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Does Quantitative Easing Benefit the 99% or the 1%?

George Washington's picture





 

Forget Competing Theories … What Do the Facts Say about Quantitative Easing?

Paul Krugman says that QE, expansive monetary policy and inflation help the little guy (the 99%) and hurt the big banks (the 1%).

Of course, followers of the Austrian school of economics dispute this argument – and say that it is only the big boys who benefit from easy money.

As hedge fund manager Mark Spitznagel argues in the Wall Street Journal, in an article entitled “How the Fed Favors The 1%”:

The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power. [We have repeatedly pointed out that Fed policy increases inequality.]David Hume, the 18th-century Scottish philosopher, pointed out that when money is inserted into the economy (from a government printing press or, as in Hume’s time, the importation of gold and silver), it is not distributed evenly but “confined to the coffers of a few persons, who immediately seek to employ it to advantage.”

 

In the 20th century, the economists of the Austrian school built upon this fact as their central monetary tenet. Ludwig von Mises and his students demonstrated how an increase in money supply is beneficial to those who get it first and is detrimental to those who get it last. Monetary inflation is a process, not a static effect. To think of it only in terms of aggregate price levels (which is all Fed Chairman Ben Bernanke seems capable of) is to ignore this pernicious process and the imbalance and economic dislocation that it creates.

 

As Mises protégé Murray Rothbard explained, monetary inflation is akin to counterfeiting, which necessitates that some benefit and others don’t. After all, if everyone counterfeited in proportion to their wealth, there would be no real economic benefit to anyone. [Remember, even Keynes himself - and Ben Bernanake - said that inflation is a stealth tax.] Similarly, the expansion of credit is uneven in the economy, which results in wealth redistribution. To borrow a visual from another Mises student, Friedrich von Hayek, the Fed’s money creation does not flow evenly like water into a tank, but rather oozes like honey into a saucer, dolloping one area first and only then very slowly dribbling to the rest.

 

The Fed doesn’t expand the money supply by uniformly dropping cash from helicopters over the hapless masses. Rather, it directs capital transfers to the largest banks (whether by overpaying them for their financial assets or by lending to them on the cheap), minimizes their borrowing costs, and lowers their reserve requirements. All of these actions result in immediate handouts to the financial elite first, with the hope that they will subsequently unleash this fresh capital onto the unsuspecting markets, raising demand and prices wherever they do.”

 

***

 

The Fed is transferring immense wealth from the middle class to the most affluent, from the least privileged to the most privileged. This coercive redistribution has been a far more egregious source of disparity than the president’s presumption of tax unfairness ….

 

***

 

Before we start down the path of arguing about the merits of redistributing wealth to benefit the many, why not first stop redistributing it to the most privileged?”

And Ben Bernanke himself said in 1988 that quantitative easing doesn’t work. As Ed Yardley notes:

Two economists, Seth B. Carpenter and Selva Demiralp, recently posted a discussion paper on the Federal Reserve Board’s website, titled “Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?” [Here's the link.]

 

[The study states:] “In the absence of a multiplier, open market operations, which simply change reserve balances, do not directly affect lending behavior at the aggregate level. Put differently, if the quantity of reserves is relevant for the transmission of monetary policy, a different mechanism must be found. The argument against the textbook money multiplier is not new. For example, Bernanke and Blinder (1988) and Kashyap and Stein (1995) note that the bank lending channel is not operative if banks have access to external sources of funding. The appendix illustrates these relationships with a simple model. This paper provides institutional and empirical evidence that the money multiplier and the associated narrow bank lending channel are not relevant for analyzing the United States.”

 

Did you catch that? Bernanke knew back in 1988 that quantitative easing doesn’t work. Yet, in recent years, he has been one of the biggest proponents of the notion that if all else fails to revive economic growth and avert deflation, QE will work.

Indeed, Fed policy itself has killed the money multiplier by paying interest on excess reserves. And a large percentage of the bailout money went to foreign banks (and see this). And so did most of money from the second round of quantitative easing.

Forget Theory … What Do the Facts Show?

But let’s forget ivory the tower theories of either neo-Keynesians like Krugman or Austrians … and look at the evidence.

Initially:

[The] Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry.

Similarly, former Secretary of Labor Robert Reich points out that quantitative easing won’t help the economy, but will simply fuel a new round of mergers and acquisitions:

A debate is being played out in the Fed about whether it should return to so-called “quantitative easing” — buying more mortgage-backed securities, Treasury bills, and other bonds — in order to lower the cost of capital still further.

