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QE’s Seeds Are Already Sown

Tyler Durden's picture




 

Submitted by David Howden via Mises Canada,

The Federal Reserve has finally ended its quantitative easing programs. Since the financial crisis of 2008, the Fed has pursued what seemed like an endless policy of asset purchases. As recently as September 2008 the monetary base in the US was just a hair over $800 bn. Today this figure is just shy of $4.2 trillion, for a total increase of 425%.

For its part Janet Yellen and her gang of Fed economists are probably pretty pleased with themselves. Unemployment is down, headline inflation remains muted, and the word on Wall Street is that a worse crisis has been averted. The stock market is at record highs, and banks (and bankers) are back to their pre-crisis eminence.

One of the true marks of a great economist is an ability to see past the obvious outcomes and into the veiled results of policies. Friedrich Bastiat’s great essay on “that which is seen, and that which is not seen” provides a cautionary parable that disastrous analyses result when people don’t bother looking further than the immediate results of an action.

Nowhere is this lesson more instructive than with the Fed’s QE policies of the past 6 years.

Consider the Austrian business cycle theory. The nub of the theory is that changes in the money market have broader results on the greater economy. In its most succinct form, when a central bank pushes interest rates lower than they should be (by buying assets, for example), the greater economy gets distorted. Some of these distortions are immediately apparent, as consumers buy more goods and everyone takes on more debt as a result of lower interest rates. Some of the distortions are not immediately apparent. The investment decision of firms gets skewed as interest rates no longer reflect savings preferences, and the whole economy becomes fragile over time as erroneous investments add up (what Mises’ coined “malinvestments”).

When a financial crisis or economic recession hits, it’s almost never because of some event that apparently happened at the same time. The crisis of 2008 did not occur because of the collapse of Lehman Brothers. It happened because the whole financial system and greater economy were fragile following years of cheap credit at the hands of the Greenspan Fed. If anything, Lehman was a result of this and a great (if unfortunate) example of the type of bad business decisions firms are lured into by loose money. It wasn’t the cause of the troubles but a result of them. And if Lehman didn’t go under to spark the credit crunch, some other fragile financial institution would have.

The Great Depression is a similar case in point. It wasn’t the stock market crash in 1929 that “created” the Great Depression. It was a decade of loose money policies by the Fed that created a shaky economy. Again, if anything the stock market crash was the result of stock prices being too buoyant and in need of a repricing to reflect economic fundamentals. Just like today, stocks rose to such storied heights as a result of cheap credit, not because of the seemingly “great” investments funded by it.

The Fed has lowered interest rates since July 2006. We have just come off the the period with the most rapid and extreme increase in the money supply ever recorded in American history. The seeds of the next Austrian business cycle have been sown. In fact, they are probably especially fertile seeds when one considers that the monetary policy has been so loose by historical standards. Just as cheap credit of the 1920s beget the Great Depression, that of the 1990s beget the dot-com bust and that of the mid-2000s beget the crisis of 2008, this most recent period will also give birth to a financial crisis.

When the next crisis comes there will no doubt be economists and commentators who blame it on some proximal event, like the failure of a large important financial institution. Don’t be fooled. The seeds of the next crisis are already sown. Fed policy under Ben Bernanke and Janet Yellen has distorted the economy in a way that makes it precariously fragile, and susceptible to collapse.

 

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Thu, 10/30/2014 - 15:00 | 5395018 kchrisc
kchrisc's picture

Does my guillotine count as a seed?

An American, not US subject.

 

Hey, I got the top spot. "My sister makes $4,623 a week working from home..." Just kidding.

Thu, 10/30/2014 - 15:03 | 5395056 Skateboarder
Skateboarder's picture

A related and important question is:

Does the "Guillotine Operator" job require a 4-year degree?

Thu, 10/30/2014 - 15:11 | 5395108 Headbanger
Headbanger's picture

Nahhh,, There's robots for that now too.

Thu, 10/30/2014 - 15:29 | 5395176 Barnaby
Barnaby's picture

No, but the guy who clears the "tray 2 jam" every day deserves hazard pay.

