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The Simple Truth About QE

Tyler Durden's picture




 

By by Raúl Ilargi Meijer of the Automatic Earth

The Simple Truth About QE

 

Esther Bubley Greyhound garage, Pittsburgh, PA Sep 1943

There’s not a single day that we’re not treated to more smart treats about stimulus measures. Are they necessary, are they good, are they bad, who profits from them. It gets really long in the tooth. Today, former ECB head Trichet says unlimited stimulus ‘risks’ blowing bubbles. “Supplying unlimited amounts of liquidity at interest rates close to zero has “unintended counterproductive consequences.”

No shit, assclown. Does Jean-Claude really mean to claim he just figured that one out now? Why else did he never say it before? There are 1001 other wise guys like Trichet who’ve only recently seen a sliver of light, and see fit to make the great unwashed party to their new found wisdom. And they’re the vanguard, all the rest still sit on their asses.

The simple truth about ultra low interest rates is so simple it’s embarrassing, at least for those who claim they benefit society. That is, ultra low rates make borrowing accessible to the wrong people, and to the right people for the wrong reasons. The former are people who shouldn’t be able to borrow a dime, because they have no credit credibility, the latter borrow only for unproductive or counter-productive reasons.

Like companies setting up mergers and acquisitions not because a merger or stock buy-back is a good idea in itself, but because at 0% it’s too easy a risk not to take when you know it’ll lift your share price, and you can fire thousands of people to boot and label that ‘efficiency’.

In that same vein, but on an individual scale, mortgages will once again be made tempting for people who who should’t ever have a mortgage, at least no until they have their finances in order, through plans like the Access to Affordable Mortgages Act the US Congress is planning to launch on the country. That is to say, 4% is too high, so let’s make it less.

But if you can’t afford 4%, you shouldn’t have a mortgage, period, and your government certainly shouldn’t entice you into getting one. No matter how left or how right you lean politically, that is simply not something a government should be stirring in or tampering with. That Congress prepares to do so anyway is a solid sign of how desperate Washington is about the US economy. That’s not even open to discussion.

Ultra low rates in a situation of already existing excessive debt levels is like feeding terminal patients strychnine, and telling them they’re sure to feel much better in the morning. Or maybe just something along the lines of: how much worse could it get?

US banks complain that they can’t lend out more because the potential penalties, in case the loan turns bad, are too severe. So Washington will lower those penalties (want to bet?). If not, home prices will fall, and we can’t have that, can we?

We live in a virtual economy, whereas we desperately need a real one. We need it because if we don’t get one soon, the virtual one will eat huge parts of every hard-working American’s (and European’s) fast shrinking wealth.

There are no western stock markets anymore, other than a bunch of idle numbers we see in the media. Trade volume is at levels as ultra low as interest rates, AND central banks are buying shares, AND a huge chunk of the market is high-frequency trade. What all that means is the Dow and S&P no longer reflect anything even remotely related to the American economy. That link is broken, gone. Not a minor detail.

Handing trillions to essentially broke banks, and on top of that enabling them to borrow – virtually – unlimited amounts of funds, is in essence the worst thing that could happen to the US economy. It is, though, the only way to save those same banks. And that’s why we have QE. It kills the real economy to save Wall Street. The latter has more political say than the former, i.e. it purchases more votes. It is simple indeed.

There are plenty historical average charts and stats for business loans and mortgage loans, and there’s no reason we should be at that average today.

Other than, we are at a historically unique, never before seen, point at which we can only keep appearances if we give money away for free to those who already have the highest levels of debt. And that will only work short term. After that, all that remains is ‘Le deluge’, i.e. the wash-out flood, i.e. the debt tsunami.

That’s the only simple truth there is as far as QE is concerned. It’s nothing but yet another way to transfer money from you to the bankrupt yet privileged world of finance. Designed to allow the banks to postpone their inevitable moment of reckoning, and let everyone else pay for that delay.

How simple would you like it? The financial hole you’re in gets deeper every single day courtesy of your own government and central bank. That’s what QE means to you. Told you it was simple.

