St. Louis Fed Stunner: Admits QE May Lead To Rise Rather Than Drop In Unemployment

Tyler Durden's picture

It's one thing for bloggers and even various non-mainstream economists to charge the Fed with pandering exclusively to Wall Street's interests, and accuse Ben Bernanke of hypocrisy when he says that the Fed's ultimate goal is the strengthening of the economy through a decrease in unemployment (recall that one of the original two mandates of the Fed is "maximum employment"... that is until it was supplanted by the third and only one: "Russell 2000 to 2000") and caring for "lower-income households." It is something far more serious when the one doing the accusing is... the Federal Reserve. In a seminal paper which we are convinced will make the rounds the next time the puppetmaster is undergoing his periodic grilling by Congressional and Senate critters, Yi Wen of the St. Louis Fed indicates that the entire experiment in increasing the adjusted monetary base by $2 trillion in 2 years is not only not benefiting the economy, but is in fact having an adverse impact on such key economic drivers as unemployment. To wit: "permanent increases in the monetary base foreshadow eventual increases in inflation that can increase, rather than reduce, unemployment over the long term." We wonder if Bernanke knew in advance that LSAP (aka QE2) had a statistically greater chance of resulting in greater unemployment, and thus more pain for the working class, and if the only offset, a doubling in the stock market when ever more capital is diverted from organic economic growth to pursuing speculative risk, was important enough for the Fed to effective replace its employment mandate with one of stock market manipulation?

Here is how the St. Louis Fed confirms that the Chairman is nothing but a puppet in the hands of Wall Street:

The impact of LSAP programs on economic activity depends on the programs’ effects on longer-term interest rates and the responsiveness of aggregate demand to such changes. The St. Louis-based consulting and forecasting firm Macroeconomic Advisers recently estimated that the Federal Open Market Committee’s current $600 billion LSAP program likely will reduce the 10-year Treasury yield by 20 basis points, increase the eight-quarter-ahead level of real gross domestic product by 0.4 percentage points, reduce the unemployment rate by 0.2 percentage points, and increase employment by 350,000 jobs. Although analyses conducted by other institutions (such as the Boston and San Francisco Feds) have suggested slightly higher figures, the overall effect of the LSAP programs on unemployment is modest.

A less-recognized risk in LSAP programs is that permanent increases in the monetary base foreshadow eventual increases in inflation that can increase, rather than reduce, unemployment over the long term. David Ranson of Wainwright Economics has analyzed the U.S. data over the period of 1950 through 2007. Ranson divided the 57-year period into two categories: years when the monetary base grew at an above-average rate (8.1 percent) and years when it grew at a below-average rate (3.5 percent).

And the stunners:

Ironically, economic growth was higher in the years of slow money growth (3.7 percent) than it was in the years of rapid growth (3.2 percent). The same was true for industrial production. Meanwhile, the consumer price index rose 5.1 percent in years of above-average monetary growth and just 2.6 per- cent in below-average years.

It is, in fact, as we have always expected: QE not only does not result in relative economic outperformence (the opposite), it simply leads to higher inflation, and subdued economic growth. And the Chairman of the Federal Reserve was not aware of this data?

And while this too is more than obvious, anyone could have foreseen the impact QE/LSAP would have on precious metals:

The gold price showed an even bigger differential, rising 12.5 percent in above-average years and just 0.6 percent in below-average years.

Perhaps the above explains why we have been bullish on the precious metals complex since March 18, 2009 (official start of QE1). Alternatively it may just be our long-running bet that Bernanke will fail in his attempt at instituting central planning effectively, and the outcome will be the end of the monetary system in its current iteration.

And before skeptics accuse the St Louis Fed, which has sometimes been defined as hawkish (although we have yet to see James Bullard vote in the "against" column during an FOMC decision), this is a finding that has been replicated elsewhere on not just one occasion.

