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QE - A failed policy

Submitted by Bruce Krasting on 06/03/2011 16:38 -0400

After the lousy NFP numbers the media ran a few stories on what a
miserable failure QE has been. David Faber over at CNBC did a pretty
good job. Tyler Durden at Zero Hedge had this to say (Link). A smart fellow I know sent me some charts on this line of thinking. Bottom line; If you exclude the fact that QE did
juice the stock market, it did nothing measurable for the real economy.
The reason that we will not see QE3 (IMHO) is that even Bernanke knows,
QE didn’t do shit.

The follow charts look at various indices of economic activity and
tracks them against a basic measure of QE; the size of the Fed’s balance
sheet.

Housing

The early portion of this housing price chart appears to track the
implementation of QE. Don’t be fooled. That temporary increase in prices
was attributable to first time buyer tax breaks. It’s clear that those
fiscal incentive just stole from future consumption. After the tax
breaks expired housing prices resumed their decline. QE had nothing to
do with the blip back in 09. QE2 accomplished nothing at all for the
slump in RE.

GDP

In this chart I see no evidence that QE1 (and especially QE2) had any
measurable results on economic growth. The GDP increase in 2009 was a
consequence of ARRA (the $800b stimulus program). As the spending waned,
so did GDP. Government spending does directly contribute to GDP growth. QE had little or no effect at all.

Jobs

The Fed may well use a chart like the following in an attempt to prove
they moved the needle on employment. Recall that the census hiring was
the cause of the spike in jobs back in March/June of 2010. I would argue
that the very tepid increase in jobs over the last year is attributable
to people being forced to take work they don’t want rather than
true/healthy job creation.

If Bernanke ever did try to defend what he has done as being "pro jobs" I
would snap back with the following chart showing where we have been and
where we are now. The bottom line on jobs is that for all of the
trillions in government spending and the huge increase in the Fed’s
balance sheet we are still only back to levels of employment we saw ten
years ago. (That housing prices (on average) are also back to 2000
levels is no coincidence.)

Stocks/Commodities

Both Bernanke and his ace boy, Brian Sachs, have repeatedly said that
the best measure of the success of QE is the impact that it has had on
equity prices. The correlation to the expanding balance sheet of the Fed
to the higher S&P is 85% R^2. Based on that, one can safely assume that cheap money does support higher stock values. I say, “Who cares?”
The graphs above all show that nothing positive has happened in the
real economy. The benefit of higher stocks has a very limited impact on
consumer spending. Yes, stock ownership is fairly broad. But for most
folks with a 401K it just means they have recovered a portion of their
retirement savings they lost a few years ago. The top 5% in the country
have a made a bundle. Like I said, who cares?

I'm hoping that Bernanke does try to use the “QE is good for stocks” argument one day. It will blow up in his face is if he were to try.
That correlation between stocks and QE at 85% is matched perfectly with
the correlation between QE and the rise in commodity prices. So really
what QE brought us is that the fat cats of or society got, well, fatter,
while the other 95% of the population was stuck with the bill for
higher prices of everything we consume.

Note: The charts for both stocks and commodities have had their lines crossed of late. That is a very big red flag.

MISERY

I think this chart says it all as far as QE goes. The rise of QE and the rise of food stamps are lock stepped. Can you say failure?

INTEREST RATES and the FUTURE

This last chart has a question mark on it for good reason. It
looks at the QE time period and tracks the performance of the ten-year
bond against the S&P. Note the near perfect correlation between the
announcement of QE 1 and 2 and bond yields. Rates go up when we have QE,
rates go down when there is no QE. How to read this? Does it mean that
without daily QE the economy will fall flat and yields will fall? Or
does it mean that the ‘market’ is so afraid of the implications of QE
(monetization) that when the policy is in force players hate bonds? I
think it could be a bit of both.

Note that at the end of this chart there is a divergence developing.
That divergence started exactly when Bernanke announced that QE was
over. That is no coincidence. It has been my observation over many years
that the bond market is a better predictor of the future than the stock
market. The bond market is giving some very heavy signals that it sees
trouble ahead. One thing you can count on. This divergence will not last for long. Either interest rates are going to rise in the coming months or stocks are going to take a hard whack.

H/T Johan

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Sun, 06/05/2011 - 01:05 | 1340652 GottaBKiddn

It's amazing to me that so many people are screaming, "Butthurt", while still believing that it was just an accident that they can explain away. You've been screwed!!

