

DP 'cuz it is QE _two_?


- Ned

Assetman's picture

Agreed.  QE2 or whatever variants are likely not to have much effect at if the destination ends up as reserves sitting at the Bank of Not Yet Failed.

What QE2 will likely do is perpetuate speculation in risky assets that most investors are going to avoid anyway... so long as government intervention is evident.  And I'm not real sure that the "QE-Lite" that was introduced today will have that much as a lasting impact.  Why blow a bubble up another 5% and for another 9 months, when your political party is going to lose badly, anyway?

What I find amusing, though, is that the Fed is continuing to talk the book on a normal economic recovery-- in a monetary environment that is pretty much considered abnormal.  Why would anyone think were in normal economic times when we're 18 months into ZIRP and we're STILL monetizing debt???

What I find most surprising of all is no direct explanation on WHY continued asset purchases are even needed in the first place.  Bennie Mae has previously argued for QE1 as a way to spur aggregate (credit) loan demand.  That didn't close close to working for the stated purpose..  So in the context the Fed's views of continued economic recovery, more QE is needed... for... what... reason????

I think most of us here know the answer to that... but who's gonna bite?  As long as Timmy gets his Treasuries funded a minimal cost, who really cares... right????


Perseid.Rocks's picture

Does anybody really believe the Fed's decisions are 'independent' of the Executive and Legislative desires ? I would love to be a fly on the wall in some of those meetings.

Obama: Tell me Ben, how is it ? It's bad right ?

Bernanke: Real bad Mr President. I've run all the possible simulations, and nothing survives, although in some models we can make the game last a little longer by continuing to pay off people who are close to default. Everything ends on December 12, 2012 though.. none of the simulations extend beyond that date.

Obama: Where have I heard that date before ?

ElvisDog's picture

Bullshit. My prediction is that QE2 will buoy the markets for two weeks or less. Every successive stimulus has a shorter shelf-life.

Ripped Chunk's picture

+ !!!

Which is exactly why QE 2 is a certainty. It has begun.

Misean's picture

QE2.0 Build 04.5417 will continue to destroy any amortization entity and savers with 0 impact on employment.  Small bubbles will blow and pop richetteing around and dislocating more labor and capital for naught.


assumptionblindness's picture

Did the Fed buy any CMBS (I know they bought RMBS) with the $1.25 trillion QE in 2009-10?

besodemuerte's picture

LMAO oh my fake Jesus.


To my best memory on CNBC Maria just said to her guest, "Mortgage rates are already at all time lows and it's not sparking home buying.  Maybe changing the rate is not the answer, maybe it's more than that?"  I had to sit down to finish laughing.

harveywalbinger's picture

But Brawndo's got what plants crave.  it's got electrolytes...  

ex VRWC's picture

Actually both asset-based easing and stimulus do a lot of harm, for they destroy the credit bond.  It is a feedback loop:

  • More easing -> more easy terms to banks
  • More easy terms to banks -> easier for banks to speculate rather than lend
  • More speculation -> everyone joins in because that is all that is left
  • More speculation -> less taxes, because 'capital gains' are protected because they supposedly promote 'economic activity'
  • More easy terms to banks -> debtors perceive they do not have to repay.  Look around you for clear, incontrovertible evidence.  Credit supply and credit demand drops.
  • More easy terms to banks -> people mistrust their government.  They do not pay their taxes.  Government in bankers pockets.
  • More government stimulus -> people mistrust their government because deficits are meaningless.
Basically, economic activity is driven into speculation, destroying the 'real' economy, which governments and central banks try to revive with more easing. It is a clear and easy to spot feedback loop. It is not a 'non-event' -  it is fuel on the fire.



RunningMan's picture

A good articulation here. People are waiting for the next handout. What good is investing now if it gets cheaper later on?

ex VRWC's picture

Hyperventilating about hyperinflation is the in thing, but credit destruction is really the killer.  People don't realize what easy money does to credit.  It does not increase it, it destroys it.  Throughout history credit has been the lynchpin around which economic policy revolves.  We are out of whack now more than at any other time I can think of.

New_Meat's picture

ex-I really like your presentation and logic chain.

Add in the basic challenge to property rights in the GM and Chrystler bond default.  One judge said essentially: "well, it is OK because everyone agrees."--without discussion or discovery on the bond holders' side.

{devaluation, property rights, debt}:=fundamental change;


- Ned

ex VRWC's picture

Thanks. Its all about false belief systems.  We have false belief systems driving economic decisions on all sides.  Belief in stimulus and monetary theory.  Economists miss the human element, and they believe their monetary theories will cure these problems with human causes.  But they completely ignore the human results of their actions.  And yes government bailouts that destroy property rights are part and parcel of the problem, thank you for that.

Joe Sixpack's picture

Let anyone who has a pulse and is currently occupying a house less than 20% underwater refi first and seconds at 1.5% 30 year, gov. guaranteed. This will start the Fed's desired inflation cycle and push home prices back up. Follow this in one year with 1.25% loans for new purchases for qualified buyers and you will get housing inflation. All the money held at the Fed by the banks will come out to play- instant inflation.

ElvisDog's picture

Brilliant plan. Except that it will set off class warfare in this country, because the 30% of people with paid-off mortgages aren't going to be too happy.  Plus, it would immediately bankrupt most regional banks and further bankrupt Fannie and Freddie. If your "plan" had even the remotest chance of success they would have already launched it.

Ripped Chunk's picture


Rock and a hard place is where the Fed be.

New_Meat's picture

yo, dog-

"Plus, it would immediately bankrupt most regional banks..."

I'd say, that is the O plan, and:

"...and further bankrupt Fannie and Freddie."

yep.  Although the concept of "more infinity" is unnatural to me.

But these are unnatural complex times, and all y'all ZH'ers help.

- Ned


hognutz's picture

Hell I would love to buy myself a new truck, but the way the Gubbermint is out for us..................Fo-Get it!