 

The sad reality is that cheaper money won’t work. Individuals aren’t borrowing because they’re still under a huge debt load. And as their homes drop in value and their jobs and wages continue to disappear, they’re not in a position to borrow. Small businesses aren’t borrowing because they have no reason to expand. Retail business is down, construction is down, even manufacturing suppliers are losing ground.

 

That leaves large corporations. They’ll be happy to borrow more at even lower rates than now — even though they’re already sitting on mountains of money.

 

But this big-business borrowing won’t create new jobs. To the contrary, large corporations have been investing their cash to pare back their payrolls. They’ve been buying new factories and facilities abroad (China, Brazil, India), and new labor-replacing software at home.

 

If Bernanke and company make it even cheaper to borrow, they’ll be unleashing a third corporate strategy for creating more profits but fewer jobs — mergers and acquisitions.

The Guardian notes:

Quantitative easing (QE) … have contributed to social unrest by exacerbating inequality, according to one City economist.

 

As the Bank of England considers unleashing a fresh round of QE, Dhaval Joshi, of BCA Research, argues the approach of creating electronic money pushes up share prices and profits without feeding through to wages.

 

“The evidence suggests that QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it,” Joshi says in a new report.

 

He points out that real wages – adjusted for inflation – have fallen in both the US and UK, where QE has been a key tool for

boosting growth. In Germany, meanwhile, where there has been no quantitative easing, real wages have risen.

Yves Smith reports that quantitative easing didn’t really help the Japanese economy, only big Japanese companies:

A few days ago, we noted:

When an economy is very slack, cheaper money is not going to induce much in the way of real economy activity.

 

Unless you are a financial firm, the level of interest rates is a secondary or tertiary consideration in your decision to borrow. You will be interested in borrowing only if you first, perceive a business need (usually an opportunity). The next question is whether it can be addressed profitably, and the cost of funds is almost always not a significant % of total project costs (although availability of funding can be a big constraint)…..

 

So cheaper money will operate primarily via their impact on asset values. That of course helps financial firms, and perhaps the Fed hopes the wealth effect will induce more spending. But that’s been the movie of the last 20+ years, and Japan pre its crisis, of having the officialdom rely on asset price inflation to induce more consumer spending, and we know how both ended.

Tyler Cowen points to a Bank of Japan paper by Hiroshi Ugai, which looks at Japan’s experience with quantitative easing from 2001 to 2006. Key findings:

….these macroeconomic analyses verify that because of the QEP, the premiums on market funds raised by financial institutions carrying substantial non-performing loans (NPLs) shrank to the extent that they no longer reflected credit rating differentials. This observation implies that the QEP was effective in maintaining financial system stability and an accommodative monetary environment by removing financial institutions’ funding uncertainties, and by averting further deterioration of economic and price developments resulting from corporations’ uncertainty about future funding.

 

Granted the positive above effects of preventing further deterioration of the economy reviewed above, many of the macroeconomic analyses conclude that the QEP’s effects in raising aggregate demand and prices were limited. In particular, when verified empirically taking into account the fact that the monetary policy regime changed under the zero bound constraint of interest rates, the effects from increasing the monetary base were not detected or smaller, if anything, than during periods when there was no zero bound constraint.

Yves here, This is an important conclusion, and is consistent with the warnings the Japanese gave to the US during the financial crisis, which were uncharacteristically blunt. Conventional wisdom here is that Japan’s fiscal and monetary stimulus during the bust was too slow in coming and not sufficiently large. The Japanese instead believe, strongly, that their policy mistake was not cleaning up the banks. As we’ve noted, that’s also consistent with an IMF study of 124 banking crises:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

 

Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery. Of course, the caveat to these findings is that a counterfactual to the crisis resolution cannot be observed and therefore it is difficult to speculate how a crisis would unfold in absence of such policies. Better institutions are, however, uniformly positively associated with faster recovery.

But (to put it charitably) the Fed sees the world through a bank-centric lens, so surely what is good for its charges must be good for the rest of us, right? So if the economy continues to weaken, the odds that the Fed will resort to it as a remedy will rise, despite the evidence that it at best treats symptoms rather than the underlying pathology.