Sat, 06/04/2011 - 11:18 | 1339180 Bam_Man

Take a good look at a long-term chart of the Dow Industrials or the S&P 500.

You will notice that "something important" happened starting right around 1995.

That was the birth of the "shadow banking system".

It began to disintegrate in 2008 and by early 2009 had almost completely collapsed.

QE1 and QE2 were intended to help reconstitute it.

Period.

Now, keeping this in mind ask yourself once again whether QE has been a failure or not.

Sat, 06/04/2011 - 11:34 | 1339200 oldmanagain

The question is, "did we need a shadow banking system?" and the answer is NO.

But having created the monster, it seemed unwise at the time to piss it off. For most of the nation they are not a participant if it succeeds but get hurt if it fails. It is the Goldman deal, here buy this, while taking the silent short side.

The nation needs credit, but the price of this has become very costly. It is galling that those that abused the system get rewarded.

Sat, 06/04/2011 - 11:11 | 1339168 linrom

It also amazes me that people can't figure it out: in order to have a functioning economy wealth can't be horded or used to speculate in asset bubbles that only transfer even more income to the elites- it must circulate. If money does not circulate within our economy, it must be clawed back, or taxed as it can't be borrowed anymore to expand the economy. This is critical! You must get the money into the hands of consumers and entities that will actually hire someone and spend it!

QE is medicine prescribed to deal with failing credit expansion--it is only a temporary cure that keeps the lid on interest rates and allows the government to keep up deficit spending. QE simply puts out more dollars into the economy. However, the FED is also putting more money into the pockets of banks, financials and other privileged individuals in order so that they can outrun the effects of Fed's money creation.

The Fed and wealthy money elites are killing the US economy because even QE scheme, unlike in Japan, immunizes the rich and does not EVER allow for distribution of income. IT IS DOOMED TO FAILURE!

Sat, 06/04/2011 - 11:23 | 1339188 oldmanagain

Well put Linrom.

Most of the stimulus has gone to banks. The political climate is anti-job, pro tax cut for those who need it the least.

As another poster wrote, we will need vast conversion in energy sources and use to avoid very dire circumstances over a long duration. But this is just one of the fronts the nation needs to face in a scientific manner.

Sat, 06/04/2011 - 11:03 | 1339153 steve from virginia

Central banks can't stimulate only monetize. So Krugman is wrong, he needs to buy a piece of cardboard and make a sign and picket the Capital.

"Spend more $$$, fools!"

Keep in mind, govt deficits are private sector surpluses. You should remember this at all times, particularly when Paul Ryan is on the telley.

QE wasn't meant to 'do' anything other than to give the poor Fed some much desired credibility. Monetary policy in the US is made by millions of motorists who fill up their tanks every week. When gas prices rise, drivers buy less gas and the value of the dollar increases. There's your monetary policy right there, folks.

When nominal oil prices are at a damage- inducing high level for long enough -- like now -- something important (credit- related) in the world's economy breaks. Demand declines along with the economy and the price of oil shrivels. As it does so the 'oil price' of dollars increases. This makes for a de-facto 'hard dollar' that is backed by crude oil.

The world has been flirting with this hard dollar dynamic on and off since 2007: the outcome has been and will be accelerating dollarization of trade along with a hoarded cash dollar, little or no money in circulation and dollar-shortage enforced energy conservation.

A similar currency/value dynamic was in place in 1931-33 when currency was leveraged to gold. Currency (specie) was hoarded b/c nobody knew when their next meal was a'coming. The consequence of hoarding was a next meal shortage: this special relationship amplified itself in a vicious cycle until economies dropped the gold backing and currencies were allowed to float.

To break the ongoing hard- petro dollar vicious cycle, economies will have to eventually go 'off oil'. The US will have to cut oil use so as to become a swing petroleum producer/exporter. The US will have to manage a 70% reduction in petroleum consumption. The alternative is a dollar- driven recession that 'manages' the same thing.

It is this 'recession' that emerges when easing and 'stimulus' retreats. Hard- petro dollar depression is emerging right now in various markets world wide. It's not just America, all countries have played their part in currency- driven waste metering schemes that have exhausted the one cheap resource modernity cannot function without.

Cuba in the early 1990's only lost 20% of its oil imports. The US in 1973 less than 10%.

