Charting The Diminishing Effects Of QE

Tyler Durden's picture


For each $1 of additional quantitative easing by The Fed, the S&P 500 adds $4 of market capitalization.


This correlation-is-causation 'fact' has been remarkably constant since the Fed unleashed QE on the world, but, as Bloomberg's Chase Van Der Rhoer notes, still well below the $12 market cap gains pre-2008 and that it now takes $41 billion in additional stimulus to nudge High-Yield credit spreads 1bp tighter. However, the largest 'diminishing effect' of QE is seen in job creation (were one to believe there was any causal link). It now takes a record $37,400 of additional QE for each additional job created (5 times the pre-Lehman levels).


It seems it is indeed time to retire QE...

But what happens when the balance sheet stops expanding?

Source: Bloomberg Briefs' Chase Van Der Rhoer

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Tue, 08/19/2014 - 13:46 | 5115333 Devotional
Devotional's picture

<-- QE has worked, we at ZH were wrong

<-- This will eventually blow


Tue, 08/19/2014 - 13:51 | 5115356 Greenskeeper_Carl
Greenskeeper_Carl's picture

not just QE i losing its charm. The gold slamdowns are having diminishing effects as well. It used to be a couple hundred million in paper would drop it 25-30 and trigger a halt, now they are using 1.5 bil and its still not even triggering the halts, nor is it dropping as far.

Tue, 08/19/2014 - 14:02 | 5115412 max2205
max2205's picture

QQQ needs to go parabolic before this shit show ends

Tue, 08/19/2014 - 14:04 | 5115429 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

But what happens when the balance sheet stops expanding?

The markets will go '87 on you!!

Tue, 08/19/2014 - 14:10 | 5115457 NOTaREALmerican
NOTaREALmerican's picture

Why would they stop?

Tue, 08/19/2014 - 14:21 | 5115499 codecode
codecode's picture

it's added nothing to my checkbook...

Tue, 08/19/2014 - 17:48 | 5116782 fattail
fattail's picture

The diminished affect of the central banks' actions to manipulate the gold price is one of the seven signs identified in the Death of Money by James Rickards, that they are losing control of their monetary manipulation, and the system is going "wobbly".  I think the markets believes the QE is coming back and is already pricing it in.

Tue, 08/19/2014 - 13:51 | 5115358 Toolshed
Toolshed's picture

It blows now.

Tue, 08/19/2014 - 13:47 | 5115334 ebworthen
ebworthen's picture

QE is bullshit, period.

It is robbing the public treasury to enrich Wall Street and punish Main Street.

Tue, 08/19/2014 - 13:47 | 5115340 NOTaREALmerican
NOTaREALmerican's picture

Why would the balance sheet need to stop expanding?  Why stop what works so well for the top 20%?

Tue, 08/19/2014 - 14:43 | 5115645 JRobby
JRobby's picture

Who does asset inflation help the most?

Kinda of a stupid question.

Tue, 08/19/2014 - 13:48 | 5115347 DetectiveStern
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It's getting very fair very fast in a lot of places around the world.


By fair I mean those with the biggest guns win.

Tue, 08/19/2014 - 13:54 | 5115373 passenger_pidgin
passenger_pidgin's picture

A rising tide lifts all yachts. Kayaks and canoes, not so much.

Tue, 08/19/2014 - 13:58 | 5115374 JustObserving
JustObserving's picture

If QE had not been backed by the world's largest propaganda factory and the world's largest military, it would not have worked.

But with all the lies out there, we cannot even be sure it has worked.  Is the unemployment rate 6.2% or 23% as John Williams of Shadowstats claims?

This is precisely the policy—a vast public subsidy to the financial aristocracy—that over the past five years, since the low point of the crisis that erupted in September 2008, has enabled the stock market to nearly triple in value, boosting the fortunes of bankers and CEOs to record levels, even as the real economy remained mired in slump and the living standards of the overwhelming majority of the population declined. The income of a typical US household fell 8.2 percent between 2007 and 2012.

