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Richard Koo Crushes The QE Dream (In 1 Brief Paragraph)
Late on Friday afternoon, desparate to relive his mid-October 'world-saving' heroics, The Fed's Jim Bullard unleashed some more Fedspeak aimed at the promise of moar money to save the world (i.e. stocks) if things don't work out. But it is his concluding comment that sparked the most 'keyboard-smashing-angst' for those not buying the spoon-fed omnipotence of the central planners. Bullard stated unequivocally that "the lesson of QE is that it works fairly well." While we are not exactly sure what his definition of 'works' is, as the chart below and Richard Koo's QE-dream-crushing commentary shows, by reflating assets by their hand, the central planners are putting the cart before the horse... and Japan is a perfect example of the vicious economic spiral that leads to...
First, let's look at how well QE has worked...
- *BULLARD SAYS LESSON OF QE IS IT WORKS 'FAIRLY WELL'
Hhhhmmm... for whom?
As Richard Koo explains...there is a loss of confidence in Japan’s growth potential:
The percentage seeing “greater potential to grow” slipped from 3.3% in June to 3.1% in September and just 2.9% in December.
Meanwhile, the percentage who think the economy has “less potential to grow” rose from 46.1% in June to 49.2% in September and 53.4% in December.
Have people recognized how unreasonable the reflationists’ arguments are?
Mr. Kuroda and his fellow reflationists in academia have argued that if the portfolio rebalancing effect of quantitative easing pushes up asset prices, the owners of those assets will grow richer and spend more money, thereby boosting the economy.
Ordinarily, it is improvements in an economy’s growth potential that boost asset prices by enhancing the expected profitability of those assets.
In the BOJ’s scenario, however, it is the central bank that forces asset prices higher to enhance the economy’s growth potential.
I think the survey findings confirm a realization among the general public that there is a fundamental problem with that argument, that the BOJ is putting the cart before the horse.
* * *
So there we have it... clear as crystal in words and pictures - printing money to reflate assets in the hope it boosts the economy is fallacious at best and utterly disastrous at worst.
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Mmmm.... Horse meat!
I have to disagree. Percentage of employed population has nothing to do with QE.
Unemployment? Maybe, but not percentage of working population. Sorry ...
HuH????
Nobody iis living off interest anymoar
While I agree the reported unemployment data are not realistic, IMO the total working number would be even lower if there was no crisis and the economy was good.
Because the economy is crap, more people is actually forced to work. Simple as that.
I really dont see any correlation between QE and how many people we have in a work force.
Bodies in chairs doesn't mean shit to me.
Aggregate income or STFU.
?? WB, there isn't, it is simply another graph superimposed over the same timeline to show simply, that if QE were to benefit 'the economy' you would expect there to be more sales, manufacturing, services provided, jobs, which there evidently HASN'T been, ergo, QE does fuck all for most people. Those rich that benefit from QE (I am not rich, but have benefitted from not fighting the fed over the last year or so) will never spend the money gained to raise the standard of living for the rest or improve the economy one iota. Its just another big fat lie for which all politicians, bankers, lobbyists and lizard-people of the soros/rothschild etc variety should hang by the neck till dead.
Unfortunately, the bullshit "unemployment" numbers don't have much to do with actual reality. Surely you know that, right??
The number of people actually IN or OUT of the workforce can't be manipulated or bullshitted. You are either working, or you are not.
Hard to look at that graph and say that QE and workforce size are not correlated.
"unemployment" numbers shit politicians make up. All QE did was make a bunch of bankers a lot of money.
There are lies, there are damned lies, then there is the Bureau of Labor Statistics.
"Median household income was $51,939 in 2013, 8.0 percent lower than 2007 ($56,436), and 8.7 percent lower than the peak in 1999 ($56,895)"
I'd say it did a bit more.
Wow.
QE drains the economy of all interest income, to the benefit of the tyrant classes, gubbermint and the banksters.
As he said, it works for them.
QE had its true effects in floating the market but in the process it created great distortions. When you throw in the cheap credit that led to huge loans for stock buybacks plus financing risky junk bonds and by the time QE ended the negative effects were becoming obvious. People may think the FED may run more QE but at this point it will merely speed up the collapse and the Yellen posse is doing their damnedest to wipe their fingerprints off the murder weapon.