Keep in mind the hard petro-dollar mechanism will cut US petroleum consumption by 70% if we do nothing. The currency/value mechanism is still intact: Bernanke bought a few months for $600b.

No cash, no dollars, no gas. Too much cash (QE) and gas is too expensive: still no gas!

Gasoline makes the (-post industrial) world go 'round.

This is the strong petro-dollar deflation -- mentioned repeatedly by Bernanke during 'double- dip' scare of summer 2010 -- that was the rationale for QE. Since the deflation fight has proven to be self defeating -- QE amplifies the crude price and brings forward demand destruction -- more deflation fighting is unlikely ... right now.

This means banks will be supported by way of discount window and 'lending facilities' and debt will have to fend for itself. It shouldn't be a problem: central banks won't shrink their balance sheets (they can't) and the favored banks have lotsa reserves, right?

Right???

Oh yeah if I were you I'd 'beat the herd' and get rid of that car.

Sat, 06/04/2011 - 10:35 | 1339113 doesmybuttlookf...

Joined the party on Friday. Yep, laid off after 6 years. My son lost his job 2 weeks ago. And the sister in law was let go last week after 35 years with the same dentist. My son and I are going to apply for unemployment together. We use to just go fishing. I guess we will have plenty of time to that together from now on.

Sat, 06/04/2011 - 11:07 | 1339154 oldmanagain

You will now be vilified on CNBC for your obvious lazy unamerican attitude.

Sat, 06/04/2011 - 10:09 | 1339091 chunkylover42

Nice job Bruce, but I would argue that the purpose of QE was never to spur growth, support the housing market, or encourage hiring, despite all the rhetoric. The purpose of QE was to recapitalize the banks, end of story. There is so much shit still sitting on the balance sheets that there's just nothing that can be done with it. I think the plan is to slowly take write downs and charges over time and extinguish this debt, but banks need capital to do that. It's my sense that we're about to get another round of write downs as support is withdrawn.

By this measure, QE has been a success, though Ben & Co. would never tell you that.

Sat, 06/04/2011 - 11:05 | 1339151 oldmanagain

Sadly, QE was not for much more than trying to stop deflation of banks. More derivatives to support excess derivatives. This post seems to blame QE for not stopping things that it had no controlover, or even input to make better. I do think QE may have brought more harm than good long term.

Of the total spent, very little has gone to support the most urgent needs for recovery but just to keep derivatives afloat. The decline in jobs, wages, wealth of the forgotten vast majority of people has yet to be trickled down upon. History is proving Krugman to be correct.

Since the dot.com bubble we have been down hill. Bush fed the defivatives, corps, and friends. The decline in wages and jobs was viewed as victory.

What is particularly sad is that we are going to have to spend the money on infrastructure, education, resource development, etc anyway. The current debacle, whether admitted or not, is the result of econ for the rich austrian marlarky. There is no magic wand, animal spirits are a bad thing. There is no king dollar, just another derivative.

Equally sad, the volume of posts hoping for the destruction of government. No individual can protect his liberty alone. Nor have a supply of resources to live. Or a gold market. He does have the right to be stupid. There's the problem.

Sat, 06/04/2011 - 09:47 | 1339068 chirobliss

Excellent Bruce, thanks. So QE is worth about 400 Spits. If there is no QE3 I guess I can go short for a 30% pullback. Nice!!

Sat, 06/04/2011 - 09:42 | 1339064 kaiserhoff

Great job, Bruce. Might also look at interest and dividend income, private sector wages. I agree with you on QE3. Bernanke doesn't want to end his career in prison. Arrogant dumb-ass that he is, he must see the risk by now.

Sat, 06/04/2011 - 09:43 | 1339059 sellstop

The U.S. economy is a consumer economy. GDP derives from consumption. But, business is in the business of making money, ie, accumulating money. Successful accumulators will survive and unsuccessful accumulators will fail. Thus the money will flow to the top of society and stay there. That is the problem we face. The money has flowed to those with money and they aren't going to give it up voluntarily.

For stimulus to work there has to be demand for goods and services. For demand to provide stimulus those with the demand must have money to pay for the goods and services. So for stimulus/debt to contribute to GDP it must start at the bottom and give business the incentive to earn that money.

The govt. debt should be spent directly to pay wages for workers who are employed in the building of infrastructure investments that will have some return in the future.

