This page has been archived and commenting is disabled.

QE Doesn't Create Jobs... So Why Is the Fed Targeting Employment With It?

Phoenix Capital Research's picture




 

 

Last week the US Federal Reserve surprised yet again by announcing QE 4: a program through which it would purchase $45 billion of US Treasuries every month.

 

Between this program and the Fed’s QE 3 Program announced in September, the Fed will be monetizing $85 billion worth of assets every month ($40 billion worth of Treasuries and $45 billion worth of Mortgage Backed Securities) ad infinitum.

 

Indeed, the Fed’s new policies are anchored to its goal of getting employment down to 6.5%. This means the Fed will buy these assets non-stop until employment gets down to 6.5%.

 

First and foremost, QE does not create jobs. The UK has announced QE efforts equal to an amount greater than 20% of its GDP and has not seen any meaningful job growth. Similarly, Japan has announced nine rounds of QE for a combined effort equal to 20% of its GDP over the last 20 years and job growth remains dismal there.

 

Based on this, the Fed’s decision to anchor its QE efforts to employment is a bit hard to swallow. Instead, it’s much more likely that the Fed sees something “bad” coming down the pike and is moving preemptively to shore up the system again.

 

Indeed, while most analysts claim the Fed has been printing money day and night, the truth is that the Fed’s balance sheet didn’t budge much at all for most of 2012. Indeed, as late as mid-October the Fed balance sheet was actually $50 billion smaller than it was the year before.

 

Then QE 3 and QE 4 came along and the Fed balance skyrocketed from $2.8 trillion to over $2.9 trillion in a matter of weeks. And it will be expanding at a pace of $85 billion per month going forward.

 

Among other things, this is going to result in higher inflation, greater civil unrest worldwide, and a shortage of high-grade collateral in the financial system.

 

Moreover, the Fed is well past the point of being able to ever exit this situation cleanly. By its own admission, the primary driver of the stock market has been the hope of Fed intervention. If one day the Fed actually tries to pull out its market props, let alone unwind its balance sheet (which will be north of $3 trillion in size in early 2013) the stock market and the system would not be able to withstand it.

 

This is the game going forward. The Fed is playing an increasingly dangerous game by making up policies as it goes. And there is no real indication that it has any idea how to exit this situation cleanly.

 

But two things are certain: costs will be going up… and these policies will work… until they don’t… at which point things will be extremely ugly.

 

On that note, we’ve recently published a Special Report detailing how to prepare for inflation: what investments will profit most from it and why it’s only going to be getting worse going forward.

 

You can pick up a FREE copy of this 7-page report here:

 

http://gainspainscapital.com/gpc-inflation/

 

Best Regards

Graham Summers

 

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 12/19/2012 - 10:29 | 3078341 Yes_Questions
Yes_Questions's picture

 

 

The FED targets employment?

Sounds about right.

Wed, 12/19/2012 - 10:09 | 3078213 hooligan2009
hooligan2009's picture

i think we can stop looking at the Fed as the villain of the piece.

the Fed is paying our taxes for us by monetizing the deficit.

if it stops, we are up shit creek without a paddle.

remember, the government is the people and the deficit is ours, not the governments.

we can not deny for "whom the bell tolls, it tolls for thee"

Wed, 12/19/2012 - 09:28 | 3078087 mcl2177
mcl2177's picture

There is no way out of this mess.  Enjoy life as much as you can until the house of cards crumbles. 

Wed, 12/19/2012 - 10:06 | 3078190 SamAdams
SamAdams's picture

You will know when the unemployment rate is approaching zero, as only those remaining will be bankers and Obamaphone recipients.  They can hold hands and croon, "Isn't It a Wonderful Life".

Wed, 12/19/2012 - 09:06 | 3078021 IamtheREALmario
IamtheREALmario's picture

To paraphrase Adolf Hitler. If you repeat a big enough lie long enough and loud enough then it becomes the truth ... for many people.

At this point, the lies are obvious to anyone paying attention and as for the rest, they will continue believing.