Nikkei goes higher, wealthy Japanese buy houses in Los Angeles and London, invest their profits in U.S. Treasuries, interest rates go negative everywhere, working class gets screwed as usual. System working as planned.
QE was merely a handout to the financial instittions and Big People like Hank, Jamie, Bankfine, and many others. It also bubbled a handful of assets.
Very little actual Grote occurred as a result of QE. So while they created fat wallets for the upper %'ers, they also inflated to Bubble heights houses and stocks, food and health insurance and tuition. The Fed and it's Banker owners did this while annihilating the private sector Middle Class with massive job losses and stagnant wages. These MC people can no longer afford the Fed-Inflated assets. Only the FOF [Friends of the Fed] can.
The real numbers show these things. For example, USA is now rated something like the 12th or 13th most friendly place to start a small business. Horrible!
Why does Jamie Dimon get paid so much?
As the leader of a criminal enterprise he should be in jail.
But he owns so many Congressmen, he gets what he wants. And the rest of the banking mafia loves him for it.
And that, my friend, is why he is "richer than you."
It worked decades ago, but the fractional reserve banking ponzi, where phantom AND SENIOR financial claims on real flows of value concentrate "wealth" and income in the financial sector over time have created bottom up distributional constraints. There is 1 and only 1 semi stable path out of this mess. We can only reflate and reliquify the system through gold.
Tech, What do you mean by "bottom up distributional constraints?"
I think he means that the productive class running out of wealth for the parasite class steal.
What did the other 50% think?
Collectively insane, the world has gone.
An economy styled after crystal meth addiction.
"Things going down hill? Have some more meth!"
I have met a few meth addicts in my life. They get re-wired. Even when they are clean, there is just something really wrong with them. This quote:
is spot on. Maybe the economy needs an intervention.
I have met a few meth addicts in my life. They get re-wired. Even when they are clean, there is just something really wrong with them.
Even before they ever used Meth there is something really wrong with them.
They are generally schizophrenics to begin with.
It is LIKEWISE with the Financial System.
Well befor QE was ever instituted there was something really wrong with it.
It is a Mental Illness caused by a cancerous tumor affecting the Brain. The tumor has been growing now to the point to where it will cause the Death of the organism if it is not removed.
However that removal may even kill the patient at this point...
Federal Reservitis is a very deadly cancerous disease. In combination with an Out of Control Governmentitis the disease cause massive suffering before the final stages are realized.
An intervention, at this point, will prove out fruitless.
Pallative Care seems to be the best regimen to adhere to...FOR EXPEDIENCE' SAKE
I guess thats why lust, greed, and gluttony were all sins before America killed Jesus and replaced him with Jesus...or lobbyists (who I think we also killed and replaced with money speech)...or something like that...
And just like that show 'Intervention' the muppets will rant and rave when it becomes clear the party's over, blaming everything bad in their lives on those who take the QE meth away.
Does the new Congress really have the testicular fortitude to pass 'Audit the Fed', and actually block more QE (if it's in their power to do so).
On a micro level the stupidity reminds me of when back in the late eighties I had to go pick up a Check from the Eastern Airlines office at Reagan National Airport for their ground fuel to be delivered as they were in Bankruptcy. As I was entering the terminal I would see Their pilots in full uniform striking out front for more money. Didnt make sense to me..
And then what followed that was their stupid commercial with the new CEO inside a Hangar with the employees all seated and him saying.
"we're coming back"......!!! hmmmmm
Gotta feel for former-voter Bullard, the would-be centrist, now asked to play market savior for Yellen, as he channels R.E.M.:
That's me in the corner
That's me in the spotlight
Losing my Fed mission
Trying to keep up with Koo
And I don't know if I can do it
Oh god, I've said too much
I haven't said enough
I thought that I heard you laughing
But that was just a dream
We bailed out some Kstreet and Wall Street folks.
Richard Koo is another cynical useless economics hypocrite! All through late 2009 and 2010 he was holding up Japanese reflation as the solution and example for the FED to follow, and pointing out how similar the two situations are and how successful Japan has been.