What infrastructure will be useful in the future? I don't know. It seems that the productivity gains we have made over the last 50 years have left our demand for labor permanantly low. Industry can provide what we all need without putting many to work.

The bottom line for this country is that we must make things and sell them to the rest of the world. It is our trade imbalance that restricts our ability to maintain the money printing. The constant outflow of money makes us dependant on the rest of the world to loan us the money back willingly. How do we get them to use our money to BUY things from us? They are a business also, and want to accumulate.

The obvious answer is protectionism. We make for ourselves, restrict what we import, endure the inflation, and bring our wages down, make them use their savings on their people and after a period of time things will even out. The importers will howl like mad tho....

Sat, 06/04/2011 - 09:41 | 1339057 I am Jobe

Need another 5 to 6 trillion to create jobs I guess and shore up more wealth for whore street. Here is USA critisizing the rest of the world about human rights abuse and corruption. I guess nothing in their backyard the folks who no longer are counted just don't exist in the eyes of the Govt.

Sat, 06/04/2011 - 09:20 | 1339040 rsnoble

And how did QE fail again? The bankers are still playing with billions and trillions and have a different 25k a day call girl show up. Sounds like good times to me.

Sat, 06/04/2011 - 08:40 | 1339022 geno-econ

Lets get it straight. QE I and II were meant to bailout the shadow or unregulated banking system and in that respect it succeded. Reviving the entire US economy is another matter and probably a more difficult task because the problems of a global economy are systemic ---and we have shot our wad in unsustainable debt. Therefore without QE III ,which would not work anyway, we are toast. That is the dilemma that polititians are now confronting while the banksters are basking in the sun.

Sat, 06/04/2011 - 08:43 | 1339021 scragbaker a ca...

scragbaker a cape cod clamdigger's picture

Concerning employment - Let us not forget that many persons still employed have had their saleries CUT. I personally know quite a few people that managed to avoid being let go - but their salaries went from six figures to five. I also know tens of small business owners - none of them are saying that "things are good". They have been stuggling since summer 2008. Also, I donate my time to three local food pantries - we have NEVER SEEN such demand for help, People that you would have never expected to need help with food are showing up. Some recover.

Sat, 06/04/2011 - 09:31 | 1339049 I am Jobe

Heck even the Cheerleader network is no longer cheering

More Americans Think Economy Will Never Recover

http://www.cnbc.com/id/43268037

Sat, 06/04/2011 - 07:23 | 1338960 I am Jobe

Charts are looking uglier and uglier as time goes on. I guess clueless Ivy leaguers now running the country with no experience. The only experience needed is to have daddy and mommy in the corcle who can get theor kids to on Whore St and the Govt after partying for 5 years in college driving Beamers and Audi's and being in a country club.

Sat, 06/04/2011 - 03:03 | 1338872 LudwigVon

Wow Bruce,

"it did nothing ... for the real economy."

I find it funny that you feel that affecting the real economy was a primary goal. Although factual and very illustrative, your point-by-point "strawman battles" miss the point altogether IMHO:

"The reason that we will not see QE3 -> even Bernanke knows, QE didn’t do shit."

Primary benefit: QE provided the marginal demand for paper that would otherwise go unsold or yields would rise to the point that the profitable ponz is in jeopardy sooner. This (monetization) will need to happen again, and often over the next few years.

Secondary benefits: Incremental income for TBTF, Equity market, furthers social control (food stamp participation is a benefit in this case)

Honestly, I think the burden of proof lies with you Bruce...

The article was one of your worst, and I am a big fan ;) (esp the FX), can you explain who will buy the paper that the Fed has been the buyer of in 2011, at approx what rate, and how allowing this is advantageous to the Fed and the dollar hedgemony...

Sat, 06/04/2011 - 02:26 | 1338852 Selah

Doubleplusungood article, Bruce.

Your chart-crimes fail to show how bad things would be without QE.

Not only do you try to undermine the green shoots of recovery while they are poised to blossom and bring us into an era of unprecedented growth, your negative bias towards our Leader's economic policy could be considered racist. I probably should report you to the ministry of Homeland Security under "see something, say something", but hopefully Big Brother will forgive me for merely giving you a stern warning: Your article does nothing to further our amazing two years of recovery since the end of the greatest recession since the Depression.

