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If Quantitative Easing Works, Why Has It Failed to Kick-Start Inflation?
Illustration by William Banzai
QE Has Failed to Spark Inflation
Quantitative easing (QE) was supposed to stimulate the economy and pull us out of deflation.
But the third round of quantitative easing (“QE3″) in the U.S. failed to raise inflation expectations.
And QE hasn’t worked in Japan, either. The Wall Street Journal noted in 2010:
Nearly a decade after Japan’s central bank first experimented with the policy, the country remains mired in deflation, a general decline in wages and prices that has crippled its economy.
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The BOJ began doing quantitative easing in 2001. It had become clear that pushing interest rates down near zero for an extended period had failed to get the economy moving. After five years of gradually expanding its bond purchases, the bank dropped the effort in 2006.
At first, it appeared the program had succeeded in stabilizing the economy and halting the slide in prices. But deflation returned with a vengeance over the past two years, putting the Bank of Japan back on the spot.
So why didn’t quantitative easing work in Japan? Critics say the Japanese central bank wasn’t aggressive enough in launching and expanding its bond-buying program—then dropped it too soon.
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Others say Japan simply waited too long to resort to the policy.
But Japan has since gone “all in” on staggering levels of quantitative easing … and yet is still mired in deflation.
The UK engaged in substantial QE. But inflation rates are falling there as well.
And China engaged in massive amounts of QE. But it’s also falling into deflation.
Indeed, despite massive QE by the U.S., Japan and China, there is now a worldwide risk of deflation.
So why hasn’t it worked?
Traders Weigh In
Financial commentator, trader, and inventor of high-frequency trading Max Keiser has argued for months that QE’s failure can be explained by the following 4 steps:
(1) QE throws easy cash at the zombie banks
(2) The big banks use the easy cash to speculate instead of becoming more stable … or lending out to Main Street
(3) The speculation and lack of lending decreases the vitality of the real (Main Street) economy
(4) This leads to deflation, rather than inflation
There’s some evidence that Keiser’s right.
Forecaster and trader Martin Armstrong writes today:
The evolution of the monetary system of Rome illustrates how empires rise. It also reflects that the dominant economy’s currency is ALWAYS used by surrounding nations. Consequently, history demonstrates WHY in fact QE1-3 failed to produce inflation for the dollars created were absorbed globally. Theories that only view the dollar from a domestic isolated perspective are incorrect and will always fail for that is not what history teaches us if we take the time to listen.
In other words, Armstrong argues that QE falsely assumes that printed money will stay in the national economy ... but printed dollars end up abroad. He explained earlier this week:
The expansion of the money supply of dollar has FAILED to produce any inflation BECAUSE the old theories have failed to take into consideration the global nature of the world economy and its demand for the currency of the current Financial Capital of the World.
***
The US cannot print enough money to meet the world demands.
There's some evidence that Armstrong is right.
Economists Weigh In
Neither Keiser nor Armstrong are trained economists. But several high-powered economists have weighed in on the question.
Ed Yardeni – a former Federal Reserve economist who held positions at the Fed’s Board of Governors and the Treasury Department, who served as Chief Investment Strategist for Deutsche Bank, and was Chief Economist for C.J. Lawrence, Prudential Securities, and E.F. Hutton – notes that economists including Ben Bernanke have known for 20 years that there is no transmission mechanism by which QE stimulates the real economy.
The Telegraph noted in June:
The question is why the world economy cannot seem to shake off this “lowflation” malaise, even after QE on unprecedented scale by the US, Britain, Japan and in its own way Switzerland.
***
Narayana Kocherlakota, the Minneapolis Fed chief, suggested as far back as 2011 that zero rates and QE may perversely be the cause of deflation, not the cure that everybody thought. This caused consternation, and he quickly retreated.
Stephen Williamson, from the St Louis Fed, picked up the refrain last November in a paper entitled “Liquidity Premia and the Monetary Policy Trap”, arguing that that the Fed’s actions are pulling down the “liquidity premium” on government bonds (by buying so many). This in turn is pulling down inflation. The more the policy fails – he argues – the more the Fed doubles down, thinking it must do more. That too caused a storm.