 

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Sun, 09/07/2014 - 16:11 | 5191401 ilion
ilion's picture

Euro will soon collapse, so will USD. The only thing that will remain is gold and real estate. Even when we are gone they will still be there!

Sun, 09/07/2014 - 16:12 | 5191418 Hugh G Rection
Hugh G Rection's picture

Off topic, but after 125 years they figured out who "Jack The Ripper" was.

 

Turns out, DNA evidence is anti-Semitic!

http://zionismsucks.com/2014/09/07/jack-the-ripper-identified-as-polish-...

Sun, 09/07/2014 - 16:14 | 5191424 negative rates
negative rates's picture

And i'm glad this moment is almost over.

Mon, 09/08/2014 - 11:43 | 5193649 N2OJoe
N2OJoe's picture

And don't get stuck holding real estate when "your" gov is desperate to squeeze ever more blood from the stone.

Sun, 09/07/2014 - 20:33 | 5191586 JR
JR's picture

No! No! It can't be! Not

Aaron Kosminski!

It might also be noted that in August 2010 The Telegraph reported that DNA tests have shown that “Aldolf Hitler is likely to have had Jewish and African roots," based on “Saliva samples taken from 39 relatives of the Nazi leader.”

Heidi Blake wrote that “Jean-Paul Mulders, a Belgian journalist, and Marc Vermeeren, a historian, tracked down the Fuhrer’s relatives, including an Austrian farmer who was his cousin…

“A chromosome called Haplogroup E1b1b1 which showed up in their samples is rare in Western Europe and is most commonly found in the Berbers of Morocco, Algeria and Tunisia, as well as among Ashkenazi and Sephardic Jews.”

http://www.telegraph.co.uk/history/world-war-two/7961211/Hitler-had-Jewish-and-African-roots-DNA-tests-show.html

That of course was not mentioned in the Aug. 15 issue of Newsweek when it "bared its colors" with a cover story entitled "Killing Hitler," explaining that "the offspring of the failed assassins [of Hitler] endured generations of persecution." The cover featured a large illustration of a snarling, blue-faced Adolf Hitler crushing a group of his opponents. It sprawled over eight pages but offered little content to support cover allegations.

As columnist Michael Piper further pointed out: "It's just 'more Hitler,' or a calculated way to redirect focus from what Israel is doing this very day {Aug. 15] in the Holy Land,"-- a "genocidal assault on the Christians and Muslims of Gaza."

Sun, 09/07/2014 - 18:38 | 5191814 Majestic12
Majestic12's picture

"they figured out who "Jack The Ripper" was."
Moron Troll!
Anyone else notice all the sudden "off-topic" comments?
This place is crawling with 'em now...
Besides, it was "Sir William Witty Goal"...Chief Physician to Queen Vitoria...another "royal" family murder ordered to protect the prince's whoring with Mary...who threaten to reveal the love child (also murdered)...

Yeah, the british monarchy are a nice bunch...who need jews to hate with them around..???

Sun, 09/07/2014 - 20:06 | 5192077 Hugh G Rection
Hugh G Rection's picture

I think you're on to something!

 

Maybe it was the Reptillian, Jesuit, shape-shifting, blood drinkers, sacrificing those women for their anunaki masters?

I will ask Alice Jones over at infowhores if that theory holds water.

Sun, 09/07/2014 - 16:13 | 5191426 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

QE is nothing more than a giant credit facility to save our debt saturated society from collapsing. When debt creation slows it will fail in grand manner for the reasons mentioned in this article.

Sun, 09/07/2014 - 16:11 | 5191412 q99x2
q99x2's picture

QE is the worst form of warfare against the populations of the world because it prolongs the death destruction and hopelessness of peoples that could otherwise resolve and provide humane solutions to the world's problems.

Replace governments with open source software. Arrest and redistribute the oligarch's stolen wealth.

Tear down the golden calf. Bring Loyd Blankfein to justice.