Big Brother's ministry of POMO has provided us with a booming stock market. We should all be grateful for that. Housing and employment will soon follow, just as day follows night. Trust Big Brother. Love Big Brother.

Sat, 06/04/2011 - 03:08 | 1338880 LudwigVon

employment will soon follow, just as day follows night

lol !

Sat, 06/04/2011 - 01:36 | 1338808 Mr.Kowalski

Sorry, but when all you have as an answer is the hammer, all of your problems look to Bernanke like nails. Here's my make: at some point soon enough, we'll have a negative print on the NFP, treasuries will scream higher and equities lower. s he watches his chances for a 2nd term slowly evaporate, Big O grabs his cell phone and calls Big Ben. QE3 by Thanksgiving.

Sat, 06/04/2011 - 00:30 | 1338730 MayIMommaDogFac...

MayIMommaDogFace2theBananaPatch's picture

Nice stuff...Very crisp...Thank you.

Sat, 06/04/2011 - 00:18 | 1338711 Fiat Money

"MISERY

I think this chart says it all as far as QE goes. The rise of QE and the rise of food stamps are lock stepped. Can you say failure?"

--------------------------

thanks for that insightful, "QE perfectly correlates with America's increasing addition to & dependence on FOOD STAMPS" (= "MISERY" in millions of families across America) headline & graph, Bruce & ZH...

Fri, 06/03/2011 - 23:51 | 1338661 williambanzai7

I just book marked this. ;-)

Sat, 06/04/2011 - 07:31 | 1338967 I am Jobe

Banzai,

I enjoy your artwork and look forward to some Greenspam and Soros cartoons and don;t forget Kissinger in the mix. Keep up the good work and spread the message thru Art.

Fri, 06/03/2011 - 23:52 | 1338657 I am Jobe

Greenspan 'Scared' Over Deficit; Calls for Debt Ceiling Rise

http://www.cnbc.com/id/43264595

Fri, 06/03/2011 - 23:17 | 1338586 vxpatel

Anyone else spot news of this?

China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.

http://cnsnews.com/news/article/china-has-divested-97-percent-its-holdin

Fri, 06/03/2011 - 23:14 | 1338568 Clowns on Acid

Bruce thanks for the facts. Althopugh one must admit it is not surprising. Few have the data that Bernake does, however many me humble self included, KNEW that QE would be a disastrous failure.

Anyone still mildly ethical enough at any bank / broker knew the same.

But there was little discussion on the model, Bernanke just did it.

He should be held accountable.

Fri, 06/03/2011 - 23:02 | 1338545 Variance Doc

Bruce, great article. The plots are worth 10K words.

Just a technical note. The R^2 or r^2 is the squared correlation (coefficent of determination) and not the correlation. If you ran ANOVA on Y and X, which linear regression is a special case, r^2 would be interpreted as the amount of variation in Y that can be explained by the regression on X, or the amount of variability in Y that can be explained by the variability in X. So in your example, if you ran a simple linear regression on the S&P and the private Fed's balance sheet, 85% of the variability in Y (S&P) is explained by the regression on X (the balance sheet.) If you're just running a simple correlation statistic, it is just a standarized linear covariance (that is, it's adjusted for the "size" effect- a.k.a. the variability) between two quantitative random variables. That is, it's a measure of how the two variables are linearly related. This is usually denoted r.

The two (r^2 and r) are mathematically related, but have very different meanings.

Keep up the good work.

Fri, 06/03/2011 - 22:48 | 1338504 mind_imminst

Only one error in this article. A picture is no longer worth 1,000 words. Due to inflation a picture is now only worth 692 words.

Fri, 06/03/2011 - 23:18 | 1338480 cranky-old-geezer

Bernokio's job is keeping his bankster bosses happy, mostly by feeding the nation's wealth to them via monetary inflation ...otherwise known as QE.

QE hasn't failed. It's doing exactly what it's intended to do.

Since '08, TRILLIONS of America's wealth has been transferred to the bankster cartel via TARP, TALF, QE and similar wealth-transfer methods.

So yes, QE is a resounding success.

And yes, QE in some form will continue until America is bled dry.

Piracy, plundering, and pillaging have just begun. They'll ramp it up now since time is running out.

It's the endgame for America. The nation has no future. Americans have no future.

As they helplessly watch their beloved nation and living standard crumble around them, the nation and living standard they placed all their hopes and dreams in, many Americans won't be able to deal with it. They'll lose their sanity and go insane.