The theme refuses to go away. India’s central bank chief, Raghuram Rajan, says QE is a beggar-thy-neighbour devaluation policy in thin disguise. The West’s QE caused a flood of hot capital into emerging markets hunting for yield, stoking destructive booms that these countries could not easily control. The result was an interest rate regime that was too lax for the world as a whole, leaving even more economies in a mess than before as they too have to cope with post-bubble hangovers.
The West ignored pleas for restraint at the time, then left these countries to fend for themselves. The lesson they have drawn is to tighten policy, hoard demand, hold down their currencies and keep building up foreign reserves as a safety buffer. The net effect is to perpetuate the “global savings glut” that has starved the world of demand, and that some say is the underlying of the cause of the long slump. “I fear that in a world with weak aggregate demand, we may be engaged in a futile competition for a greater share of it,” he said.
The Bank for International Settlements [the “central banks’ central bank”] says the world is suffering from addiction to stimulus. “The result is expansionary in the short run but contractionary over the longer term. As policy-makers respond asymmetrically over successive financial cycles, hardly tightening or even easing during booms and easing aggressively and persistently during busts, they run out of ammunition and entrench instability. Low rates, paradoxically, validate themselves,” it said.
Claudio Borio, the BIS’s chief economist, says this refusal to let the business cycle run its course and to purge bad debts is corrosive. The habit of turning on the liquidity spigot at the first hint of trouble leads to “time inconsistency”. It steals growth and prosperity from the future, and pulls the interest rate structure far below its (Wicksellian) natural rate. “The risk is that the global economy may be in a deceptively stable disequilibrium,” he said.
Mr Borio worries what will happen when the next downturn hits. “So far, institutional set-ups have proved remarkably resilient to the huge shock of the Great Financial Crisis and its tumultuous aftermath. But could (they) withstand yet another shock?” he said.
“There are troubling signs that globalisation may be in retreat. There is a risk of yet another epoch-defining and disruptive seismic shift in the underlying economic regimes. This would usher in an era of financial and trade protectionism. It has happened before, and it could happen again,” he said.
The Economist reported last year:
Is QE deflationary? Yes, quite obviously so. Consider:
- A central bank that is deploying QE is almost certainly at the zero lower bound.
- QE will only help get an economy off the zero lower bound if paired with a commitment to higher future inflation.
- If a central bank is deploying QE over a long period of time, that means it has not paired QE with a commitment to higher future inflation.
- Prolonged QE is effectively a signal that the central bank is unwilling commit to higher inflation.
- QE therefore reinforces expectations that economic activity will run below potential and demand shocks will not be completely offset.
- QE will be associated with a general disinflationary trend.
Don’t believe me? Here is a chart of 5-year breakevens since September of 2012, when the Fed began QE3, the first asset-purchase plan with no set end date:
(The article then goes onto say that QE can be deflationary or inflationary depending on what else the central bank is doing.)
Michala Marcussen – global head of economics at Société Générale – believes that QE may be deflationary in the long run because:
Excess capacity is deflationary and the means to deal with it is to shut it down. Indeed, we expect China [which also engaged in massive QE] for now to exert deflationary pressure on the global economy.
***
Unproductive investment is by nature ultimately deflationary. This is a point also worth recalling when investing in paper assets fuelled by QE liquidity and not underpinned by sustainable economic growth.
Prominent economist John Cochrane thinks he knows why. As he explained last year:
Here I graphed an interest rate rise from 0 to 5% (blue dash) and the possible equilibrium values for inflation (red). (I used ?=1 ?=1 ).
As you can see, it’s perfectly possible, despite the price-stickiness of the new-Keynesian Phillips curve, to see the super-neutral result, inflation rises instantly.
***
Obviously this is not the last word. But, it’s interesting how easy it is to get positive inflation out of an interest rate rise in this simple new-Keynesian model with price stickiness.
So, to sum up, the world is different. Lessons learned in the past do not necessarily apply to the interest on ample excess reserves world to which we are (I hope!) headed. The mechanisms that prescribe a negative response of inflation to interest rate increases are a lot more tenuous than you might have thought. Given the downward drift in inflation, it’s an idea that’s worth playing with.