Thu, 10/30/2014 - 15:52 | 5395270 Skateboarder
Skateboarder's picture

Department of gel, smell, and goo.

Thu, 10/30/2014 - 16:03 | 5395298 JRobby
JRobby's picture

Technical School Certificate Program

That will run you $47,658 including fees & books.

Thu, 10/30/2014 - 15:13 | 5395111 ZH Snob
ZH Snob's picture

do I care to seem the fool to the people I try to warn?

 

no.

 

am I sorry to put my savings in metal?

 

hell no.

 

I rest easy not being totally dependent on this house of cards.  And I know the anxious have no patience, and live for the moment, so they have a different measure of contentment.

Thu, 10/30/2014 - 20:53 | 5396260 TinF0ilHat
TinF0ilHat's picture

Great quote for me to use on signatures in my Metal forums. I will credit you appropriately.

Thu, 10/30/2014 - 16:29 | 5395383 foodstampbarry
foodstampbarry's picture

I got somethin' for her to work on...

Thu, 10/30/2014 - 14:55 | 5395023 NoDebt
NoDebt's picture

Zzzzzzzzzzzzzzzz.

Timing?  I'll take +-1 year as "close enough" 

Thu, 10/30/2014 - 14:57 | 5395025 Groundhog Day
Groundhog Day's picture

Seeds of spx 600?  the crop can;t grow fast enough

Thu, 10/30/2014 - 16:21 | 5395355 Praetorian Guard
Praetorian Guard's picture

...and I really wonder to what degree the Fed, etal have front ran the economy, industry, demand, etc. for perhaps two decades or more... just like they did with housing, car manufacturing and sales, credit expansion, etc. how many decades into the future has the Fed stripped away from the populace? Infinite growth in a finite world... I guess the Fed needs more math majors.

 

www.gunsgrubandgold.com

 

 

Thu, 10/30/2014 - 14:57 | 5395032 Dr. Richard Head
Dr. Richard Head's picture

The stawk market and the economy are two different entities all together.  I wish this talk of them actually being linked together in some form would stop, especially considering the ENRON acocunting of publicly-held firms verses the life and death REAL accounting of us privately-held schlubbs.

Thu, 10/30/2014 - 14:58 | 5395035 SheepDog-One
SheepDog-One's picture

They'll never allow a significant drop ever again.

Thu, 10/30/2014 - 15:03 | 5395061 Jack Burton
Jack Burton's picture

Agreed Sheep Dog, They will fight any major correction as if it was the end of the world upon us. No drops can be allowed to do more than shake out a few leveraged trades, after that the juice must flow to boost stocks again. They can not allow a real bear market or a real recession. What we have today is what they will fight to maintain at all costs. But meantime the real economy will sink or stagnate, while finacialized economy booms.

Thu, 10/30/2014 - 15:14 | 5395123 Headbanger
Headbanger's picture

Oh pleeeez

Give it the fuck up with this stupid bullshit

The Feral Reserv is NOT the U.S. Government you mooks!

It's OWNED BY THE BANKS!

Who are only out to save their own ass now that they've packed their vaults with U.S. Treasuries and are pumping up the dollar to make a killing now!

 

Thu, 10/30/2014 - 15:19 | 5395137 NotApplicable
NotApplicable's picture

You mean the banks that own the US government?

Thu, 10/30/2014 - 14:58 | 5395037 Skateboarder
Skateboarder's picture

Black Thursday is still on, right?

Thu, 10/30/2014 - 15:00 | 5395042 Jack Burton
Jack Burton's picture

"As recently as September 2008 the monetary base in the US was just a hair over $800 bn. Today this figure is just shy of $4.2 trillion, for a total increase of 425%."