Fri, 06/03/2011 - 23:40 | 1338627 Fiat Money

yes, the fed is treason

(the Fed is TREASON) and the 112th "yo yo congress"...

http://ncronline.org/blogs/ncr-today/standing-peace-amid-yo-yos-us-congress

http://robertjprince.wordpress.com/2011/05/25/bibi-and-the-yo-yos-the-u-s-congress/

...owes its allegiance NOT to American voters, American citizens, or the (late) "United States Constitution" - but to a FOREIGN 'leader'.

To see the "yo yo" Con-gress in action, jumping up and down out of their seats to applaud DEAR LEADER like their lives depended on it - like a Soviet parliament in the 30's or 40's or during the Cold War; or Saddam's parliament; or any other dictator's parliament - see the video of Netanyahu effectively giving his "State of your Union" address to that 112th "yo yo" Congress http://www.youtube.com/watch?v=9aFNEog9CDI

It is this SUBSERVIENCE to a FOREIGN nation, that creates an economic situation where the Con-gress PRETENDS NOT TO SEE (if not actually applauds) the SABOTAGE DESTRUCTION OF America's economy, aka the:

"TRILLIONS of America's wealth [that] has been transferred to the bankster cartel via TARP, TALF, QE and similar wealth-transfer methods.
So yes, QE is a resounding success.
And yes, QE in some form will continue until America is bled dry.
Piracy, plundering, and pillaging have just begun. They'll ramp it up now since time is running out."

Fri, 06/03/2011 - 22:33 | 1338479 Übermensch

Bruce what makes you think QE was ever intended to help the US economy?

Fri, 06/03/2011 - 23:15 | 1338572 Clowns on Acid

Excellent question , Uber.

Sat, 06/04/2011 - 15:24 | 1338771 tip e. canoe

history rhymes? (this time, just replace "company" with "country")

Chase Manhattan Chairman Alfred Wiggin took his “hunch” to the next level, forming Shermar Corporation in 1929 to short the stock of his own company.

http://deanhenderson.wordpress.com/2011/05/25/the-four-horsemen-of-banking/

Fri, 06/03/2011 - 22:05 | 1338431 ThirdCoastSurfer

If the only measurable effect of QE was to drive investment into speculation, I don't get it. The Fed buys notes from Primary Dealers and shuts out the market by keeping rates at negative returns. This forces those that would otherwise invest in notes to invest in speculation, but who exactly is unclear. It sure isn't PIMCO.

Besides, if someone who was once a conservative bond holder was driven to commodities or whatever, they'd be as skittish as a cat in a kennel and volatility would roil the market much more than we've seen.

As I've mentioned before though, the whole run started in earnest in August and selling before a year has passed doesn't qualify for LTCG. If QE ends and the market tanks, it'll wipe out all those who've been holding out for August and beyond to arrive or they'll bail and take a 35% tax hit or a 20% penalty for early withdraw.

It makes no sense.

Fri, 06/03/2011 - 22:01 | 1338420 The Fonz

Bruce, your stuff has been really consistently solid. Thank you for writing it.

Fri, 06/03/2011 - 21:36 | 1338354 ebworthen

QE has been just dandy for the politicians and bankers.

Politicians get re-elected baiting either side of the aisle, bankers get their bonuses, proletariat get their grog and bread, and the responsible household gets the shaft.

Fri, 06/03/2011 - 21:15 | 1338279 GottaBKiddn

QE was a complete success! Only suckers believed that it was supposed to invigorate the economy. The stock/commodity graph says it all, as the dollar was inflated the prices rose, and that is exactly what was intended. Nothing more, nothing less. The government has to have inflated dollars to pay all of its obligations. Will they continue to destroy the dollar? They have no other choice, this is the endgame. Deflationists will scream, but remember the words of Jefferson, "...first by inflation, then by deflation"... You'll notice that the digital pomo dollars stayed out of circulation where the economy could use it to create jobs or rebuild infrastructure. It was no accident.