Sun, 09/07/2014 - 16:30 | 5191464 I am Jobe
I am Jobe's picture

Add to the list

Dimon

Buffet

Munger

Moniyhan

Scawrzman 

and many more

 

Sun, 09/07/2014 - 16:14 | 5191425 Sudden Debt
Sudden Debt's picture

the rich get richer and the poor get children.

Sun, 09/07/2014 - 16:19 | 5191439 I am Jobe
I am Jobe's picture

In the USSA , The Govt Owns your child. Alsk the sheeples if they know that in the USSA. Duh, 

Sun, 09/07/2014 - 16:16 | 5191435 Tenshin Headache
Tenshin Headache's picture

Excellent.

Sun, 09/07/2014 - 16:29 | 5191462 orangegeek
orangegeek's picture

Tyler called Jean-Claude an assclown.

 

Funny

Sun, 09/07/2014 - 16:32 | 5191473 samsara
samsara's picture

No, Ilargi did.

Www.TheAutomaticEarth.org

Sun, 09/07/2014 - 16:29 | 5191465 Last of the Mid...
Last of the Middle Class's picture

A bubble is not a bubble if you're on the knowing end of what assets are going to be purchased and rise in value. Then it's just an investment opportunity others wish they had.

Sun, 09/07/2014 - 16:39 | 5191488 foxenburg
foxenburg's picture

nice photo of the greyhound guy tightening wheel nuts. it's a powerful image of a man doing a small but vital job. as opposed to pestering me on the phone trying to sell some product i'm not interested in. but the real resonance that gets me - as a foreigner - is that that easily recognisable period, 1940 -1960, is when american was on the top of its game. very sad to see what's happened since.

Sun, 09/07/2014 - 17:50 | 5191674 CrazyCatLady
CrazyCatLady's picture

Hmmm, with a name like "Ester" i assumed it was a chick.  Guess im a sexist 

Sun, 09/07/2014 - 18:20 | 5191765 gtb
gtb's picture

Ester is apparently the name of the garage...

Sun, 09/07/2014 - 18:34 | 5191804 all-priced-in
all-priced-in's picture

The pants look like Obama jeans - so I think it is a woman.

Sun, 09/07/2014 - 16:55 | 5191523 lasvegaspersona
lasvegaspersona's picture

The ECB is not equal to the FED.

The Fed will/must hyperinflate. The ECB has every intention of having an intact currency when the dollar fails.

The ECB has physical gold on it's balance sheet and the EZ encourages the purchae of gold by citizens (no VAT).

The Fed knows if gold is seen at the best store of value the dollar will look bad.

The ECB  only benefits when the POG increases.

In the past the EZ supported the dollar by purchasing the bonds of the USA. That period is over. Now everyone just waits for dollar collapse.

ECB is not equal to the FED...

Sun, 09/07/2014 - 17:10 | 5191569 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Uh-huh, monetary union without fiscal or political union, yeah that's never been tried before, sure, should work fine.

Sun, 09/07/2014 - 17:52 | 5191680 blindman
blindman's picture

it was done with the petro dollar,
but, some other significant arrangements
and potentials need also be in place;
not that i recommend, approve or enjoy
any of it but it has been done.

Sun, 09/07/2014 - 17:12 | 5191564 JR
JR's picture

And now the evil cash hoarders are being demonized by the financial press, blamed for being risk-adverse, blamed for “sapping the economy!”

“Oh the monsters!” writes Adrian Ash of BullionVault tongue-in-cheek this weekend on LewRockwell.  “Refusing to spend…stashing the cash…hoarding what should be shared for the good of us all! It must not be allowed. And luckily the financial press began softening up public opinion at the start of the year…"

more from Death to the Evil Cash Hoarders:

“’Companies’ growing cash piles are irking shareholders and stunting growth,’ barked the Financial Times in late January. ‘Politicians and policymakers are going to have to ask the question,’ declared David Bowers of Absolute Strategy Research in London – ‘How much longer are we going to allow companies to run themselves for cash?’