And remember, the Fed is providing enormous subsidies to the big banks with both interest rate spreads and interest on excess reserves. Neither program helps the little guy.

And see this.

QE Doesn’t Do Much But Goose the Stock Market

We’ve previously noted:

The stated purpose of quantitative easing was to drive down interest rates on U.S. treasury bonds.

But as U.S. News and World Reported noted last month:

By now, you’ve probably heard that the Fed is purchasing $600 billion in treasuries in hopes that it will push interest rates even lower, spur lending, and help jump-start the economy. Two years ago, the Fed set the federal funds rate (the interest rate at which banks lend to each other) to virtually zero, and this second round of quantitative easing–commonly referred to as QE2–is one of the few tools it has left to help boost economic growth. In spite of all this, a funny thing has happened. Treasury yields have actually risen since the Fed’s announcement.

The following charts from Doug Short update this trend:

treasuries FFR since 2007 Does Quantitative Easing Benefit the 99% or the 1%?

treasuries 30 yr mortgage since 2010 Does Quantitative Easing Benefit the 99% or the 1%?

treasury yield percent change since 101104 Does Quantitative Easing Benefit the 99% or the 1%?

 

Of course, rather than admit that the Fed is failing at driving down rates, rising rates are now being heralded as a sign of success. As the New York Times reported Monday:

The trouble is [rates] they have risen since it was formally announced in November, leaving many in the markets puzzled about the value of the Fed’s bond-buying program.

 

***

 

But the biggest reason for the rise in interest rates was probably that the economy was, at last, growing faster. And that’s good news.

 

“Rates have risen for the reasons we were hoping for: investors are more optimistic about the recovery,” said Mr. Sack. “It is a good sign.”

Last November, after it started to become apparent that rates were moving in the wrong direction, Bernanke pulled a bait-and-switch, defending quantitative easing on other grounds:

This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

As former chief Merrill Lynch economist David Rosenberg writes today:

So the Fed Chairman seems non-plussed that Treasury yields have shot up and that the mortgage rates and car loan rates have done likewise, even though he said this back in early November in his op-ed piece in the Washington Post, regarding the need for lower long-term yields:

 

“For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment.”

 

But the Fed Chairman is at least getting what he wants in the equity market. Recall what he said back then — “higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

 

So now the Fed has added a third mandate to its charter:

 

1. Full employment
2. Low and stable inflation
3. Higher equity valuation

 

The real question we should be asking is why Ben didn’t add this third policy objective back in 2007 and save us from a whole lot of pain over the next 18 months?

And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.

Indeed, leading economic consulting firm Trim Tabs (25% of the top 50 hedge funds in the world use TrimTabs’ research for market timing) wrote on Wednesday:

The Federal Reserve’s quantitative easing programs have helped stock market participants, financial institutions, and large companies but have done little to address the structural problems of the economy, according to TrimTabs Investment Research.

“Quantitative easing is supposed to produce stronger economic growth and lower unemployment,” said Madeline Schnapp, Director of Macroeconomic Research at TrimTabs. “While QE1 and QE2 have worked wonders on the stock market, their impact on GDP and jobs has been anemic at best.”

Similarly, Ambrose Evans-Pritchard writes today:

The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs.

Unfortunately, a rising stock market doesn’t help the average American as much as you might assume.

Quantitative Easing Drives Up Food Prices

Quantitative easing creams the little guy by driving up food prices. Graham Summers points out that food prices have also skyrocketed [during both rounds of quantitative easing]:

In case you’ve missed it, food riots are spreading throughout the developing world Already Tunisia, Algeria, Oman, and even Laos are experiencing riots and protests due to soaring food prices.

 

As Abdolreza Abbassian, chief economist at the UN’s Food and Agriculture Organization (FAO), put it, “We are entering a danger territory.”

 

Indeed, these situations left people literally starving… AND dead from the riots.

 

And why is this happening?

 

A perfect storm of increased demand, bad harvests from key exporters (Argentina, Russia, Australia and Canada, but most of all, the Fed’s money pumping. If you don’t believe me, have a look at the below chart:

 

[Summers shows the share price of Elements Rogers International Commodity Agriculture ETN as a proxy for food prices generally.]

 

As you can see, it wasn’t until the Fed announced its QE lite program that agricultural commodities exploded above long-term resistance. And in case there was any doubt, QE 2 sent them absolutely stratospheric.