Why would the world seek to get out from under King Dollar, The Petro Dollar and the World Reserve Currency? America is able to take many of it's economic problems, print them into dollars and pass those dollars off abroad for real energy, manufactured good, foods and services. THUS America's failures are passed off on other countries, many of whom just don't get it! Those that have are now being portrayed in the media as enemies and terrorists. Why? Because the USA needs the Dollar to be king, we can not lose that privelige or our empire withers like the old UK did after World War two. Either we can print dollars to infinity, or we are royally screwed. The Dollar is worth going to a world war to maintain. That is how Washington and Wall Street Banks see the world.

Thu, 10/30/2014 - 15:00 | 5395046 MillionDollarBonus_
MillionDollarBonus_'s picture

Will you doomers please give up on this idea that tge economy needs QE. QE ended ages ago and stocks have been doing fantastically well. You simply CANNOT deny the green shoots in the economy. We have had consistently positive jobs reports, encouraging stock market returns and a host of other positive indicators for the economy. This is the beginning of the second industrial revolution, and just like the last one, it is being driven by innovative economic support programs crafted by our government and Federal Reserve.

Thu, 10/30/2014 - 15:05 | 5395072 SheepDog-One
SheepDog-One's picture

Fake + gay.

Thu, 10/30/2014 - 15:04 | 5395073 Jack Burton
Jack Burton's picture

I'm with you Million Dollar! The believers have gotten fantastically wealthy since 2008, while the naysayers have been killed by the Fed policies.

Thu, 10/30/2014 - 15:07 | 5395081 jamochavez
jamochavez's picture

I like watching the 20% on food stamps harvesting the green shoots for dinner

Thu, 10/30/2014 - 15:08 | 5395088 NoDebt
NoDebt's picture

Welcome back, MDB.  It's a breath of fresh air when a high quality troll from the old days stops back in for a visit.

Thu, 10/30/2014 - 15:32 | 5395188 centerline
centerline's picture

I hear it is so good in some places like Cali that public pension funds are going all "retro-active" on increased goodies.  Not to mention the average pay straight up is killer.  Think it is high time I drop the private sector gig, head west and live the good life for once!

Rock on Yellen-Obama-etc!  Go Hillary!

Thu, 10/30/2014 - 15:38 | 5395223 FieldingMellish
FieldingMellish's picture

Can't argue with that. You have been correct a lot longer than the Tylers have.

Thu, 10/30/2014 - 17:23 | 5395520 realWhiteNight123129
realWhiteNight123129's picture

MillionDollarBonus, I am a big fan. You have totally mastered the art of "baffle them with bullshit". You are either a successful trader or investment banker I gather, or a fantastically shrewd salesman or businessman.

Baffling with bullshit is the way to riches in our society today.

Thu, 10/30/2014 - 15:01 | 5395047 Hohum
Hohum's picture

Sure the Fed is destructive, but does anyone have a plan for expanding material wealth without more debt?  Saying the market will do it is an attestation of faith, no more.

Thu, 10/30/2014 - 15:02 | 5395050 ekm1
ekm1's picture

Nobody knew what QE was until QE started.

Now everybody is a QE expert

Thu, 10/30/2014 - 15:09 | 5395099 NoDebt
NoDebt's picture

<clears throat>  Excuse me, not EVERYONE.

Thu, 10/30/2014 - 15:01 | 5395053 limacon
Thu, 10/30/2014 - 15:03 | 5395064 lester1
lester1's picture

Another "Peter Schiff Was Right" video on youtube is coming.

Thu, 10/30/2014 - 15:04 | 5395065 vincent
vincent's picture

Don't be a Debbie Downer.

They are the seeds of Love

https://www.youtube.com/watch?v=0bTuG4zCnhY

Thu, 10/30/2014 - 15:03 | 5395066 km4
km4's picture

Cash-Strapped Americans Are An Ominous Threat To Retailers

http://www.businessinsider.com/cash-strapped-americans-hurt-retail-2014-10 via @BI_RetailNews

More QE needed fast !

Thu, 10/30/2014 - 15:38 | 5395221 SheepDog-One
SheepDog-One's picture

But retailers can just buyback their own stawks and fix that.