Tue, 08/19/2014 - 13:57 | 5115390 NOTaREALmerican
NOTaREALmerican's picture

Not sure about THAT.  It worked in Japan.  It worked in China and Europe too, in slightly different forms.


All QE is, is using the power of the government to keep the smart-n-savvy living in the style they've grown accustomed too.   What other form of government could possible exist?

Tue, 08/19/2014 - 14:44 | 5115663 JRobby
JRobby's picture

 Is the unemployment rate 6.2% or 23% as John Williams of Shadowstats claims?

realistically it is somewhere in between. 12% smells about right. 


Tue, 08/19/2014 - 13:59 | 5115382 Son of Captain Nemo
Son of Captain Nemo's picture

Anybody seen this dickhead on RT News Boom Bust?...  Marc Chandler starts at 15:00.  He's so bad with the propaganda he makes Gartman look "good"!

Somebody at "ZH" please take this mulligan apart!


Tue, 08/19/2014 - 14:01 | 5115406 Dr. Engali
Dr. Engali's picture

The next round of QE will just have to be BIGGER! That's the way we do things in Merika!

Tue, 08/19/2014 - 17:07 | 5116499 andrewp111
andrewp111's picture

I don't think there will be another round. The experience in Japan puts the nail in that one. Next time, we will get the Congress/Administration issuing trillion dollar coins so they can spend moar - and unlike QE those dollars will actually go into circulation.

Tue, 08/19/2014 - 14:02 | 5115413 Joebloinvestor
Joebloinvestor's picture

Just goes to show you that some problems cannot be fixed no matter how much money you throw at them.

Tue, 08/19/2014 - 14:03 | 5115414 Sudden Debt
Sudden Debt's picture

The market capitalization is there only untill somebody tries to sell and than 4 dollars can turn into a penny in a second.

Tue, 08/19/2014 - 14:04 | 5115426 Amish Hacker
Amish Hacker's picture

"QE" sounds so much nicer than "financial repression." And if $1 of QE gooses the S&P market cap by $4, then I'd say it's working perfectly. Take that Mission Accomplished sign off the aircraft carrier and hang it from the Mariner Eccles building.

Tue, 08/19/2014 - 15:58 | 5116145 SheepDog-One
SheepDog-One's picture

$1 of debt to you for $4 of profit to me.....hell if that's not the 'Murkan dream' then what is??

Tue, 08/19/2014 - 14:08 | 5115446 CHX
CHX's picture

The official balance sheet, or the shadow balance sheet? BIG difference.

Tue, 08/19/2014 - 14:15 | 5115476 TheCanadianAustrian
TheCanadianAustrian's picture

"It now takes a record $37,400 of additional QE for each additional job created"

Garbage statistics and garbage reporting. There is nothing insightful about this statistic. If the official job creation numbers were negative, the amount of QE per job created would also be negative, which would kind of destroy your attempt to show how massive QE is. The entire formula being used here is irreparably flawed. And I don't even need to get started on how useless the official "job creation" figures are.

Multiplying good data by bad data gives you, in the best case scenario, equally bad data. Garbage in, garbage out.

Tue, 08/19/2014 - 14:17 | 5115481 EatersOfTheFed
EatersOfTheFed's picture

Is it possible that there are so many dollars in circulation through out the world that continued QE will NOT cause a collapse/hyperinflation?

Tue, 08/19/2014 - 14:56 | 5115743 TheCanadianAustrian
TheCanadianAustrian's picture

QE can go on indefinitely without causing the currency to devalue an inch. It just means that if the currency ever does begin to tumble, the less likely it is to avoid a collapse and the more violent and uncontrollable the collapse will be.

Tue, 08/19/2014 - 15:24 | 5115906 lasvegaspersona
lasvegaspersona's picture

It is up to the recipient of the currency to judge it's value. The USA now has little control over that decision.