“Two weeks later, Martin Wolf was at it in the same pages. ‘Britain needs to whittle down corporate cash piles,’ he announced, also quoting approvingly a London finance type, this time Andrew Smithers of Smithers & Co. ‘If the fiscal deficit is to disappear…there needs to be a mixture of lower profits, higher investment, and significantly smaller current account deficits...

“Perhaps,” writes Ash, “if everyone shouts loudly enough, the hoarders will snap out of it? But then, they are trying already, albeit at gun point. US equities have been paying a higher yield than Treasury bonds for the first time in six decades. ‘Total dividends paid by UK companies hit a record £67.8 billion in 2011 [$110bn] a rise of almost 20% on 2010,’ says Hargreaves Lansdowne, the retail-investor brokerage. ‘Encouragingly, dividend growth was seen across all industry sectors.’”

Continues Ash: “And it’s not like corporate US and Britain didn’t do their bit in fighting the war of debt vs. recession starting in the mid-1990s either. Over the 12 years ending spring 2009, for instance, private-sector UK companies outside the financial sector spent 124 months growing their bank debt net-net. Yes, UK households fought harder (141 out of 144 months), but they began to rein in their borrowing sooner and actually saved money right when the cannon fodder were called on for a last ‘big push’ in late 2007.

"But so what? ‘British companies are running a cash surplus of some 6% of GDP, the largest in the world,’ says [Will} Hutton [The Guardian}, gasping at people making a profit and daring to keep it.

 “’[They] are refusing to spend that cash on investment or innovation, preferring to hoard it, preserve profit margins or buy back their own shares.’

“Oh the monsters!...”

In short, “just because you hoard gold or fear bank credit today, doesn’t mean you are in need of treatment or tough love.”

http://www.lewrockwell.com/2014/09/no_author/you-evil-cash-hoarder/

Sun, 09/07/2014 - 17:48 | 5191667 messystateofaffairs
messystateofaffairs's picture

Why is this topic being rehashed for the umpteenth time? Who gives a single shit what Tripleshit has to say?

Sun, 09/07/2014 - 18:21 | 5191767 gmak
gmak's picture

Another "pay no attention to the man behind the curtain" moment. When the assclowns let a sliver of a memory of light out of the black hole of their 1% toadiness, they are seeing the shadows of pitchforks and rope cast by the torches on the stone walls around their hearts.

 

Sun, 09/07/2014 - 18:42 | 5191829 game theory
game theory's picture

Seriously? More QE bashing? Totally stale.  If I had a dollar for every person that wrote an article on how bad QE was, I'd have alot of dollars. And I'd have spent them as fast as I got them.

I've noticed that the people complaining the loudest about QE appear to have more dollars than the average person. And they *should* complain...because they are getting totally screwed.  But in a way, it is their own fault since they don't understand the game that is being played. 

 

Sun, 09/07/2014 - 20:09 | 5192091 T-NUTZ
T-NUTZ's picture

No Shit, ASSCLOWN!!  LOL

Sun, 09/07/2014 - 22:12 | 5192411 PiratePiggy
PiratePiggy's picture

Obama's Fed is funding the inversions...  oh wait, so is he donor Buffet.  No wonder Obama participates in more donation dinners with the beneficiaries.  When will the middle class wake up?

Mon, 09/08/2014 - 07:42 | 5192924 Mesquite
Mesquite's picture

Great article ( in my opinion..).

Puts down many self evident truths..

Thank you !

Additionally:

I expect to see more and more of these kind of observations going forward..

Why? Because now, after all the cronies and insiders have made their billions,

it's becoming increasingly obvious to the ordinary person how the game is played..

Ane with that knowledge, they're enabled to 'join the party'..

And we can't have that, now can we..

Of course, there'll still be lots who'll just get caught up in the tsunami of stubbounly

'tilting at windmills', and losing... And complaining about it..

 

Mon, 09/08/2014 - 09:53 | 5193253 oudinot
oudinot's picture

Very well written piece.

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