 

This isn’t really unexpected.

David Einhorn warned:

It is quite likely that QE2 will slow the economy by raising food and energy prices [because it is easier to generate these price increases]. [These price hikes] would act as a tax on consumers and businesses.

Karl Denninger wrote:

We have a Federal Reserve that, in the last two years, has printed and debased the currency of this nation by more than 100%, taking their balance sheet from $800 billion to more than $2 trillion. They now threaten, today, to do even more of that. This has resulted in insane price ramps in soft commodities ….

(“soft commodities” means food crops).

As the Wall Street Journal, Tyler Durden, the Economic Policy Journal and others note, inflation in food prices isn’t limited to developing nations, but is coming to the U.S.

You Can’t Fix a Leaking Pool by Flooding It With More Water

We’ve noted that Keynesian economics cannot work when the economy has major structural defects which have not been addressed:

Keynes implemented his New Deal stimulus at the same time that Glass-Steagall and many other measures were implemented to plug the holes in a corrupt financial system. The gaming of the financial system was decreased somewhat, the amount of funny business which the powers-that-be could engage in was reined in to some extent.As such, the economy had a chance to recover (even with the massive stimulus of World War II, unless some basic level of trust had been restored in the economy, the economy would not have recovered).

 

Today, however, Bernanke … and the rest of the boys haven’t fixed any of the major structural defects in the economy. So even if Keynesianism were the answer, it cannot work without the implementation of structural reforms to the financial system.

 

A little extra water in the plumbing can’t fix pipes that have been corroded and are thoroughly rotten. The government hasn’t even tried to replace the leaking sections of pipe in our economy.

 

Quantitative easing can’t patch a financial system with giant holes in it.

One thing is for sure: stimulus would do a lot more good if it went directly to the people, instead of to the big banks who gather around the monetary spigot to siphon it off for their own benefit.

 


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Mon, 04/30/2012 - 17:56 | Link to Comment Ripped Chunk
Ripped Chunk's picture

The 1%

Sun, 04/29/2012 - 23:06 | Link to Comment JeffB
JeffB's picture

George Washington for President!!!

Great article.

 

Sun, 04/29/2012 - 22:22 | Link to Comment ThirdCoastSurfer
ThirdCoastSurfer's picture

It's so easy to see that Qe serves to maintain asset prices, namely equities. 

Equities to the rich are instantly redeemable or possibly redeemable in a year to qualify as a LTCG. 

Equities to the masses are buried in their retirement accounts that are not available until many decades from now, but never mind that, so long as you get a statement that shows that your untouchable investment is holding at par (so hard to tell when funding is constantly being added and a % increase is not the same as a % decrease), the masses feel comfortable to spend all they have and more today. 

 

Sun, 04/29/2012 - 21:54 | Link to Comment matt_chart
matt_chart's picture

Have a listen at our new financial Radio Show exposing the rotten corruption of our financial system!

http://stocklegends.com/episode-11-market-update/

 

Hosts: 

QuickDraw ~ Matt_Chart 

Topics:

Black Friday Violence 
MF Global ~ What does this mean for you? 
Britain ~ Publicly warns people of looming collapse
Venezuela Forces Physical Delivery of gold 
International Currency Wars 
Russia beefs up Gold Reserves Huge In Oct 
Goldman Explains What Super Committee Failure Means

Sun, 04/29/2012 - 20:03 | Link to Comment Xkwisetly Paneful
Xkwisetly Paneful's picture

Joke. Why do you think the ultra wealthy are the biggest, big government promoters?

No better way to promota themselves while keep everyone else down than via government policy.

Hard to believe this is debatable.

Not the problem though-

7billion earth, half of which exist on the equivalent of $120/mo or less,

leaves 700million in the top 1%, including you George.

 

 

Sun, 04/29/2012 - 21:09 | Link to Comment Lednbrass
Lednbrass's picture

That would be 70 million in the top 1%. Given that the average global income is 7-8K per year according to most estimates, where do you get 120/month?

 

Sun, 04/29/2012 - 19:57 | Link to Comment I am on to you
I am on to you's picture

So trickle down will help Roadhazard?

I have noticed one thing,even i admit,my knowledge in the Economical Minefield is rather limited!

 

That these People,of whom the talk is about:

Have Brokken Newton,cause it only Trickles upward,so i think its better to look out for the LAW of Gravity,some thing is very strange there!