IMO, the core of solving the global issue in a positive manner is to discover what those in charge are so afraid of and help them resolve their issue. There is no doubt in my mind that fear is driving motivator for those "in control" (not really in control, but wanting to be)

Wed, 12/19/2012 - 09:00 | 3078014 Racer
Racer's picture

They are targeting the fake employment numbers because they can fake the jobs numbers and do what they actually want to do under a thin veil of pretence

Wed, 12/19/2012 - 08:48 | 3077999 max2205
max2205's picture

I hear another broken record. Please lift the needle off the player.

GS, you douche, the fed will decide what and when the UE % is until they finished what they want to accomplish.

It's their game. Don't get run over so get out of the way

Wed, 12/19/2012 - 08:20 | 3077944 WhiteNight123129
WhiteNight123129's picture

So he has an excuse to continue printing.

 

Wed, 12/19/2012 - 07:02 | 3077866 etresoi
etresoi's picture

"You can pick up a FREE copy of this 7-page report here:"  Sibmitting one's email address to these clowns is not free.  It is the path to endless SPAM.

Wed, 12/19/2012 - 06:08 | 3077839 David99
David99's picture

FED is the biggest criminal on this planet.

ZH is only doing good job and reporting correctly. Tyler is a real true person though I have never met him. FED+BOE+ECB+BOJ are the biggest manipulators and JPM +GS +20PD's act on their behalf in this Ponzi Casino. It is all rigged Ponzi Casino. JPM & GS do maximum manipulations from London as no regulators are looking what is going on daily. London is the best place to manipulate Ponzi Casino as no regulators as they are watching porno. Manipulations of highest order without any regulations as every one has been purchased and regulators watching porno. In last 10 trading days, Rio Tinto manipulated by +25% gain and regulators watching porno. JPM doing it. It is just Casino and nothing else. Regulators are watching porno, don't know how Rio Tinto is manipulating daily. On LSE, there is no checks and balances and maximum manipulations daily by Rio Tinto. The market is Casino and the biggest manipulated stock is Rio Tinto and JPM is pulling up daily and no regulations for Rio Tinto in London

Wed, 12/19/2012 - 01:48 | 3077684 David99
David99's picture

Don't buy any stock at these high levels as crash is coming. FED, BOE, ECB, BOJ are pumping but for how long?

Wed, 12/19/2012 - 09:49 | 3078140 KidHorn
KidHorn's picture

I agree, but the question is what will crash worse, USD or equities?

Wed, 12/19/2012 - 01:21 | 3077649 Eireann go Brach
Eireann go Brach's picture

Graham I thought you said Spain and Greece would have defaulted by now?

Wed, 12/19/2012 - 02:49 | 3077729 Number 156
Number 156's picture

The market can stay irrational longer than you can stay solvent.

That quote is from John Maynard Keynes. Master of QE.

That quote is not so much an irony than it is an admission of irrationality on Keynesian economics.


Tue, 12/18/2012 - 23:56 | 3077521 knukles
knukles's picture

Because low interest rates combined with imaginably wondrous economic data releases better appease the masses than admissions of misery

(Eddie Bernays had something to do with the line of thought)

Tue, 12/18/2012 - 23:16 | 3077402 David99
David99's picture

ZH is only doing good job and reporting correctly. Tyler is a real true person though I have never met him. FED+BOE+ECB+BOJ are the biggest manipulators and JPM +GS +20PD's act on their behalf in this Ponzi Casino. It is all rigged Ponzi Casino. JPM & GS do maximum manipulations from London as no regulators are looking what is going on daily. London is the best place to manipulate Ponzi Casino as no regulators as they are watching porno. Manipulations of highest order without any regulations as every one has been purchased and regulators watching porno. In last 10 trading days, Rio Tinto manipulated by +25% gain and regulators watching porno. JPM doing it. It is just Casino and nothing else. Regulators are watching porno, don't know how Rio Tinto is manipulating daily. On LSE, there is no checks and balances and maximum manipulations daily by Rio Tinto. The market is Casino and the biggest manipulated stock is Rio Tinto and JPM is pulling up daily and no regulations for Rio Tinto in London

Tue, 12/18/2012 - 23:02 | 3077368 NoDebt
NoDebt's picture

If you need to ask why The Fed targets things it clearly can not control you haven't been hanging out 'round these parts long enough.

Short version:  that's the cover story.  Their real job is something quite different.

Currently their efforts serve 2 main objectives:

1.  Support the TBTF banks under the guise of helping homeowners and credit-fueled business expansion to stimulate the economy (keeping rates low).