Thu, 10/30/2014 - 16:42 | 5395408 Bemused Observer
Bemused Observer's picture

I'm thinking that it might be cheaper and easier for them to bypass Wall Street, and just start paying customers directly to shop.

Thu, 10/30/2014 - 15:04 | 5395070 Tenshin Headache
Tenshin Headache's picture

When you feed the animal spirits virtually unlimited debt at 0%, you should expect consequences. Hopefully there will also be some accountability this time. It's overdue.

Thu, 10/30/2014 - 15:05 | 5395076 teslaberry
teslaberry's picture

don't be fooled, you cannot make money without insider information. or getting the short end of risk.

Thu, 10/30/2014 - 15:08 | 5395089 BouncyTheWonderbunni
BouncyTheWonderbunni's picture

Lemme see company borrows cheap money from Fed uses it to prop up it's self up giving the illusion it's solvent companies lower tier employees think every things cool. In reality said company should have failed easy money dries up company goes BK and thousands are laid off  exec's sell their stock off and goes to the board of other company. That's how the market and economy are related.

 

 

Thu, 10/30/2014 - 15:07 | 5395093 Barnaby
Barnaby's picture

Fuck your ancient Austrian shit, Mises couldn't have predicted the Spice Girls, let alone the perversion we're seeing now.

Thu, 10/30/2014 - 15:09 | 5395103 i_call_you_my_base
i_call_you_my_base's picture

The only models that would work now are ones that reflect fraud and graft.

Thu, 10/30/2014 - 15:37 | 5395218 Barnaby
Barnaby's picture

The small shop of collectibles is represented in ash-relief in Pompeii: a high-polish bronze mirror once stood behind the display of items for sale. Now looted, only the bones of the goods (and the proprietor) remain. Metaphorical.

How many times did that looted brass mirror reflect a theft from either side of the counter?

Thu, 10/30/2014 - 15:51 | 5395187 SheepDog-One
SheepDog-One's picture

Yea really, these guys may as well be writing about what Socrates said....big deal those old geeks would shit and fall over dead at what's going on today.

Thu, 10/30/2014 - 15:11 | 5395110 GG..
GG..'s picture

unless crony capitalism and hft matket driven equities along wit stupid masses will continue da bulish approach we aint gonna c gold above 2k 4along time

Thu, 10/30/2014 - 15:16 | 5395132 4LibertysSake
4LibertysSake's picture

Have hit my limit - Have read ZH for a while, but don't post too often
Can someone please tell me if I have been really duped here. Told hubby we need to get out of market, start stakin. Now I have to continue hearing how much we DIDN'T earn, and how much we have lost on the stack!!!! friggin great!!! and tonight should be even better...
Is this a lesson for me to not try and understand  whats really going on and read comments on the Internet. NONE OF this MAKES SENSE!

HELP, BEFORE I KILL HIM JUST TO SHUT HIM UP!

 

 

 

Thu, 10/30/2014 - 15:24 | 5395154 SheepDog-One
SheepDog-One's picture

It's each mahfuka for each own self from here....sorry.

Thu, 10/30/2014 - 15:29 | 5395170 NotApplicable
NotApplicable's picture

Ask him if he's ever been able to predict when the music stops playing and you have to race for a chair? If yes, next ask him exactly how he did it, and how confident is he in his ability to continue to win this game?

Then ask him if the unmeasurable risk to all of your capital is worth the gain?

If that fails, try chloroform.

As for the "loss" on the stack... well, measuring specie in dollars negates the whole idea of holding real money in the first place. Tell him he needs to grow up and lose that "stinkin' thinkin'."

Thu, 10/30/2014 - 15:27 | 5395172 Philo Beddoe
Philo Beddoe's picture

Yes, you have been duped. I am a member of the same club. The Dupeteers. 

Thu, 10/30/2014 - 15:35 | 5395198 Bemused Observer
Bemused Observer's picture

No matter what road you take, there's ALWAYS some great scenery you missed by choosing it over the others. You can either stand there and cry over what you missed, or you can sling your 'stack' over your shoulder and get moving towards your goal.