Has everyone forgotten this? Now he's saying what? That he was really full of shit all along?
Already knew that.
All that bastard ever did was try to make excuses for why toxic zombies could really be lived with, and ignored, and kept at bay with more and more QE.
ie. an ARSEHOLE
UNTRUE.
Koo was OK with QE during the financial crisis. However, he would say,that each successive QE dollar, thereafter, has very low returns and higher and higher costs...exactly what he said in the post above.
Much as most on this site would disagree, Koo is an ardent supporter of government spending in a balance sheet recession, until it subsides (many years...)
Get your facts right.
...so you guys are arguing exactly how big a shitbag he is?
That's productive.
BB, it's a bit rich having to listen to or read Koo talk another load of bullcrap, while feigning innocence and probity while he hands out his next wet load of pro-bankster BS 'advice', that leads into even more stupid choices and actions.
Snake in the grass.
BULLSHIT TRUE!
What I said was correct, all he ever did was make excuses for not fixing the problem, dressed it up in model baloney arguing to allow the mess to fester into a bigger and bigger mess.
i.e. what he now says, above, is occurring.
I suppose you glibly believe US GDP growth figures are real, after whatever deflator is applied, and that the US budget and deficits are real also? Balance sheet recession QE my butt, the private sector NEVER had a chance to come back, the gangrene set-in instead, too late to amputate the dead meat.
All Koo ever recommended was US financial suicide. I read all of his stuff back then, and totally disagreed, knew we'd end up where we are now, and it was obvious even then that he was only about keeping the TBTF system going, to steal and rort the populous, and make the end result so much worse for them. And everyone having to putting up with the mega corruption that followed.
So don't give me the under-grad blah-blah excuse story, he was a cynical misleader, he recommended the very process of QE, which was always going to be QE until you drop, that we're all now in.
That is NOT what he recommended.
His entire point is that in a balance sheet recession is that GOVERNMENT SPENDING, not any amount of central bank policy is what is needed. Again, agree with him or not, that is what he has been beating the table for.
And....private sector never had a chance to comeback? Ha. Their profits are at all time highs relative to the size of our economy and their taxes are at modern era lows....
Again, agree or not, government spending and policy is why those profits have remained high as the bottom has fallen out of employment.
Where do you think the ~1.4 to 1.6 trillion deficit finance was coming from each year?
How the hell do you think the US got to 18 trillion federal debt?
Hint: not from tax revenues.
Koo argued (like Krugman) to spend money the US Govt did not have, so it monetized the debt.
It has been doing it ever since, an the economy did not take off the Private sector has not come roaring back, the system is teetering on an even far worse collapse, and QE to infinity for as long as QE still has some effect at all.
The balance sheets are FUCKED the reflation was reflation of toxic zombies run by criminals in a mark to model terrain and as we see on other posts on the front page it's heading for the shitter once again.
More QE please! There was never an 'exit'.
If reflation works so well on balance sheets, and the economy, in the worlds largest economies, why are global macro trends dieing in the arse for 4 straight years going towards 5 years?
Well now I know you're disingenuous if you believe that nonsense. You can fool yourself with that bullshit but there are plenty of stats put up hear every day that show for instance 92.5 million Americans with no gainful employment. People living on a minimum wage that Rwanda would be proud off, disposable income in the toilet, credit again dieing as well.
But hey, it'll just be for the 'balance sheet recovery' ... just the tip, I promise.
It was a cynical ruse that enriched banking criminals and fucked over the rest, and made a mockery of finance and of balance sheets and of accounting and of economics and of CBs and of Treasury and of politics and of Law.
It was a policy gloss that attempted to sweep the crime of the century under the carpet.
AND IT FAILED.
I don't necessarily disagree with the general point you are making. I was just trying to explain what Koo believes, not that I agree with part of it, all of it, etc.
Again, there is a monumental difference, in effect, between central bank 'spending' and government spending. The former largely supports wealthy people/companies balance sheet while the latter supports GDP/Incomes.
This is where private sectors profits have managed to get to all-time highs.
This is what Koo has said.