2.  Monetize federal government deficits.  It used to be just keeping rates low to reduce the cost of borrowing for the Treasury but they decided that's not enough so now they almost-directly monetize new Treasury issuance.  The only thing that prevents it from being truly direct monetization is that the bonds make a hop through Goldman Sachs and other TBTF banks so they get their cut off the top before selling them right back to The Fed.

Opinions vary on which of those two objective they hold in higher regard.  Currently their policies accomodate both objectives.  Circumstances will eventually change (rising rates based on inflation, most likely) which may cause them to choose which of those two objectives is their top priority.

I suspect it will be monetizing the federal deficit, but there are good arguments it may be the other.  Either way, it's gonna hurt like an unsedated root canal when the day of choosing arrives.

Wed, 12/19/2012 - 09:52 | 3078147 KidHorn
KidHorn's picture

Interest rates will never go up. The FED will continue to loan money for free. Like Japan has beeen doing for decades.

Tue, 12/18/2012 - 23:05 | 3077375 imapopulistnow
imapopulistnow's picture

Both

Tue, 12/18/2012 - 23:00 | 3077363 beastie
beastie's picture

But, but Graham didn't you tell us for months there would be no QE3 and anyone who thought there would be was an idiot?

Sorry Graham your opinion pieces have zero credibility and your time is up. Now fuck off.

Wed, 12/19/2012 - 03:21 | 3077747 LudwigVon
LudwigVon's picture

.

Wed, 12/19/2012 - 03:42 | 3077744 LudwigVon
LudwigVon's picture

This is the same guy who missed Tyler's favorite chart (has been posted more than once) that shows the efficacity of the MEP in 2012 in bringing about an asset duration that with only a 32bps rise in rates bankrupts the issuer. If Ben didn't tell him Qe won't stop, he wouldn't have known it, and he didn't believe Tyler.How does negative equity work for the owners?
That's okay, Grant does not have a time preference for money, whether he loans for 3 years or for 30. But that IS printing to most folks, as there IS a big difference to them, some 27 years, despite a lack of change in the balance sheet's numerical quantity. They will have the opportunity to ratchet down the yield curve and things are gunna get funny from here.

Tue, 12/18/2012 - 22:58 | 3077358 Tommy Gunner
Tommy Gunner's picture

Without QE we'd be at real unemployment closer to 40% - instead of the 20% or so we have now.

That said - QE will solve nothing - it's just put us in a holding pattern - the pilot is dumping fuel prior to the imminent crash.

 

Tue, 12/18/2012 - 22:42 | 3077313 Westcoastliberal
Westcoastliberal's picture

Seriously now, you don't really expect any truth in any press releases from the Fed or the Gov do you? What's really happening is the same crap that's gone on since Paulson told us everything would melt down without $800 Billion RIGHT NOW DAMNIT!

What they're doing is loosening up even more loot to flow to TPTB, Illuminati, whatever you want to call the small bunch that is running things these days.  It's called cash flow.  And you can bet the Fed flow is funding the purchase of many gold bars, islands, other real estate, and small countries.

Even were the Fed to benchmark this flow to the unemployment rate, we now have about 4 million adults not officially counted in the UE report.  All these people must clear and find jobs, otherwise the meter will remain stuck about where it is.  That's a ton of jobs and we're really not gaining, we're losing jobs.

Tue, 12/18/2012 - 22:34 | 3077279 imapopulistnow
imapopulistnow's picture

Don't black and white it.  QE does create jobs.  Perhaps less effectively than other policiesm but it does create jobs. 

Lower long term interest rates spur housing purchases, car sales, more corporate bond issues, lower carry costs permitting greater local, state and federal debt borrowings, etc. at higher levels relative to what they would have been without QE where long term interest rates would be higher.  The operative word here is RELATIVE.

The UK argument is false logic.  One would have to look at jobs created with QE as opposed to jobs created or lost without it during the same period of time, something that cannot be measured, especially by looking at job growth and drawing a conclusion.

I suspect you fully understand this, but you threw up a simplist and false argument to reinforce a philosophical opposition to QE.  In doing so, you only weaken your credibility.