Well leave for now,gota go at do the Disches.I think its spelled!

Peace be to all mankind!

No disrespect to none!Just love!

Sun, 04/29/2012 - 19:48 | Link to Comment I am on to you
I am on to you's picture

Sorry for the missing N.

Sun, 04/29/2012 - 20:26 | Link to Comment nmewn
nmewn's picture

;-)

And the W...the name is my short hand for enemy within...just hit edit next to the reply button...it brings up your comment to repost until someone replies, then its locked...forever more...lol.

Regards N

Sun, 04/29/2012 - 19:48 | Link to Comment I am on to you
I am on to you's picture

Nmev,nirvana would not be so bad at all to reach,once i knoked on the door there,but i think the gate keeper,thought it was to early for me to enter.

But ill try again some day!

And your right,dont devaluate,the hard work we do,we break our back,just to sustain living and it aint good enogh!

Sun, 04/29/2012 - 19:42 | Link to Comment I am on to you
I am on to you's picture

You never gave me your money,no you only gave me your?

Funny paper,plain simpel!

Sun, 04/29/2012 - 19:40 | Link to Comment nmewn
nmewn's picture

If one really wants to help the 99% quit devaluing their labor, purchasing power and savings with QE...duh.

Destroying the currency is really all they know, a trained monkey can be given a shiny plaque to hang on the wall & hit a stupid print button too...so what the hell...monkey hammer that puppy till we reach nirvana bliss, peace and contentment.

Exit question: Why are we taxed when they just print whats needed anyways?

Mon, 04/30/2012 - 01:08 | Link to Comment Dingleberry
Dingleberry's picture

because too much money for the unwashed masses DOES equal inflation, specifically WAGE inflation. The fed cares not about any other "inflation".  Gotta drain some water from the tub that the fed is filling up, metaphorically speaking.

Mon, 04/30/2012 - 06:27 | Link to Comment nmewn
nmewn's picture

I believe so, it keeps the riff raff out of the clubhouse, so to speak.

Government & academia are stuffed to the rafters with egg headed socio-economists who are the members of this particular, special club. Through the tax code and their ability to counterfeit the currency at will they maintain their exclusive membership in it.

QE has nothing to do with expanding the money stock to account for population rise. It is nothing more than an attempt by the membership to counterfeit its way out of the problem they created themselves.

Sun, 04/29/2012 - 19:39 | Link to Comment DosZap
DosZap's picture

After reading this article,I believe it helps the 99%.................................

Best laid put expanantion I have read.

http://www.futuresmag.com/2012/05/01/jim-sinclair-has-something-to-say

Sun, 04/29/2012 - 18:49 | Link to Comment disabledvet
disabledvet's picture

The Krug-man wins this debate hands down. The only enemy of the Bankster Class is the Government...and the Government OWNS their ass now. The fact of the matter is "as with The Big Short" with Goldman Sachs so "The Bankster Class" had a plan via securitization. Both plans have FAILED. While this is far from an extensive analysis my personal view is "it was a stupid idea to predicate your entire business plan on taking it to Uncle Sam while he's at war" is so stupid as to not require any analysis to begin with. The collapse of THREE trillion dollar markets (MBS, Credit Card, Second lien) SIMULTANEOUSLY was so far beyond the ability of the banks to contain "the government response was pretty much a lay up." And so what do we have now? The banks nearly collapsed even WITH all the support last year...have launched like a baby puppy-dog of a Dow theory this year...and now look set to "go down with the European ship." If i didn't see it with my own eyes i wouldn't believe it was even happening. Which it IS btw. Even more amazing: it hasn't mattered one IOTA to the American economy. Indeed..."we're coming out far earlier than would be expected under This Time is Different." FAR earlier. Stick with Morgan Stanley...the only honorable firm currently on The Street PERIOD.

Sun, 04/29/2012 - 18:47 | Link to Comment world_debt_slave
world_debt_slave's picture

is this a rhetorical question?

Sun, 04/29/2012 - 18:08 | Link to Comment I am on to you
I am on to you's picture

I only have one PC,am i then lost in the Consumming inferno,of Daniel Dantas,eu vou detonar?

Or will the other 99 PC,s help me.This David Hume,who was Filosofing in gold and silver,was he an Austrian or From Kenya,or dont i understand Keynesian,help i get lost in Names here.