This is where Koo has attempted (and I guess failed) to differentiate himself from the Bernankes, Summers, Yellen's of the world that think merely printing money will alleviate all the economy's ills. If you read his latest book, he all but trashes QE.
Good day, sir.
While you are technically correct about Koo's views (he talks about them in his recent book, as you suggest) and the distinction between QE and fiscal stimulus, I think you're a bit stubborn in not acknowledging Element's point that fiscal stimulus on the scale Koo has been advocating is tantamount to QE.
How else could it be financed?
So your technical points really amount to a distinction without a difference. Since you're obviously well-versed on all this stuff, I would prefer to hear your views on the feasibility and the potential efficacy of massive fiscal stimulus without QE. I cannot see it, but perhaps you think differently.
Your question of how government spending can be financed in times such as these is Koo's main point.
As private spending by businesses and consumers collapses it leaves a massive pool of unused savings. And because no one is borrowing, that leaves the government. QE is not the reason why bond yields are low. QE merely shifts money into other assets such as high yield and stocks looking for a return. Bond yields have plummeted since the fed ended QE 3. It's why I've been long treasuries, for what seems like ever now, even as everyone on wall st keeps thinking yields are magically going to rise. The same exact thing happened in Japan.
Everyone always focuses, solely, on what the govt's deficit/gdp is.
There is another important number...private savings/gdp. As this rises is bad economic times, the economy plummets unless the government spends the savings from the private sector. In other words, it 'leaks' out if the government doesn't use the funds. This is what's happening, in say, Spain.
Spain went from a net negative savings rate in boom times to saving 7% of GDP. They can finance their entire budget deficit if the EU relaxed their stupid rules. Again, the bond yields tell the tale. You think that's all in anticipation of QE that Spain can borrow for 10 years @1.5%? No, it's too much savings chasing too few investable assets.
This is poorly written and verbose, I apologize.
Koo made his case years ago, I followed it on zh, at Credit Writedowns, Mish, Naked Capital, and several other places. I disagree with the position Koo put. I disagreed because I could see what it was, what it would do. A thing is what it does.
I totally understand and fully accept spending in recession assists many, and certainly not just business's bottom lines and survival.
The basic problem is a large number of businesses and especially banks should not have been 'rescued' at all, they should have gone completely from the system by now, we should be in a steep sustained real recovery. The US debt problem was already way out of hand. I had done the numbers ten years in advance and could see there was no way out, it was a path to financial suicide. But say you did spend the money it should have gone into a cleaned-up substrate in business and banking. It didn't, it was new wine in old bottles.
QE and balance sheet spending was a failure, the task that was needed was not performed, the result is a complete mess.
The system is in toxic shock today, as a result. I don't want to read Richard Koo's policy ideas ever again thanks. Frankly, public spending in a recession to ameliorate the effects, is hardly an earth-shattering original insight.
Agreed. More warmed-over, neo-Keynesian bullshit from Koo.
But I would love your opinion on why profit margins remain so high in the US, given that you correctly point out that so many zombies were kept in business. We should be in a profits recession acording to your theory. The have also had a dramatic recovery in Japan and the UK, though not so much in Europe.
Of course, investment and capex remains low, so that part would conform to your expectation I would guess.
Perhaps all that QE stimulus just isn't helping new business formation and start-ups. So margins remain stubbornly high even in the midst of stagnation.
For one thing wages and conditions plus staffing levels and hours are all down, and those working are working harder to make up the productivity, so costs are lower, and margins healthier. Plus RE and rentals are probably all cheaper and vehicles are also cheaper, etc., etc.
It's just the economy is porked as a result of the NET of all that, not enough people have enough wages, and they hide real inflation levels and the real unemployment. Plus personal debt prevents the spending of excess because there is basically nothing excess left. Plus utilities are higher. And now people are busy buying online to obtain bargains and spread the dollars further. It all means more efficiency, and high activity, so better returns over all.
But people are broke, demoralized, plus they spend a fortune on new addiction toys, like phones and ipads so the Telcos and ISPs take their disposable out their pockets every month.
I wish I could spend more time on the topic, but am fading out, need some sleep.