Other recent analyses, using different tools, have reached similar conclusions. In my current research, I have esti- mated models for the period 1948:Q1 to 2008:Q2 that sug- gest that a sustained increase of 1 percentage point in the growth rate of the monetary base has almost no impact on unemployment during the initial 20 quarters but can significantly increase the unemployment rate in the longer run (say, during the subsequent 20 quarters). Extrapolated to the very long run, my analysis suggests that a sustained 1-percent-per-year faster growth of the monetary base might increase the unemployment rate by between 1.0 and 2.2 percentage points. The reason is that expected long-term inflation is bad for growth and employment.

A recent article in the American Economic Review docu- mented a similar positive relationship between longer-term inflation and the unemployment rate (Berentsen, Menzio, and Wright, 2011). These authors use a search-and-matching model to explain why longer-term inflation can increase, rather than decrease, the unemployment rate. That is, inflation reduces the demand for money and, hence, hinders trade and the probability of matches in both the goods and labor markets.

The conclusion is obvious:

In summary, the near-term effects of LSAP programs on unemployment remain uncertain. Further, caution must be exercised such that long-term inflation does not increase. More and more economic research suggests that the long- run costs of inflation, measured in welfare terms, are likely higher than previously estimated (see Wen, 2010). Fortunately, at least one recent cross-country study (Anderson, Gascon, and Liu, 2010) suggests that this long-run lesson is well understood by policymakers.

Alas, unfortunately, the author is wrong. Policymakers, neither of the fiscal nor monetary variety have any care for what the long-term costs of inflation are for the general population. The only determinant is how far is the S&P has risen in any given electoral cycle. After all it is so much easier to manipulate the stock market than the economy. Which is why Bernanke is nothing more than an enabler of market manipulative political posturing... and Wall Street greed naturally: the one certain side effect of the R2K@2K is another year of record bonuses on Wall Street.

h/t Nolsgrad

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Dick Darlington's picture

Smells like someone's gonna feel the wrath of the chaircreature very soon. In totalitarian (monetary)system there's only one "truth" and that is the chairsatan's.

Texas Gunslinger's picture

What is a chairSATAN and chaircreature?

That sounds incredibly evil.  

There is so much evil around us, it is overwhelming. I know that the Lord has brought me here for a reason, and it seems like I will be very busy in the next year.  Lot's of evil to purge. 




redpill's picture

You're just a troll afterall?

Subprime JD's picture

I think he's harmless. Sounds like a enthusiastic christian that's recently taken the red pill.

narapoiddyslexia's picture

troll, probably sovereign psyops, maybe even wholly or partially AI, intended to divert the discussion away from pms

StychoKiller's picture

Either that, or an ignorant child...

Harlequin001's picture

No one is that fucking stupid. To even contemplate trading in pm's with this little understanding of anything belies belief.

Who is it, Math man, Spalding or Dangertwat?

Do us a favour for Christ's sake, stop hiding behind religion and trying to ingratiate yourself and say what you mean.

Does he really expect us to believe he intends to trade pm's having never even heard of Sprott? I couldn't care less if he's a bear or a troll because it all adds to the flavour, it's the downright intent to mislead that really pisses me off.

Pool Shark's picture


And a bipolar troll at that...


contagiousNY's picture

but not smart enough to be a troll, just a waster of time/space. starve the fool, feed the fever.

Texas Gunslinger's picture


Being proud of my Christian faith is not the same as being a troll.  Perhaps if you weren't an atheist, you would understand the overwhelming desire to spread the happiness of the Word of Christ, too. 

Jesus brought me to this website for a reason.  Everything happens for a reason.  And given the hostility displayed to me the other night regarding Christianity, and given the overall tone of hostility that I see in the comments section, it has become obvious why Jesus sent me here. Yesterday, I spent most of the day researching this website, and all the comments in the comments section.  SO MUCH HOSTILITY!  SO MUCH ANGER!  The devil has overwhelmed this place. 

Does that explain it?  

Jesus loves you, and if you open the Bible and open your heart, you won't be filled with such hostility and cynicism.  So much hostility here, and not just at me.  It is everywhere.  Jesus wants this changed, and I will try to do my best. 


tmosley's picture

This guy's trolling is true art.

He's GOT to be from 4chan.

Hey Texas:  if you think THIS place is bad, go to and their "random" board /b/.