Bloomberg noted in November:
Now, the Neo-Fisherites [including Minneapolis Fed President Narayana Kocherlakota] have been joined by a very heavy hitter — University of Chicago economist John Cochrane. In a new paper called “Monetary Policy with Interest on Reserves,” he explains a mechanism by which higher interest rates raise inflation. Unlike Williamson’s model, Cochrane’s model obtains a
Neo-Fisherian result without appealing to fiscal policy. In fact, he finds that in some cases, raising interest rates can even stimulate the economy in the short term! He concludes succinctly:
The basic logic is pretty simple: raising nominal interest rates either raises inflation or raises real interest rates. If it raises real interest rates, it must raise consumption growth. The prediction is only counterintuitive because for so long we have persuaded ourselves of the opposite[.]
Cochrane has a simple explanation of the model’s key predictions on his blog. He hypothesizes that now that the Fed pays interest on the reserves that banks hold with the Fed, monetary policy will be even more Neo-Fisherian — i.e., even more perverse.
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Cochrane’s arguments are based on simple equations that are at the heart of most modern macroeconomic models. If the Neo-Fisherites are right, then everything the Fed has been doing to try to stimulate the economy isn’t just useless — it’s backward.
Now, the overwhelming majority of empirical studies tell us that QE, and Fed easing in general, tends to raise inflation in the short term. But what if that’s at the cost of lower inflation in the long term? Japan has been holding interest rates at zero for many years, and its economy has been in and out of deflation. Massive QE has noticeably failed to make the U.S. hit its 2 percent inflation target. What if mainstream macroeconomics has it all upside down, and prolonged periods of low interest rates trap us in a kind of secular stagnation that is totally different from the kind Harvard economist Larry Summers talks about?
It’s a disquieting thought.
One of the main architects of Japan’s QE program – Richard Koo – Chief Economist at the Nomura Research Institute – explains that QE helps in the short-run … but hurts the economy in the long run (via Business Insider):
Initially, long-term interest rates fall much more than they would in a country without such a policy, which means the subsequent economic recovery comes sooner (t1). But as the economy picks up, long-term rates rise sharply as local bond market participants fear the central bank will have to mop up all the excess reserves by unloading its holdings of long-term bonds.
Demand then falls in interest rate sensitive sectors such as automobiles and housing, causing the economy to slow and forcing the central bank to relax its policy stance. The economy heads towards recovery again, but as market participants refocus on the possibility of the central bank absorbing excess reserves, long-term rates surge in a repetitive cycle I have dubbed the QE “trap.”
In countries that do not engage in quantitative easing, meanwhile, the decline in long-term rates is more gradual, which delays the start of the recovery (t2). But since there is no need for the central bank to mop up large quantities of funds, everybody is no more relaxed once the recovery starts, and the rise in long-term rates is far more gradual. Once the economy starts to turn around, the pace of recovery is actually faster because interest rates are lower. This is illustrated in Figure 2.
Indeed, things which temporarily goose the economy in the short-run often kill it in the long-run … such as suppressing volatility.
Postscript: Quantitative easing fails in many other ways, as well …
The original inventor of QE – and the former long-term head of the Federal Reserve– say that QE has failed to help the economy. Numerous academic studies confirm this. And see this.
Economists also note that QE helps the rich … but hurts the little guy. QE is one of the main causes of inequality (and see this and this). And economists now admit that runaway inequality cripples the economy. So QE indirectly hurts the economy by fueling runaway inequality.
A high-level Federal Reserve official says QE is “the greatest backdoor Wall Street bailout of all time”. And the “Godfather” of Japan’s monetary policy admits that it “is a Ponzi game”.
Note: Financial experts have been debating since the start of the 2008 financial crisis whether inflation or deflation is the bigger risk. That debate is beyond the scope of this essay. However, it might not be either/or. We might instead have “MixedFlation” … inflation is some asset classes and deflation in others.
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In order for hyper-inflation to appear to the masses, wages have to rise in lock-step. You cannot spend $1000 on a loaf of bread if you only have $400 in your pocket.
The only way around this is to borrow the difference.
It is possible to have hyper-inflation without hyper-wages if the masses are willing to accept Ponzi debt at this level, eg:
Get your house revalued as worth an extra ten grand. Use that ten grand to buy some groceries. Next week, get your house revalued as worth an extra eleven grand... etc
Given the way finance is structured these days, and given the sheeples' desperation to keep up appearances in order to appease the expectations of the rest of the herd, I believe the above example is actually possible and probable, even though it is very daft. You might be too smart to put up with shit like that, but when the idiots have emptied the shelves of bread, what is your next move? You may be in a position to grow your own, but not everyone will be ready in time.