Is it Keynes or Austrian or Hayek,is it Qe or is it Eq,once i thought i lived in EU,no i am lost in Marx Kapitalism.

The plumming Equation is fantastisk,rotten pipes,or even the Pool and water,thall better not be the Pools of Fukushima!

To a mortal with only one PC,it seems simpel,if the meat is rotten,you throw it on the dumbster.

And all i get from all the economical cababel,is the Mafia should have been thrown,to the doogs for a long time ago.despite:Nuts and Bolts,Vehicles the special kinds,short the longs or long the shorts,orphans or widdows:

Cause at the end every line,its peoples lives.

Kind of sick,people have been thrown to the wolf,because of divergens ,in which Economical school is right or wrong.

Just a short sight wiev on the long consuming consumptions:

Corruption is corruption no matter which name one put on to it,so is it not here the, QE EQ,should be resolved,just an question?

Sun, 04/29/2012 - 18:24 | Link to Comment disabledvet
disabledvet's picture

can't top that...

Sun, 04/29/2012 - 16:07 | Link to Comment roadhazard
roadhazard's picture

"Trickle down" will save us.

Sun, 04/29/2012 - 15:03 | Link to Comment GMadScientist
GMadScientist's picture

Someone should tell that Krugman fellow that banks are allowed to own equities.

And all of this is predicated upon those shitty cokeheaded gambling addicts not marking any of their mistakes to market anyway.

The fuckers:

- Haven't had their bonuses clawed back

- Haven't seen handcuffs

- Are still compounding the risk as we speak

 

Sun, 04/29/2012 - 13:44 | Link to Comment AnAnonymous
AnAnonymous's picture

Who is those 99pc? That 1pc?

QE knows no borders and it performs on a world scale so...

So US citizens have it hard once againg.

Commodities rich countries fill their coffers with the magic, with the USD. They have the nice deal, here.

Labour rich countries are operated on razor thinner and thinner margin to be squeezed of every drop of their sweat, wonderful, free sauna.

Remain US citizens who have the wrong side, their spirit of sacrifice forcing them to take one for the team: US citizen do the consumption.

And as it is well known in US citizen economics, when doing the consumption, you grow poorer while those enabling the consumption grow richer.

Sun, 04/29/2012 - 15:03 | Link to Comment SilverTree
SilverTree's picture

QE benefits those with physical assets. 

Sun, 04/29/2012 - 15:16 | Link to Comment ArmchairRevolut...
ArmchairRevolutionary's picture

This is not correct. If you have a hard asset before QE, you still have the same hard asset (hopefully) after the QE. The value denominated in fiat will have changed, but the value denominated in hard assets is unchanged. The winners in QE are those who get the injection of money first at the lowest rate. The losers are those who either get the cash later at a higher rate or those who do not get any cash. The winners will have proportionally more money to buy your hard assets. The losers will have proportionally less money.

Sun, 04/29/2012 - 15:19 | Link to Comment ArmchairRevolut...
ArmchairRevolutionary's picture

Actually this understates the benefit to the winners. Since the winners are banks with fractional reserve lending that essentially leverage the money received, their benefit is huge compared to the loss of everyone else.

Sun, 04/29/2012 - 17:24 | Link to Comment SilverTree
SilverTree's picture

QE fucks those without physical assets. 

Sun, 04/29/2012 - 11:09 | Link to Comment tony bonn
tony bonn's picture

thank you, george, for doing the lord's work of exposing lies and evil.

qe is all about "liquidity" - it does nothing for capital except destroy it.

Sun, 04/29/2012 - 11:58 | Link to Comment Umh
Umh's picture

The only thing the Fed & the government are doing is stalling until their situation gets better. Please note I said their situation not the citizens' situation.

 

People and organisations that have assets will usually do better than those who don't have any assets during times of uncertainty; mostly because they are able to take advantage of opportunities that appear. It's very hard to take advantage of even a great opportunity when your last dollar just went into putting gas in the car and food in the kitchen. Especially when even family won't loan you any money.