Spastica Rex's picture

I don't think he's that good. Maybe it's just a style thing. I like trolls that slowly work you up and then >>>BAM!<< This one is all BAM at the very beginning; no build up. I do like the over-the top mental illness flavor, but I just don't buy the whole package. Again, probably just a difference in taste.

tmosley's picture

His is more artistic.  He starts out by making you think he's an obvious troll, then he made ME doubt it, and kept switching between the two, creating a state of utter confusion.


Spastica Rex's picture

Yes! I see now; the subtlety exists at a meta level! Thanks!

And people claim that art-appreciation has no real value.

Texas Gunslinger's picture

From reading your posts in the past few days, you seem to be one of the most evil and hostile people here.  Full of hatred. 

Don't you want to change your life for the better?  



tmosley's picture

Now now now.  You were doing so well.  Your words were sweet eligance, but now you shove in a hamfisted insult ("Libtard"--the others were pretty good)?

Bad form.

Chuck Walla's picture

Judge not there, Tex. Or didn't your religion take you that far just yet?

contagiousNY's picture

and now to liar we can add... hypocrite! keep spewing, tex.

ColonelCooper's picture

Mosley - I think we're dealing with someone more like this:

Harlequin001's picture

That is one ugly mutha who should be shot on sight...

just for being ugly...

High Plains Drifter's picture

4chan?  naw..........

ebaumsworld.......for sure..........ha ha ha


duncecap rack's picture

The anger and hostility are directed at the PTB who have allowed a vibrant society to devolve into a collection of hapless victims. If you purposefully denigrate the righteous anger of the people who understand that their security and wellbeing are disolving in front their eyes of course you will be attacked.

Texas Gunslinger's picture

I can understand the anger displayed at thieves on Wall Street, but I cannot understand all the anger and hostility that is directed toward each other here, at this site. 

If one just takes a moment to read the comments section of any article, it seems to always devolve into a tirade of vulgarities directed at EACH OTHER.  This is so sad.  This makes me feel like the devil has fully permeated this place, and somehow I must do my part to stop it. 

We are all in this fight together.  Why are we fighting ourselves?

duncecap rack's picture

I think you were out of line with the dog food remark. Inflation is real. I do however agree with the personal attack thing. I prefer to think of Bernanke as someone who is chasing his losses out of panic rather than someone who operates with malice aforethought. I have made a mess of my personal finances by chasing losses and other miscalculations. I certainly didn't mean to do it. It just was the panic of trying to defend my original thinking that made me lose.

Spastica Rex's picture

This makes me feel like the devil has fully permeated this place, and somehow I must do my part to stop it. 

This doesn't work. It's like a too-big clown nose; not funny, just distracting. You have to learn to pull your punches a little bit. Subtlety, brother. Sometimes less is more. Go watch some old Buster Keaton and come back and try again.


fuu's picture

"My personal projection for gold is $3200, so long term I'm very bearish about it - as long as Bernanke keeps printing, gold and silver will probably rise. I've done a lot of research on this, and my coin dealer has confirmed all my research, to."


"Another communist libtard! Are you a homosexual, too? "

"Obviously, none of you know nothing about history - America was founded on, and continues to be a CHRISTIAN NATION! That ain't something you gonna change, you devil worshipping lost soul!"

"And I firmly believe the fact that Christianity is openly mocked and ridiculed in America plays a role in our economic collapse. When you lose Christ in your life, you lose your rudder. And, speaking in metaphors, America has lost her rudder. "

"You say the gold bubble is going to pop? That makes me worried! Should I sell my gold, and buy it back when it goes for the dip?"

"My coin dealer (who is a god of knowledge!) told me to keep the gold forever. But I see gold making new higher prices all the time, and I read lots of comments about gold being in a bubble, so it makes me feel like maybe I should sell and buy it back when it does a dip. "

"The more these libtards get cross with me, the more I want to stay. I've always been a fighter, and I ain't backing down to a bunch of rude internet libtards who are probably homosexuals in disguise. If your heart is not in the right place, people do irrational things and act in an irrational manner. It's always so easy to see who is a libtard, and who isn't. "

"Can someone explain to me what a margin hike is, and why this is relevant to the silver eagles I bought last month? Can I assume that margin means "profit margin" and those people who sell silver are now allowed to make more money?"