Forget working hard and saving money to buy land. For many, their only hope will be to simply walk away from civilisation with nothing. Not many people will be willing to give that a go.
H.I. is a reflection of the loss of faith in a currency. Mexico(1980's) comes to mind. Their currency collapsed because their ability to repay debts was taken down with the oil price collapse(late 80's). Zimbabwe, same thing, after they ruined their agriculture sector. Individuals' earnings don't really matter. It's the foreigners' perception of the country's ability to service it's debt.
Currently, the west is creating havoc with Russia's currency. This, to scare the money out of Russia and into Western banks and bonds. First, they went after Russian cash in Cyprus with NIRP. It's QE thru the back door, and the vampires are sucking at full speed! Russia appears to actually be smart enough to recognize it. That's the start of our hyperinflation, if they succeed in decoupling from the dollar. It almost guarantees another 9/11 (Pearl Harbor), blamed on Russia, about 9 months after the next Bush gets crowned.
They say John Wayne had big body and small feet.
I think QE has big John dead beat on that account.
Central bank manipulations are no more scientific than alchemy manipulations. Full of hope and great expectations and eventually failing. Economists and alchemists both profess great knowledge and fool all the trusting suckers.
Real volatility can only be expressed as full blown anarchy
on a global scale. Ponzi schemes are all-or-none events and when they don't work anymore they implode, simply, as in a domino effect. If the anti-Keynesians think for one second that the whole economic system would stay afloat if the stimulus was removed you are mistaken. Furthermore, the Neo-Keynesians are not exactly speaking up when they must assert that not enough stimulus has been infused into the system to make a difference via trickle down economics. ERGO both the anti-Keynesians and the Neo-Keynesians are completely off-the-mark on macro-economics proper. Lastly, Ponzi schemes implode because they don't work and when they finally give out there is no patch in the World the World that can make them functional again. Since the entire World economy imploded March 10th 2008 @ 11:00am Bear Stearns time New York the so-called 'central banksters' have been operating a shadow banking system to attempt to lend the false view that the economic system still works when in fact it ceased to exist back in 2008. The façade of central banking authority will never gain ground again and most economists today recognize that the entire economic edifice has deteriorated to the point of absurdity. In this respect the Neo-Keynesian vs. anti-Keynesian arguments are futile given the prospect that the entire economic system has ceased to exist anyway. Only the posturing and façade still exist but the global economy is no longer what it was.
Just WHY there's still demand for the $US is questionable..... I guess the Chinese and Saudis are still holding enough that they are willing to keep propping the value up (while converting all they can to TANGIBLE assets).
Wait until the $US starts losing confidence - you can't keep FORCING the rest of the world to keep taking them at the end of a gun forever... when confidence in the $US starts fading you'll see a rush of $US back to the US in an effort to buy ANYTHING of real value (best to overpay by a factor of 10 than be stuck holding worthless paper - and even when the rest of the world stops taking $US, you'll still be able to use them here in the US). When that happens you'll see therest of the world buying up anything they can get in the US just to have SOMETHING instead of paper IOU's. The inflation will make Zimbabwe look sane.
But when a loaf of bread costs $500 BILLION, a national debt of a few TRILLION becomes very easy to deal with. Just don't even TRY to buy anything from overseas. KIind of a real bitch since the US doesn't MAKE much of anything anymore....
Sad thing is I expect those running things think starting WWIII will be a viable option - one that might somehow actually SAVE the US..... bwahaaaaa. Glad I'm due for a dirt nap in a short time anyway.
>>>when the rest of the world stops taking $US...
You're taking the discussion into "the cleanest dirty shirt" hypothesis. Most/much of the world is in just as bad a condition economically as the USA, though in different ways. There really is no rival to the economic-cum-military power of the USA... yet.
Russia-China will, I believe, ultimately succeed in expelling dominating US power from Eurasia, though this process could take years. If Berlin were to align with Moscow-Beijing, the Great Confrontation would be effectively over in six weeks, and the USD and North American Living standards would be, ummm... adjusted.
http://news.xinhuanet.com/english/business/2015-01/01/c_133891830.htm
Small $ value but a trend nonetheless.
I've forgotten the exact quote, but, "After you Break down the walls and the Devil comes for you, Who's gonna PROTECT YOU?"