My guess is that China, Russia, the EZ, Japan, The SouthEast Asian group, India, and...well almost every country that has signed currency swap agreements have already decided....they no longer wish to do business using the dollar. It gives the USA too much power and lately the USA has been overusing that power.

The rest of the world seems to be coasting to whatever outcome is waiting. No one is pushing the dollar off the cliff but no one is hauling out the safety net either. Watch the TIC report. No foreign buyers means no support. All dollars that are spent and not used to buy treasuries are dollars that contribute to hyperinflation. There are a lot of them already out there. This will get messy especially if there is a panic. 

No country wants to be seen as the bad guy but few can afford to get screwed out of their treasury investments either.

Tue, 08/19/2014 - 17:04 | 5116494 andrewp111
andrewp111's picture

The money from QE doesn't actually go into circulation. Most of it stays in the banking system, although it might be used as collateral for leverage elsewhere.

Tue, 08/19/2014 - 14:20 | 5115498 nosoeawe
nosoeawe's picture

let's call a spade a spade.


QE = govt sanctioned infationary counterfeiting, GSIC for short


will that stroke catch up to the beady eyed, white haired, gremlin already



Tue, 08/19/2014 - 14:32 | 5115572 BullionTweet
BullionTweet's picture

This is merely the painfully predictable outcome to the Keynsian printing formula, but that formula coupled with the level of corruption that exists ubiquitously today, adds a multiple that we just cannot fathom it seems, as most persist in avoiding the simple observation of facts. Looks like we are now getting the confirmation we needed to see the Kontratieff Winter cycle materialize. Please fasten your seatbelt as even your grandparents will not have forseen what is about to unfold for us all. Precious metals will not cure anyone from this period of transition, but at least you will have a fighting chance to rebuild on the other side if you own physical.

Tue, 08/19/2014 - 14:43 | 5115653 JuliaS
JuliaS's picture

QE - same game, different name. The fact is, the Fed has always been doing the exact same thing - printing to plug up hole - making friends whole, picking winners and losers. QE is indifferent from any other acronym pulled out of the ass.

And that doesn't even cover foreign bond purchases and currency swaps that are completely opaque. Doesn't cover any shadow transactions. Diminishing returns of QE are hard to examine because the program doesn't exist in a vacuum

The main proof that QE is such a small piece of the pie is the miniscule effect it actually had. With or without $86B purchases a month, if felt like hardly anything changed. Which means the scope of this effort in comparison to everything else going on is almost negligible.

Tue, 08/19/2014 - 14:49 | 5115698 Simplifiedfrisbee
Simplifiedfrisbee's picture

Traders are now a degenerate economic species.

Tue, 08/19/2014 - 15:17 | 5115834 orangegeek
orangegeek's picture

QE is shit.  They knew it before the start.  We all know it now.


So what did the central banksters hope to accomplish.


Please tell me it was more than getting that rodent Barry re-elected in 2012 and trying to win some mid-terms this November.



Tue, 08/19/2014 - 15:13 | 5115851 lasvegaspersona
lasvegaspersona's picture

I think you might be confused about the purpose of QE. I suspect it has little to do with stated reasons.

Tue, 08/19/2014 - 15:22 | 5115907 Bunga Bunga
Bunga Bunga's picture

So QE worked fine, people in Ferguson are angry because they missed it.

Tue, 08/19/2014 - 15:25 | 5115912 nope-1004
nope-1004's picture

Bernocchio retired before QE was done.  Bernocchio retired before the economy recovered.  Bernocchio's actions, bailing on the system, provide more proof to me that QE did zero to help economic recovery than anything else.  QE was a taxpayer transfer to fund his buddies, who just happen to run insolvent banks.

Bernocchio quitting is proof we are fucked.  He knows it, otherwise he wouldn't have bailed on his post like the yellow coward that he is.


Tue, 08/19/2014 - 15:27 | 5115955 ajkreider
ajkreider's picture

It also takes $1 off our net national debt. In real terms, were we're somewhere around 2010 levels.