Sat, 06/04/2011 - 05:47 | 1338938 halfacanuck

There is no evidence Jefferson actually said that. (Indeed, the OED claims the word "deflation" in a monetary context wasn't used until 1920.) See http://www.snopes.com/quotes/jefferson/banks.asp

Sat, 06/04/2011 - 00:02 | 1338672 Fiat Money

"You'll notice that the digital pomo dollars stayed out of circulation where the economy could use it to create jobs or rebuild infrastructure. It was no accident."

yes, there is a "phony war" short time period, where the Central Bank's money printing - (Bernanke's Fed "EASING," money printing to alleviate BANKSTER DEBT - as American homeowners & working families get NO "easing", only eviction notices & pink slips) - has shown up only in higher COMMODITY and cost-of-living prices (like insurance & health care), as the Fed hands out billions (nay, trillions) of dollars $$ to member/owner banks, who use it to on LBO BUY OUT spree buying valuable assets & companies worldwide, which they then extort monopoly prices from. But hyper-inflation has not yet showed its ugly head. That comes later - AFTER the connected banksters have bought up everything of value - when all that stored up (in bankster vaults) printed money finally seeps or is poured in to the economy all at once - OVERNIGHT CRUSHING those who weren't already crushed by the monopoly price strangulation.

Amazingly, "boiling frog" syndrome, we're getting a verbatim repeat of Weimar 1920s Germany (substitute trillions on war costs, for Germany's post WWI reparations payments) - and so far (because the Fed bankster have bought out the economics & journalism/press/media professions, and con-gress & presidents) no one seems to notice or care...

note how in (bottom half of)this article on Weimar hyper-infaltion, IF you had access to FOREIGN currency or money during the hyper-inflationary period, you could buy valuable assets from your desperate fellow German citizens, for pennies on the dollar - as the wealthy will be able to dip into their stores of PM's or foreign currency to buy up the last remaining assets, should "money velocity" inflation pour into the US soon.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7909432/The-Death-of-Paper-Money.html

Sat, 06/04/2011 - 02:08 | 1338839 Escapeclaws

Great article by Evans-Pritchard. Thanks, Fiat Lux. I hope this article by Bruce sees a wide circulation.

Fri, 06/03/2011 - 21:29 | 1338337 lawton

I disagree to an extent. If they quit the QE then a lot of that money will flow into Treasuries and you wont see rates skyrocket due to the demand for Treasuries when all that hot money is cut off.

Fri, 06/03/2011 - 20:52 | 1338210 Fiat Money

"I'm hoping that Bernanke does try to use the “QE is good for stocks” argument one day. It will blow up in his face is if he were to try. That correlation between stocks and QE at 85% is matched perfectly with the correlation between QE and the rise in commodity prices. So what QE really brought us is that the fat cats of or society got, well, fatter, while the other 95% of the population was stuck with the bill for higher prices of everything we consume."

hurrah for that. I've been a sayin' for years now: cheap/FREE money (loans with interest rates below actual inflation rate, = FREE "money") from Fed to member/owner banksters and closely connected downstream from Fed cartel allies (kkr, wasserstein-perella, etc.)...

...GIVING money to the wealthy, CONTRACTS the economy, because they HOARD those Bernanke bucks $$ in their damn offshore & private vaults, and then use 'em to go on LBO _leveraged_ buy out sprees, buying up EVERY valuable asset on the planet, and then EXTORTING MONOPOLY prices out of we, the peons.

----------------------

cut through all the B.S. - "EVERY financial transaction is a TWO-SIDED affair"

One person's DEBT PAYMENT, is another person's dividend (interest) or principle repayment (= profit).

The essence of "Bailouts" &!QE is that we must GIVE cheap or FREE money to the wealthy - so they will be kind enough to LEND IT BACK to us, AT INTEREST,

because if we DON'T "bail them out," then they can't LEND TO US tomorrow... boo hoo hoo!

it's amazing that Americans are STUPID enough to fall for this BS - CLAW BACK the bailouts, NATIONALIZE the STOLEN wealth, and PUT PEOPLE TO WORK building and doing the infrastructure repairs we should have been doing all along, if not for the swindle/SABOTAGE of the top .5% and their hired media propagandists & bought, owned, & extorted legislators.

Sat, 06/04/2011 - 11:12 | 1339160 linrom

repost

Fri, 06/03/2011 - 22:44 | 1338505 sgorem

Excellent Post, by someone who recognizes Excellent Posts.

Sat, 06/04/2011 - 00:13 | 1338695 Fiat Money

why, thanks. see if you agree with my "the fed is treason" and "the disgusting, blatantly corrupt "yo-yo" (112th) congress sells out America" comments, above.

QE - A failed policy

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