The Great Ones have eviscerated most common sense financial rules.
Is it any wonder that the Financial markets have not blownup yet?
Look at the ‘traditional’ stuff that’s ignored! Consider what would happen if the OLD Ways came back:
1999 Glass/Stegall gutted, cancelled. Comml banks can use depositer funds for speculation;
2001 ClearingHouse review of Security on Derivatives shelved. Counter-Party Risk ignored;
2002 Issuance of Derivatives contracts goes wild;
2003 Mark-to-Market cancelled. Investment ‘mistakes’ don’t get reported or used in Financial
statements. Losses stay SECRET!
2004 Zero% interest rates on Federal Debt explained as GOOD!
2005 Bankruptcy laws changed. CounterParty failures superior to Depositer losses.
2008 Banks get Bailed out by Treasury/Fed-Reserve for their Stupidness. TBTF widely believed.
Huge failures in Collateral Chains IGNORED;
2009 European problems become much more visible;
2010 Federal Reserve starts buying short term Treasury debt from TBTF banks, QE1;
All purchases at original Issue price, no review of payment timeliness
Disagree? Show how it c/b done with 1 day between 'auction' and settlement!;
2011 No one DARES to look under the sheets to review fianacial adequacy of those purchases;
2012 Obama/Eric Holder say TBTF banks Too Big To PROSECUTE.
Fed starts buying MBS crap from TBTF banks No recognition of investment quality.
Draghi has published a PLAN that ignores these issues as well as the feasibility of ever implementing it. ;
2013 Banks get penny on the $Thousand fines for Civil charges, No Criminal charges;
2014 NEW concerns about CDS on Sub-prime Auto loans from Dave Stockman!
Most High yield ETF charts are in Topping/Downtrend patterns!
Don’t forget the dark pool derivatives universe clocking in at $1.4 Quadrillion with a 'Q'.
http://www.theburningplatform.com/2014/11/20/no-one-told-you-when-to-run-you-missed-the-starting-gun/
This country's planted thick with laws from coast to coast — man's laws, not God's — and if you cut them down... d'you really think you could stand upright in the winds that would blow then?
A Man for All Seasons, Robert Bolt
FWIW Bolt, unusually for an English playwright, was one of the leading Libertarians of his time.
/s
Not to mention the $1.3 Trillion with a 'T' for subprime student loans, eh. Fannie & Freddie are still Gubberment owned too. It is clear to anyone that the American economy is clusterfucked and doomed beyond repair.
I'm starting to think a reset is impossible too.
Did that article actually say Max Kieser was the inventor of High Frequency Trading?
A dubious honor at best, if true.
Yes, but his version just helped with efficiency and price-discovery ... it didn't manipulate markets.
But it got bought out by the big boyz, and now they're using it to manipulate markets.
Max is great...but more of a character. Max says and does lots of things, but left wall street a long time ago.
Fun to watch and listen and learn, but can't say he is some super wiz kid.
I think people don't realize just how dire 2008 was. Without the trillions of QE, bailouts, stimulus, accounting changes, ZIRP, and every other method of trickery- we would have had a complete China syndrome mess. Assets could have been had for nothing. The new owners, people with assets exceeding liabilities, would have bought everything for pennies on the dollar. The status quo aristocracy, fully leveraged, would have been annihilated. Remember Mozilo selling stock like a madman before Countrywide went tits up? They were not about to get wiped out. Wouldn't you have loved to see the great knowitall of Omaha balling like a baby? So all of those programs combined- leveled out deflation and saved our owners.
ZIRP is the last wind beneath our wings. Absent that- shit would get interesting. Fast.
"The status quo aristocracy, fully leveraged, would have been annihilated."
I often ask myself what levels of leverage are considered healthy, by whom, and where
I call BS on all the QE, ZIRP, and NIRP creating deflation. von Mises said it best:
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
Today's deflation was caused by the asset bubbles created 1995-2008. All the alphabet soup of programs has done is prolong and multiply the inevitable collapse. Wind beneath our wings Icarus?
You misunderstand what I said.
All those programs did was disguise how bad things were and delay the sudden onset of deflation. Bernanke knew this would kill them. Instead of the rapid deflation we should have immediately experienced- all of those programs were designed to delay that onset and prop up incredibly levered and bankrupt zombie banks.