Sun, 04/29/2012 - 11:03 | Link to Comment engineertheeconomy
engineertheeconomy's picture

Finite resources. Overpopulation. Hyperinflation. People starving. Bankers printing themselves money for free and buying up all the worlds resources. Colllapse is accelerating and it's occuring in your bank account and in your wallet. We're in a full blown war. It's them against us.  Stop buying designer clothes. Grow your own food. Small vegetable garden, chickens, etc. Convert your home to 12 volt solar. Sell your TV. Eat rice and beans. Save old copper coins. Silver if you can. Bury aluminum cans in your back yard. You may laugh now, but soon you won't be laughing. You'll be begging for food for yourself and your family. Your evil government has every intention in the world of killing you by starvation. You may not get it. But soon you will.

Sun, 04/29/2012 - 12:06 | Link to Comment smb12321
smb12321's picture

But WHY would "they starve us thus eliminating capital and taxes?  If, as is claimed, the 1% and their government cronies can act with impunity, why would they spend vast resources and waste time and effort to set up an elaborate scheme for starving the most fertile nation on Earth?   Stalin or Mao did it as allegiance to some alien control ideology  but these guys simply want loads of money - a much safer goal for all concerned.

The US is unique in that it is one of the most fertile places on Earth. The ONLY way to starve the populace would be by destroying farms, preventing fishing from our streams, lakes and oceans and poisoning the water supply  Why would anyone want to remain in that kind of world? Clue:  There is no master plan - simply the normal DC f**kups.

Sun, 04/29/2012 - 18:10 | Link to Comment TSA gropee
TSA gropee's picture

I give you the Monsanto agri-GMO machine. Force farmers to buy their terminator seeds, sicken the population already too dependent on modern chemistry (think pharmaceuticals) and reap the rewards as the circle spins. IMHO>

Mon, 04/30/2012 - 01:39 | Link to Comment smb12321
smb12321's picture

I hate asking the obvious, but Why would Monsanto make a product to purposely injure the very folks it wants to buy its product?  And the very definition of modern societies is a reliance on chemistry - fertilizers, cleaning supplie, tires, plastic, medicines, materials, tech devices - all depend on our knowledge of chemistry.

It would help your argument if a single study proved that modified foods are dangerous but none do. The well-off European econuts seem terrified that Africa or Asia will actually be able to feed themselves.

Sun, 04/29/2012 - 10:51 | Link to Comment tok1
tok1's picture

the problem with the FED's analysis is they say the money their creating is being left by the banks deposited with the FED (ie so its not circulating)  but this misses the fact that its the Govt's excessive increase in Govt bond issuance thats increasing the funds in the economy. In usual case the exiating amount of funds in the economy would need to be used to buy the bonds (and thus rates would adjust to level where the demand is).. When the FED buy's govt bonds its expanding the money supply directly with the Govt... the banks are irrelevant.  The fact is the banks are borrowing at zero from the Fed (ie expanding the money supply) and using the fuds to buy shorter term treasuries (ie 1-3ys) so they are further expoanding the money supply.. 

And thus the inflation is and will come,, unless this falied poilcy is stopped and the banks / Govt are forced to restructure properly..

All the FED is doing is supporting the current assets of the establishment (that should have beem chamged back in 2008)  ir 2008 should have been a great chance for unleveraged middle class to get cheap assets and increase their wealth.. Instead the fed/Govt kept the status qoe..

 

Sun, 04/29/2012 - 12:07 | Link to Comment smb12321
smb12321's picture

Your post should be required reading for all Americans!!!!!

Sun, 04/29/2012 - 10:33 | Link to Comment Vince Clortho
Vince Clortho's picture

Before we start down the path of arguing about the merits of redistributing wealth to benefit the many, why not first stop redistributing it to the most privileged. "

Sun, 04/29/2012 - 10:31 | Link to Comment dizzyfingers
dizzyfingers's picture

"...foreign banks (and see this). And so did most of money from the second round of quantitative easing.:

"see this" link doesn't work.

Sun, 04/29/2012 - 09:22 | Link to Comment Colonial Intent
Colonial Intent's picture

OT.

http://www.policymic.com/articles/7394/ron-paul-won-iowa-and-minnesota-i...

Does anyone know what this "delegate strategy" of ron paul's is?

 

Ta:-)

Sun, 04/29/2012 - 09:11 | Link to Comment Sudden Debt
Sudden Debt's picture

You can pump more water through corroded plumbing but it won't take long before the pipes break and create leaks that'll make sure no water reaches the tap anymoe.

Sun, 04/29/2012 - 08:32 | Link to Comment fiddy pence haf...
fiddy pence haff pound's picture

anybody seen any black swans lately?

 

what's their mating call?