"I'm just a simple man trying to learn what happened to my country, and what I can do to get her back to the days before Obummer and his socialist agenda. I'm mad. I'm armed, and ain't no one going to take my country, especially an African. "

"This video is PURE EVIL, and has nothing to do with Wall Street or precious metals. DO NOT WATCH! So much evil here....."



Texas Gunslinger's picture

That was a huge effort for nothing. 

Just because you read the operations manual for MS Windows, and have mastered the copy/paste function does not mean I'm a troll. 


fuu's picture

It's no effort really, the script does all the work.

Raynja's picture

Thank you fuu for highlighting the ignorant hate texas shits out.

ColonelCooper's picture

Two choices:

1). - You are a troll, and we will get hours of entertainment from your satire, then you will get tiresome and we will stop responding to you.  You, like all the others, will get bored and leave.  If you are good enough, (and I think you are), you will leave a legacy we will refer to until TPTB hit the internet kill switch.

2). - You really are the overzealous asshole you pretend to be, we will get hours of entertainment from your efforts to save us from ourselves, then you will get tiresome and we will stop responding to you.  When you can no longer elicit reaction from the crowd, you will get bored and leave.  We will continue to refer to your past participation whenever referencing the, "ZH Douchebag Hall of Fame".

Either way, your time here is short lived. 

Strike Back's picture

Excellent outing.  These types (or agents) troll here for one reason: to paint the entire comment section as an extreme right wing, racist and violent.  "Texas" goes one step further and encourages the ignorant to sell their PMs now, talking up a top.  I think that white nationalist Holomodor is one too.

Hephasteus's picture

He's just so bad at it. I mean it couldn't have been this easy before people started fracturing off the collective conciousness. You couldn't just go make some stupid calls and say you own a ferrari and get people to follow you like a duckling who imprinted on you. Could you?

Or get people to start stupid fights over religion or tv personalities.

tmosley's picture

I think he is different from the anti-PM trolls.  This guy doesn't really have an objective--no real agenda.  He's just doing it for the lulz, as it were.

He might be trying to paint the community in the way you say, but I'm not sure about that.  Too over the top at times, while at others he sounds just like anyone else here.

fuu's picture

Pretty sure he is also BillyTheBlade.

contagiousNY's picture

Impressive collection of dumbass remarks. What a laff, thanks. Keep up the good works!

Hulk's picture

i hate you 
you love me 
I'm going to kill your family 
with a great big gun
and a 168 grain slug from me 2 you 
wont you say you hate me 2 
i hate you ...

ColonelCooper's picture

Wow, Hulk.  I seldom see you display such vehemence.  Just blew your shirt off didn't you, Big Guy?

Good one, BTW.

Hulk's picture

Beware of happy christians wearing phony smiles Colonel!


StychoKiller's picture

"Have you heard about the Lord?  Before I heard about the Lord, I was all messed up on drugs; but since I found the Lord, now I'm all messed up on the Lord!" -- Cheech&Chong, "Bic-Bambu"

Hulk's picture

Its been my life's ambition to use the Barney song in a threatening manner! 

StychoKiller's picture

"I shove you, you shove get Georgy's special knee!" -- Georgy, "The Dinosaurs"

High Plains Drifter's picture

do you believe the present state of israel has a right to exist?




do you believe the jews of today are God's chosen people?



a simple answer is suffice.


then we can sort you out real fast......

Texas Gunslinger's picture

Everyone has a RIGHT to exist.  What sort of question is that?  Everyone has a RIGHT to live their life however they wish.  Some paths lead to community, happiness virtue and harmony, while other paths lead to hostility, conflict, immorality and violence.  Ultimately the choice is ours.  

And NO.  The Jews are NOT God's chosen people, especially those unethical Jews who nickel and dime this ponzi economy they helped create. Just look where so much of the evil and violence exists in this world, and that should give you some idea if God thinks the Jews are His chosen people.