Cheers Willard
I'm sympathetic to your view and having read Koo during the crisis and after (like you did) and manning my post on the desk (as you probably did) during the utter chaos of those days, I find his post hoc analysis pretty painful.
But technically, your interlocutor is correct that QE and fiscal stimulus are two separate ideas in Koo's world. As a practical matter, I cannot see how to do one without the other, so I see it your way.
Of course, our critics are going to say that the massive deficit spending before and after the crisis was just "misdirected" in the US. They will also say that more stimulus in the EC and less "austerity" (though it never happened) would have worked.
My faith in bureaucrats to engineer a stimulus-driven recovery after having driven the world into disaster with the help of bankers was low then and is even lower now. But of course, we cannot prove our case. So guys like Koo continue to get a sympathetic audience.
Agree, it's a distinction people don't much appreciate. I had the advantage of having read some of Koo's earlier papers, at that time.
One thing to keep in mind is that in Bush's last budget, the deficit pre-Lehmans was in the order of (I'm getting hazy on the then reported figures) ~$740 billion, before the emergency spending, and that deficit was almost double his previous deficits.
i.e. The US federal spending picture was already an economic Frankenstein before Lehmans or Obama came along. The result was revenue shot to bits with frenetic spending.
But was that not enough wonton spending?
For all the advice Krugman gave, in 2010 and 2011, I don't think any one even listened to him, I don't think he even made a bit of difference, the deficits were already huge and monetized, and they didn't get any bigger from there.
And I suspect that Koo also had no actual impact, at all, other than the PR snow-job. The system was already getting as much QE as it needed to monetize any deficit demanded. So yeah, I condem Koo, but the system was already a goner, and the way to fix it took balls and honestu which no one had (and certainly not Obama or anyone else in Washington, then, or now).
Well, his philosophy is perfectly suited to modern "democracy".
Neo-Keynesian "stimulus": Benefits are broadly distributed, pain is deferred and when experienced, broadly distributed.
Real reform creates real losers: bureaucrats, bankers, welfare recipients, public-sector unions etc. Pain is immediate. The winnings are broadly distributed amd gradual.
Which do you think is more appealing to policy-makers? As you've suggested, the former. So we get more bullshit from Koo, Krugman and their fellow travelers and the politicians flock to this new orthodoxy.
The real economy is another matter altogether. It works on the principles of Thermodynamics, with which I'm afraid Koo and his acolytes are unfamiliar. They are about to get a lesson.
I wish your view was correct, it would be far easier if it were.
Look, we had 100% of GDP of assets liquidated between 1929-1933, the government being small and ineffectual, and the economy fell by 46%. Almost half! And it took 15 years and Hitler to return to semblance of 'normal'
Meanwhile, Japan saw 300% worth of assets to gdp destroyed in its crash and it's economy did not fall. Why? Obviously, because of government spending to maintain income and BOJ to attempt to prop asset prices. Koo's premise, based on what I just wrote, is that Japan's economic policy, by and large, have been successes, not failures as everyone else suggests.
This idea, like Mellon, letting everything 'liquidate', and the economy will be back on its feet again in 18 months is beyond quixotic. The bottom line is takes the better part of a decade for a balance sheet recession to reside....Again, until the private sector wants to spend/invest and stop only borrowing money for stock buy backs, the economy will be in a malaise.
Look, we need structural reforms. We have for 30 years. But letting the economy fall by half is not the way to do it. The idea that Latvia or Estonia did it is irrelevant. They're tiny countries, that A. Aren't actually doing well, and saw 10% of their population emigrate.
So then explain the US recovery after the 1920 great recession. The government did nothing and things bounced right back. Never mind the popping of bubbles since time immemorial. I guess we'd still be in caves without fiscal stimulus.
I wish your view was always correct too.
Regards!
The 1920-1921 mini-depression is definitely an interesting case as it was short lived and before the era of big government.
What to make of it? I'm honestly not sure.
My opinion, I guess, is this. The FED raised rates as the government wound down spending after the war to choke off inflation...because of said war. This combination tanked the economy. I put this more into the Volcker raising rates camp of an economic slowdown than the systemic banking crises with Lehman. So,to me, that's a big difference. It was just a deep recession, but not one caused by a financial crisis, so the economy healed much faster, naturally, unlike now.