QE is a Christmas miracle really, simulating the economy without debasing the dollar or raising total debt.

Tue, 08/19/2014 - 15:29 | 5115976 nakki
nakki's picture

QE has been happening all over the world for decades. It's just about fiat creation, and as long as America is the big swinging dick and ever thing is priced in the $ standard things will all be swell,  until it's not and oil is $200 a barrel and every Chinese person is driving a zero down 120 month loan car. Think the "FED" might shit themselves then and say perhaps creating $25 trillion globally wasn't such a grand idea. When I say FED I'm not talking about Alan or Ben or Janet I'm talking about the people that own the banks that OWNS the FED.

Tue, 08/19/2014 - 16:07 | 5116189 LawsofPhysics
LawsofPhysics's picture

QE may be evil, but nothing destroys capital and rewards bad behavior like ZIRP (NIRP in real terms).

Tue, 08/19/2014 - 16:08 | 5116198 venturen
venturen's picture

So when it comes time to unwind this monster....what do you think the link will be. For each dollar taken out...a 10 times lowering of the S&P. That should work out well! 

Tue, 08/19/2014 - 16:26 | 5116306 q99x2
q99x2's picture


Tue, 08/19/2014 - 16:35 | 5116358 huggy_in_london
huggy_in_london's picture

But what happens when the balance sheet stops expanding?


Well you will find out in october....People thinking that it will have no effect will be sorely mistaken.  They have convinced themselves that it has been the economy recovering that has lifted stocks.  Not so. 

Tue, 08/19/2014 - 17:02 | 5116481 andrewp111
andrewp111's picture

There might be some delay. QE3 didn't start goosing the market immediately - there was some time lag. There is likely to be a lag of 6 mo - 1 year in the other direction as well, especially if the market is currently being driven by other things like flight capital.

Tue, 08/19/2014 - 16:59 | 5116465 Simplifiedfrisbee
Simplifiedfrisbee's picture

Have you heard MSM lately? I was seeing some ignorant N-BE-SEA show that I believe was called "market watch" and the panel agreed that today's market had evolved into a disconnected market. According to them the stock market no longer represents the actual economy because business is conducted different and main street no longer affects wall street.

Umm... I know why, but the average person believes this entirely so even though inflation is rising, job salaries are stagnant, and the labour force is saturated, they believe their unrealized 401k gains represent the true economy that exists "some where out there."

People are regressing quickly and insanity is inherent in most of society. Almost everyone is deceived, including many on ZH. Seek the faith and use your intellect because the ego of man is going to bring suffering unparalleled in human history. Observe wisely.

Wed, 08/20/2014 - 06:44 | 5118938 AdvancingTime
AdvancingTime's picture

"they believe their unrealized 401k gains represent the true economy"

The really big earners in recent years have benefited greatly from the surging stock prices as much of their income has come from financial markets and gains in equities. Many people seem to think this is the hope of our future.

When you have more than you need or want to put money away for a rainy day where do you store it? If you rated people on a "wealth chart" by how many tangible assets they owned you might be shocked to find much of the wealth people own is in paper and this is full of risk. More on this subject in the article below.

Tue, 08/19/2014 - 21:17 | 5117863 fzrkid
fzrkid's picture

whatdoya mean retire QE?? They should expand QE several times over, which will boost jobs and help the economy...








Wed, 08/20/2014 - 06:29 | 5118918 AdvancingTime
AdvancingTime's picture

At some point the return on loaning money is simply not worth the risk!  It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward.  When this happens we are at the end game.

 Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.

The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.

Wed, 08/20/2014 - 06:37 | 5118930 AdvancingTime
AdvancingTime's picture

 The more and more I study derivatives it now appears the main goal of QE may have been to hold up the underlying value of assets that feed into and support the massive derivative market more than help the economy. QE has up to now stopped an implosion of derivatives and the resulting contagion and shock that would have spread throughout the financial system. In postponing this collapse the Fed has created a whole slew of new problems. More on this subject in the article below.

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