I can prove this point. Read the historical charts at the BLS website regarding monthly inflation/deflation. You can see it for yourself. They weren't fucking around. They intervened quickly after only a few months of plunging deflation.
I am a Mises student. You are preaching to the choir. The end will always be the same, right now all we have is a "Weekend at Bernee's" featuring King Dollar and the zombie banks instead of Bernie. One last item.
ZIRP prevents inflation. Once ZIRP goes away, shit gets interesting fast.
QE was to prop up the banksters. End of QE signals, to me, that banksters are now propped, economy be damned. They'll try to provoke a war to distract everyone. Que J. Bush(probably with the attention whore, Carly F.) to lead us against that bad ol' Putin.
Fuck you. Thats not even funny.
"Quantitative easing (QE) was supposed to stimulate the economy and pull us out of deflation."
Ummm, no.
I was meant to recaptitalize the banks.
Ya um right! How many stocks were bought at the direction of the FED to hold and how many congressional aides made money on iside info on what the FED was going to buy and when. Shorting was never so sweet!
Ya um right! How many stocks were bought at the direction of the FED to hold and how many congressional aides made money on iside info on what the FED was going to buy and when. Shorting was never so sweet!
Exactly and it still hasn't worked.
Happy New Year? Here is what will happen on January 1, 2015 : Top Medicare tax went from 1.45% to 2.35% Top Income tax bracket went from 35% to 39.6% Top Income payroll tax went from 37.4% to 52.2% Capital Gains tax went from 15% to 28% Dividends tax went from 15% to 39.6% Estate tax went from 0% to 55% Remember this fact: These taxes were all passed only with democrat votes, no republicans voted for these taxes. These taxes were all passed under the Affordable Care Act, aka Obamacare. If the above is all true how long will small business last.
No doubt all of the forecasts 0f lowered deficit spending were made by hoping revenues increase under higher taxation.............lol
Thanks for paying attention!
I didn't hear a peep from my 'liberal' friends about their being saved from the republicrats.
I hope my 'speeches' about ROTH IRA accounts wakes 'em up at night.
It's ok, my phone's off the hook! heh-hehhhhhh.
Control your destiny or be controllllled.
the answer may not satisfy those who think the fed is omnipotent, but it is likely the Fed was following interest rates lower when they started QE. we are likely in the middle of a deflationary spiral. the fed got out ahead of it, while their discretionary power is very much more limited than we think. if this view is correct they have avoided the bankrupticies, joblessness, and loss of capital that occurred in the first depression.
the real questions is how the distortions and malinvestment get resolved, capital investors are supposed to dump weak financially engineered assets and speculative ventures should be sold to buy productive assets (and stocks should be sold to buy bonds). the difficulty is overcapacity in just about everything. there is no reason to add capex while prices are falling (or add to the bond supply). by sleight of hand the fed kept the obvious effect of the depression from manifesting, while preventing bad debt from being cleared out, and making capital somewhat scarce, thus adding urgency to the need to borrow. credit is still too easy, so the fed has to tighten credit.
tighter credit means more deals are done outside the banks. private equity. its hard to see how they are going to avoid shortages. once the seller sees the profit disappear, the best recourse is to shut down capacity. this reinforces the spiral, and pretty soon no matter how effective your price controls there is no product for sale. QE was the biggest government program to control prices in the history of the world, and price controls always fail.
Thanks for reminding me of the theory that the FED follows interest rates. But then what is the function of the FED? Wouldn't the market fulfill the same function?
The FED's function is steal(counterfeit) from dollar holders, the world over, to enrich a few banks. Their artificially low rates have done nothing but steal from the future. Thanks to the end of QE3, it's just now starting to show up with commodity prices dropping. They need a widespread price collapse to justify the next round of counterfeiting. You don't just jump down a flight of stairs. You take one step at a time.
If you look at the BLS CPI during that time- the spiral was on- you can see it in the historic charts. They stepped in fast.
QE and ZIRP actually kills inflation: The money created goes to banks and corporations, and never reaches the economy. The distortion created by ZIRP makes borrowing for M&A and automation more attractive, killing jobs. This creates slack in the labor market, killing wages. This reduces demand and increases defaults, causing deflation.
Probably the best short description of the situation I have seen. Even a cave man could understand it.
spinone: QE and ZIRP actually kills inflation: The money created goes to banks and corporations, and never reaches the economy.