The one aspect of the 1920-21 deep recession that intrigues me has to do with the farmers, who got crushed by it, more than most. Obviously the govt bought all they could from farmers during the war, to feed Europe/Russia, leading to spikes in real estate values which they, naturally, borrowed against. As of result of the govt stopping these purchases along with the FED raising rates....farmers got CRUSHED.
This is the takeaway for me. As good as the 20's were, they sucked for farmers who sat on overvalued land and low commodity prices.
This is one of the reasons stated, that Ben Strong kept rates lower than he should have in the 20's.....the political angle of helping farmers (obviously a much greater share of the economy back then) that helped blow the wall st bubble and subsequent crash as opposed to facing the William Jennings Bryan populists out West if he raised rates.
Again, the 1920/21 recession is interesting to me because of its ambiguity and it's consequences. There was a book that just came out on it that I keep meaning to remember to read, can't remember what it is titled.
Jim Grant has just written a book on this period. I've heard several of his speeches on the subject. You can "youtube" them.
Adam Tooze also has just come out with a book on this period. He is the very excellent historian and author of the definitive work on Hitler's economy. His book on this period is titled "Deluge". It's sitting on my shelf now and maybe he will convince me that your view is correct, though I'm symapthetic to Jim Grant's point of view.
I hope you will at least agree that very bright people are still trying to figure out the 1920 episode and the Great Depression. A wise man is humble in light of this. Perhaps Koo, Krugman et al. should at least admit that overwhelming intervention may not work.
Also, it's worth contemplating the evils that attend a government that has enough power to mount such a stimulus. It never stops with just stimulus you know.
I'll give that book a look, thanks. And, yeah, like I said, the 1920/21 recession is incredibly interesting.
Been 6 years, so Koo's ideas are valid for another ~4 years? Sorry, think not, though I have no doubt substantial deficits and their monetization are here for as long as QE still has any levitating effect left in it. Downturn and recession will be the norm until USD collapse, no matter what deflator or UE number they wish to pretend with. A system deleveraging cycle has not taken place.
QE is now also the bedrock of the whole toxic zombie casino, which dare not mark to market, and with no exit there either, just stringing it out for as long as possible.
If there's one thing that can be said about the SNB manipulation's failure, is that mark to fantasy does not cancel out reality. The failure to deal with the debt, is going to kill those balance-sheets anyway and currently is doing so. More to come.
I've been on ZH since the beginning. That should clearly demonstrate that I don't think all is well and believe "Obama is not getting the credit he deserves..."
Employment rates at 38 year lows
51% of American children....FIFTY-ONE live in poverty.
Wages have been flat for 35 years and have decreased by 8% under Obama.
Meanwhile stock market is at all time highs......
My point, and I think Koo's, is that no matter what, we were in for a rough 10 years. It easy for the opposition to say otherwise and offer only to 'burn it down' as a remedy.
Until I hear a better remedy than 'burn it down', I'm not going to criticize people who promulgate different views, whether or not I agree with them notwithstanding.
You seem to accept buying time for an even bigger mess once the QE levitation no longer works? Then what?
Did I say burn it down? Nowhere.
I did say, "... should have gone into a cleaned-up substrate in business and banking. It didn't, it was new wine in old bottles."
That essential task was not done the massive failure and corruption were papered over instead, with Koo's road to nowhere was the touted window dressing of the smooth-talkers and MSM schmoozers.
When root and branch reform was what was required and was stymied by the assertions in the MSM that QE reflation and spending would fix all. It fixed nothing, but it did make the situation much worse and reduced the options and time left to run.
Both Evans and Bullard would look nice in prison orange shackled.
...or hanging from the lions on Memorial Bridge into D.C.
% of emplyed population - Down
Price of gasoline - Down
Birth Rate - Down
Wages - Down/Flat
Number of businesses closing greater than new businesses being made.
Global Demand for energy - Down
If humans were being scientifically observed as a culture farm, one would be inclined to look for contaminants in the food and water that is causing such drops in birth rates/motivation.