Thu, 10/30/2014 - 15:42 | 5395229 Uber Vandal
Uber Vandal's picture

Up is down.

Black is white.

The sky is green

The grass is blue

Clear enough for you?

 

Thu, 10/30/2014 - 15:41 | 5395230 nightshiftsucks
nightshiftsucks's picture

Tech bubble,housing bubble.....whats changed ? Now it's a bond bubble.

Thu, 10/30/2014 - 16:14 | 5395339 armageddon addahere
armageddon addahere's picture

Well I have been reading ZH since 2009 and not a day has gone by that they weren't predicting disaster and an imploding stock market. By listening to this bullshit I have missed one of the great bull markets of my time. Govern yourself accordingly.

Fri, 10/31/2014 - 11:30 | 5398483 astoriajoe
astoriajoe's picture

Clearly, no matter what the markets do, this is one of the most interesting times in which to be alive.

Thu, 10/30/2014 - 17:04 | 5395466 astoriajoe
astoriajoe's picture

Show him the story of the Jefferies broker yesterday.

If that's what he wants, leave him.

If that's not what he wants then just tell him to relax.

Fri, 10/31/2014 - 18:51 | 5399995 BigJim
BigJim's picture

 Have hit my limit - Have read ZH for a while, but don't post too often
Can someone please tell me if I have been really duped here. Told hubby we need to get out of market, start stakin. Now I have to continue hearing how much we DIDN'T earn, and how much we have lost on the stack!!!! friggin great!!! and tonight should be even better...
Is this a lesson for me to not try and understand  whats really going on and read comments on the Internet. NONE OF this MAKES SENSE!

HELP, BEFORE I KILL HIM JUST TO SHUT HIM UP!

Tell him he's lucky; you'd ordinarily leave a man who was stupid enough to take investment advice from his wife.

Thu, 10/30/2014 - 15:30 | 5395180 Bemused Observer
Bemused Observer's picture

The business cycle cannot complete unless asset prices correct after the run-up of credit expansion. The Fed has thrown a wrench into the gears, hoping to stop it, but stresses have now extended throughout the system. And the wrench (QE) is now firmly wedged in and can't be removed without breaking something.

Well, that's what happens when you hire idiots to run your expensive, fragile economic machinery.

Thu, 10/30/2014 - 15:33 | 5395191 Raoul_Luke
Raoul_Luke's picture

The crash is caused by loose money mispricing assets. The depression is cuased by Keynesians thinking the government has to do something instead of letting the markets clear.  Loose money causes recessions - bad government policy causes depressions.

Thu, 10/30/2014 - 15:40 | 5395227 Fuku Ben
Fuku Ben's picture

QE & GMO Seeds

Poisoning the financial well and killing off the useless eaters. The New Age welcomes you to the planet going Green!

Thu, 10/30/2014 - 17:14 | 5395489 blindman
blindman's picture

....."susceptible" to total control like the money system
which they already have monopolized by law. give up,
it was over a long time ago. stop pretending there is
an economy, a market or a government. all lies.

Thu, 10/30/2014 - 17:14 | 5395490 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

FED policy decision making is derivative of the status quo. The same decision making has prevailed for the entire depression. There is no possible way out of American dollar Hegemony decline and absolute

poverty for the masses in America. The official economy is already broken and everyone except Yellen and Greenspan know it. If you are not part of the 1% you are surplus and will be sold off as such. People and lives have become 'things' to be warehoused in anticipation of jobs renewall by overlords with overarching authority to dictate terms. America sewed the seeds of its own destruction via status quo largesse in the form of pronouncements of FED policy that accurately reflect their personal level of risk taking behaviour. Let the games begin, or should I say slaughter?

 

RINSE & REPEAT [PRESS START]

Thu, 10/30/2014 - 20:07 | 5396046 Goldilocks
Goldilocks's picture

Tears for Fears - Sowing the Seeds of Love (live)
http://www.youtube.com/watch?v=1lx7uguvFzM (6:09)

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