We have a winnaaaaaaaaaaaaaaaaaaaa!
simpler explanation - the money doesn't represent real human efforts of labor/technology to create something of greater value from a durable resource.
the sick fucks are theives. printing allows sick fucks to live a parasiticle life and they should be executed for theft...
"If quantitative easing works, why has it failed to kick start inflation"?
Uh, because it doesn't work.
it works just fine and as intended.
you just don't happen to be the one,
or of the ones,
for which it was designed or intended.
Fucking hell. They don't mean inflation, they are reading the wrong instrument on the dashboard.
The fuel gauge falling isn't a measure of the movement of the vehicle. If the car has stopped you can't make it run by emptying the fuel tank at some predictable amount to simulate motion.
You see what they did was break the bloody engine and no amount of fuel gauge tinkering will make the car move. All that's happening is petrol getting dumped continually into a fuel tank that has had a hole poked in it.
Now the fuel has gone all over the drive and lots of cash is getting burned up buying it to dump it into the tank. So much cash in fact that the driver is maxing out his credit card in an attempt to get things moving. The fuel station is doing a roaring trade and is busy investing in housing stock, buying his own shares and investing the billions in bigger fuel pumps and giant storage tanks to keep up with the hapless car owner.
It's all MALINVESTMENT trying to cure a problem by recreating an effect. It obviously can never work and will eventually cause so much imbalance, resource destruction and capital erosion that some banker folks will likely end up swinging from there signage in the very near future.
Why this causes so much surprise and discussion is beyond me.
And the banksters are reaching under, catching that fuel, and selling it back to us. They hope to continue until they can foreclose on everything we have.
Yes; this is very good. It's MALINVESTMENT of money that we are forced to use; and the results will be disastrous.
Qe works perfectly to fascilitate continued mal-investment
by a class of controllers over resources, including people and
their labor. it is that simple. it creates near complete dependency
on the issuer of credit. it is the cornerstone of fascism. welcome
to contemporary, human mediated conceptual reality designed
by the "masters" of finance; the banksters. unfortunately,
they care nothing of art, literature, poetry, philosophy, the sacred
or meaningful that comprises an actual human life.
blah blah blah qeqeqeqeqeqeqeqeqeqeqeqqeeqeqqeqeqeqeq
Queue Krugman to explain that IT WASN'T ENOUGH QE
All you need to know about inflation:
1. Your dick gets bigger [inflation]. This is GOOD!
2. The money supply gets bigger [inflation]. That's BAD!......
It's that simple....
Well, like all the big crooks, Ben Bernanke attended Harvard, as did Lloyd Blankfein.
The banksters and government crooks are all Ivy Leaguers. Ivy League schools are the training ground for high-level criminals.
All we need to do is Get the Robots to Spend money.
Then we will have utopia. Fixed.
Ask and ye shall receive: http://fusion.net/story/35883/robots-are-starting-to-break-the-law-and-n...
It seems a web bot was created to go shopping online and purchased some illegal stuff.
Intent: What did the programmers do with the illegal stuff after they received it?
What is the penalty for receiving illegal goods? Similar to receiving stolen goods?
What is the penalty for hiring a hitman?
What is the penalty for allowing your aggressive dog to wander the streets unrestrained?
What is the penalty for ordering your servant to commit an illegal act under threat of dismissal?
What is the penalty for leaving your car in neutral and with the handbrake off near the top of a steep hill?
What is the penalty for discharging a firearm randomly into the air in a built-up area?
I think there will be a legal precedent somewhere to clarify the case.
I;d just like to remind everyone that we had "Stagflation", in 1977; for instance. This word was invented by a newspaper columnist, and became part of the language. It was invented because all the professors of economics insisted that it was impossible to have increasing un-emplloyment, and Inflation, at the same time. Many of them still teach this; as they are completely able to ignore the actual events of 1976-79; for instance. Expecting that they are gong to get a result in reality that comes from their theory; is a little like asking for good results on an engineering project from a madman. In addition; "Failed to Kick-Start Inflation"; be careful what you wish for. Inflation, described succintly by Keanes as a tax on the working class, is of no benefit to anyone you know. It is desirable only for the "financial Industry"; which is kind of a sick joke of double-speak; since they "produce" nothing.
Right ... we don't need real, live people.
meh, people are overrated