Isn't it their mating season now?

 

Let's go. Prayer time.

everybody; "woooaaaah, black swans. Come on, black swans."

I'm thinking of registering a new religion.

The Church of the Black Swan. Archbishop Naseem Taleb

I like the sound of that.

 

All you non-believers who nonetheless want change,

don't mess with karma, man.

 

free karma lessons, great article and great videos,  JS Kim:

http://www.zerohedge.com/contributed/2012-16-17/who-big-money-really-con...

Sun, 04/29/2012 - 09:14 | Link to Comment Sudden Debt
Sudden Debt's picture

The matting call is "breaking news"

Sun, 04/29/2012 - 11:44 | Link to Comment bugs_
bugs_'s picture

thumbs up!

Sun, 04/29/2012 - 07:56 | Link to Comment BeetleBailey
BeetleBailey's picture

Printing money. Makes all money worth less. Period. No matter HOW you spin it.

More of something in circulation/the marketplace, the less it's worth.

Good God - I learned that axiom in my first day of Economics in high school.

Sun, 04/29/2012 - 08:07 | Link to Comment Ying-Yang
Ying-Yang's picture

QE will not save the system. The system is broken.

The bond market is turning in the EU, next Japan then the US. What happens when the 10Y rises to 4% and beyond?

Gameover.

Gold to $10,000 and reset.

Sun, 04/29/2012 - 09:40 | Link to Comment spinone
spinone's picture

When a fractional reserve currency is debt saturated, its done for.

Sun, 04/29/2012 - 07:24 | Link to Comment dcb
dcb's picture

Good article george, but you also need to point out about rising asset prices, that the top 1% own 42% of the  assets, so rising asset prices help out the top 1% the most.

 

As I keep saying to krugman, when the transmission mechanism is broken, then extreme easing hurts the majority, it doesn't help them as they fall further and further behind. It hinders the recovery because the masses have less money to pay down debt and hence get more disposable spending money.

 

I actually used to think Krugman in fact stood with the rest of us 99% ers. I know from his remarks about QE, that he doesn't. If there is one thing clear from the evidence is nthat more QE is bad for the majority, and britian which has done the most the 99% asre suffering the most.

What bothers me the most, is that nobody wants to talk about the real reasons we are doing all this QE. The real reason is the central banks screwed up big time by letting the system get over leveraged. the banks are broke, and depend on high asset prices to keep themselves solvent. the QE policy by raising asset prices cover up th einsolvency, and allws bernenke to cover up his screw up. Plus it allws him and the elites to cover up their faulty modles of he economy. if the elites had to show the emperor had no clothes they would be forced to change the polices that benefit themselves at our expence.

I am now convinced krugman lies knowingly (I wouldn't have said that before), I know bernanke is a sociopath. he lies all the time with a straigth face on record.

P3eople should look at what these sociopaths say. they need to look at the policy (QE) and who benefits. Clearly all evidence shows it hasn't worked and has in fact done the opposite ofstated goals. Since they have continued the policy, it means those were never the real goals, but the unstated goals are happening. Then you determine based on what has happened you determine what the real goal was all along.

Sun, 04/29/2012 - 14:48 | Link to Comment ArmchairRevolut...
ArmchairRevolutionary's picture

Yes. Krugman lies knowingly. He is just too smart to believe that line of bullshit that he wrote. I would not have said that before either, but this was just over the top.

Sun, 04/29/2012 - 07:05 | Link to Comment BigDuke6
BigDuke6's picture

Many of us here are addicted to QE in our own way.

I like it for what it does for my gold and silver , up another 20% with every round.

But the whole thing is depressing , I picked up what will be my last shipment at the sell off at Christmas, and the place was full of orthodox...
Some folks are winning both ways.

Sun, 04/29/2012 - 07:22 | Link to Comment lakecity55
lakecity55's picture

Dude, those guys always find a way to make $$$. My dad told me it's in their genes.

Sun, 04/29/2012 - 08:53 | Link to Comment GMadScientist
GMadScientist's picture

Apparently there's something in your genes too...on the 21st chromosome!

 

Sun, 04/29/2012 - 06:59 | Link to Comment Downtoolong
Downtoolong's picture

The structure and practice of our monetary & banking system is the sole reason for 99% of the wealth held by the 1%. (So much for incentives to create, invent, develop, improve, and add true value to the economy). 

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