Its like you wake up one morning and all the ants in your ant farms decide to do nothing and the population of ants is not going up even though there is a ton of food.... something has to be wrong with your ant food if all your ants suddenly become lethargic.
Oh c'mon, QE has worked WONDERS for Japan. In fact, if you compare the price of gold at the 2011 highs you'll find that 1 troy OZ cost around 155, 650 Yen and today? 149,700 Yen, a mere 4% lower than the 2011 highs. QE has worked wonders for the price of bullion!
The dominos are getting very wobbly, the next gust of decoupling and there they go. All the un-feds horses and all of their men will not be able to stop it, or put it together again.
They will hang on to the grand illusion until the bitter,bitter end, of that we can be sure!
FUBAR!
Oh, the Perpetual Motion Money Machine:
if the portfolio rebalancing effect of quantitative easing pushes up asset prices, the owners of those assets will grow richer and spend more money, thereby boosting the economy.
I think what he really meant to say was it's working well for the top 1%.
QE is an untested academic fairy tale. It has an asymmetric outcome however. It does nothing to the real economy but if it ends or fails it will cause for sure the deflation they try to prevent.
From the clip "princes of the Yen" we can learn why. You can create a dollar but not the destiny for that dollar i.e. investments, consumption or speculation. That is were mainstream monetary theorie fails.
QE is now a tool for special interest groups like the financial sector to stay alive and a tax to working people.
No worries the horse is already dead the cart done ran it over.
"printing money to reflate assets in the hope it boosts the economy is fallacious at best and utterly disastrous at worst."
Well yea, but that certainly doesn't mean they won't continue to do it. Got to keep the angry people off of the streets for a while longer.
"In the BOJ’s scenario, however, it is the central bank that forces asset prices higher to enhance the economy’s growth potential."
I must have missed this part of central bank governance, or else they skipped it when I was in grad school. I assumed that central banks were just tasked with controlling interest rates and currency, my bad.
I also must have missed the part where central banks were required to telegraph there actions before they announce them, so speculators were given fair warning(SNB).
Me too. But we're getting older and we will see more strange things before our days are done.
The issue is that once folks accept the almighty status of Central Banks, the notion that Central Bankers must be predictable, give forward guidance and otherwise play by the Marquis of Queensbury rules follows like night follows day.
One of the worst aspects of QE is that it rewarded the very people who were most complicit in the subprime/housing crash and punished those who refused to take part in it.
And it continues to this day and will probably continue for decades.
It should be criminal, but 95% of the population seems to think it's moral for governments to take money from some people and give it to others.
Even some zh'ers suddenly lose their integrity when it comes to the idea that their own subsidies might be cut. Farmers being the worst example, but pretty much everyone starts to cry when their own free ride gets threatened.
The problem with the idea of increasing asset prices to increase spending is that the revalued asset does not really generate any more net income. The simple example is prices of bonds. That 5% coupon UST issued many years ago may not trade for 150 but still generates the same income. If I sell for the 150 and reinvest the after tax proceeds I will get less income. Not much difference really in a lot of other income generating assets.
Profits for whom?
The hedge fund manager in your example takes 20% of the profits from par to 150. The banker pays himself a bonus on the profits. The borker takes a commission as you struggle to pay your expenses in retirement.
QE is not about you or me Augustus.
An ice cube tossed in here and there (e.g., free community college) keeps the boiling frog feeling cool and happy.
"Yesterday I was talking to a couple of people from the Fed, who don't want to be named and they said we have never been here before. We really don't know what's going to happen next."
- Janet Tavakoli
6:00 minutes into the interview
https://www.youtube.com/watch?v=Djudh9maiEY
QE created the latest oil boom.Now she's busting.The ramifications are coming through the Markets now.Gold reacts quickly for various reasons.
http://wolfstreet.com/2015/01/13/how-wall-street-profited-from-the-oil-g...
https://www.bullionstar.com/blog/koos-jansen/guest-post-i-have-a-theory-...
Watch for the coming S&P drop which is way overdue.They'll pitch the bad earnings but the truth is that the so-called recovery has been just "a mirage" of low paying service jobs.