It is fine to oppose QE on appropriate grounds such as moral hazard, market distortions, unforeseen consequences, future inflation if you think this will be an outcome, inefficient uses of capital resulting in future job losses and less than optimal economic growth, etc. but please don't bullshit your argument with false logic statements. JMO.

Wed, 12/19/2012 - 12:50 | 3078976 JeffB
JeffB's picture

Any increase in jobs is very temporary. Printing more pieces of paper does not create true wealth, it gives the illusion that there are more assets (savings) available than is actually the case, causing businesses and individuals to embark upon projects and purchases based upon falsified information. That creates the "boom" period in the boom - bust cycle. Unfortunately the "bust" portion of that cycle follows shortly thereafter destroying wealth in the process because of all of the misallocation of assets, the "malinvestment" the Austrian economists so accurately describe.

 Austrian Theory of the Trade Cycle | Roger W. Garrison

 

 

 

Wed, 12/19/2012 - 01:42 | 3077671 r3phl0x
r3phl0x's picture

 QE does create jobs.  

Nope, it just changes who gets them (the old right now, instead of the young, later on).

> Inefficient uses of capital resulting in future job losses 

That's exactly what it does.

 

Tue, 12/18/2012 - 22:56 | 3077352 dmger14
dmger14's picture

Well said.

Wed, 12/19/2012 - 01:53 | 3077691 economics9698
economics9698's picture

QE reallocates resources from the people to those getting the counterfeit cash, which is why it is so popular in a economic end game.  Politicians and bankers are stealing wealth from the public and a dramatic and rapid rate never seen before. 

Wed, 12/19/2012 - 02:07 | 3077699 Max in St Moritz
Max in St Moritz's picture

How much wealth was "stolen" from you in 2012?

Wed, 12/19/2012 - 02:39 | 3077728 economics9698
economics9698's picture

Conservatively about 2.1% of my wealth was lost due to Fed printing.  That times 313 million people is a lot of lost wealth transferred to these middle aged con artist.  Hang em high.

Wed, 12/19/2012 - 02:42 | 3077730 Max in St Moritz
Max in St Moritz's picture

Do you feel weird giving yourself a green arrow immediately when you post your comments?

Wed, 12/19/2012 - 02:47 | 3077731 Max in St Moritz
Max in St Moritz's picture

And secondly, could you explain how you calculated a 2.1% decrease in your wealth in 2012, due to QE? I'm sure you've expected my curiosity on that number in advance.

To get straight to the point, I think you're full of shit.

Wed, 12/19/2012 - 10:21 | 3078274 Hedgetard55
Hedgetard55's picture

Max,

You have just earned the ZH Douchebag post of the week! Congratulations.

Wed, 12/19/2012 - 03:13 | 3077740 economics9698
economics9698's picture

Look at the second graph, do the math.

 http://www.hussmanfunds.com/wmc/wmc121217.htm

Or this one if you like.

 http://research.stlouisfed.org/fred2/series/M2?cid=29

Or this one.

 http://research.stlouisfed.org/fred2/series/FDHBFRBN

You seem to think you are smart, do the math yourself.

 

It is not hard, if you understand, but apparently you do not have a clue or you are a apologist. 

Warning ZH readers this guy, Max, has no clue and is a spammer.   

Max that shit does not work anymore, go back to Huffpo

 

 

Wed, 12/19/2012 - 03:32 | 3077755 Max in St Moritz
Max in St Moritz's picture

You're not making any sense. How's the 2.1% calculated?

I was just wondering if there was any substance behind your wind-bag rhetoric or if you're just another carnival barker. When you make wild accusations against institutions which SAVED YOUR ASS make sure you can back it up in the future. In some countries, you can get beheaded for lesser cause.

Tue, 12/18/2012 - 22:16 | 3077231 fourchan
fourchan's picture

 

 

the fed only looks for inflation, wage inflation. we have exported all our workers pricing

power to the slave countries, like china, making wage inflation impossable, and ben an idiot.

 

print on you destroyer of free men.

Wed, 12/19/2012 - 01:50 | 3077688 economics9698
economics9698's picture

In case anyone missed the memo the Feds job is to bail out banks.

Convince congress it is needed.

Restrict competition.

Increase leverage by member banks.

Finance Washington to get the politicians off their back.

Any questions? 

 

Do NOT follow this link or you will be banned from the site!