Finally The "Very Serious People" Get It: QE Will "Permanently Impair Living Standards For Generations To Come"

Tyler Durden's picture

When "very serious people" (especially those who work for a company whose executive chairman once ran now defunct Bear Stearns) announce it, with a 6 year delay, they make the Financial Times.

On the other hand, when Zero Hedge said precisely this 6 years ago, it was cast as a tin-foil clad group of conspirators who see the worst in every situation.

What is "it"? This:

The long-term consequences of global QE are likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.

In this case, it was said this week by Guggenheim's Chairman of Investments and Global Chief Investment Officer, Scott Minerd. We are happy that increasingly more "serious people" come to the same conclusion which we posited first a 6 years ago.

* * *

Here is the full note:

The Monetary Illusion

As economic growth returns again to Europe and Japan, the prospect of a synchronous global expansion is taking hold. Or, then again, maybe not. In a recent research piece published by Bank of America Merrill Lynch, global economic growth, as measured in nominal U.S. dollars, is projected to decline in 2015 for the first time since 2009, the height of the financial crisis.

In fact, the prospect of improvement in economic growth is largely a monetary illusion. No one needs to explain how policymakers have made painfully little progress on the structural reforms necessary to increase global productive capacity and stimulate employment and demand. Lacking the political will necessary to address the issues, central bankers have been left to paper over the global malaise with reams of fiat currency.

With politicians lacking the willingness or ability to implement labor and tax reforms, monetary policy has perversely morphed into a new orthodoxy where even central bankers admittedly view it as their job to use their balance sheets as a tool to implement fiscal policy.

One argument is that if central banks were not created to execute fiscal policy, then why require them to maintain any capital at all? Capital is that which is held in reserve to absorb losses. If losses are to be anticipated, then a reasonable inference is that a certain expectation of risk must exist. Therefore, central banks must be expected to take on some risk for policy purposes, which implies a function beyond the creation of a monetary base to maintain price stability.

Global Nominal GDP Growth, as Measured in Dollars, Is Projected to Decline

With a surging U.S. dollar and growth remaining sluggish in much of the world, Bank of America Merrill Lynch forecasts that world output measured in dollars could fall in 2015 for the first time since the financial crisis. Over the past 34 years, this has happened just five times.

Source: IMF, BAML, Guggenheim Investments. Data as of 2/6/2015.


What kinds of risk are appropriate for a central bank? Well, the maintenance of a nation’s banking system would plainly be in scope, given the central bank’s role as lender of last resort. The defense of the currency as a store of value and medium of exchange is another appropriate risk. This was the apparent motivation of Mario Draghi, European Central Bank president, for his famous promise to defend the euro at all costs in the summer of 2012. The central bank balance sheet has proven a flexible tool limited in use only by the creativity of central bankers themselves.

In response to those who argue against the metamorphosis of monetary policy into fiscal policy, one need only point toward the impact of quantitative easing (QE) on interest rates. The depressed returns available on fixed-income securities, largely as a result of QE, are acting as a tax on investors, including individual savers, pension funds, and insurance companies.

Essentially, monetary authorities around the globe are levying a tax on investors and providing a subsidy to borrowers. Taxation and subsidies, as well as other wealth transfer payment schemes, have historically fallen within the realm of fiscal policy under the control of the electorate. Under the new monetary orthodoxy, the responsibility for critical aspects of fiscal policy has been surrendered into the hands of appointed officials who have been left to salvage their economies, often under the guise of pursuing monetary order.

The consequences of the new monetary orthodoxy are yet to be fully understood. For the time being, the latest rounds of QE should support continued U.S. dollar strength and limit increases in interest rates. Additionally, risk assets such as high-yield debt and global equities should continue to perform strongly.

Real Median Household Income Has Been Flat for 20 Years

Despite ultra-loose monetary policies over the past several years, incomes adjusted for inflation have fallen for the median U.S. family. With the benefits of monetary expansion going to a small share of the population and wage growth stagnating, incomes have been essentially flat over the past 20 years.

Source: Haver Analytics, Guggenheim Investments. Data as of 12/31/2013.

In the long run, however, classical economics would tell us that the pricing distortions created by the current global regimes of QE will lead to a suboptimal allocation of capital and investment, which will result in lower output and lower standards of living over time. In fact, although U.S. equity prices are setting record highs, real median household incomes are 9 percent lower than 1999 highs. The report from Bank of America Merrill Lynch plainly supports the conclusion that QE and the associated currency depreciation is not leading to higher global output.

The cost of QE is greater than the income lost to savers and investors. The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.

* * *

Wait, you mean printing money won't fix the world's problems? Unpossible.

Yet what is truly amazing is how many "experts" revealed themselves as useful, if utterly clueless idiots believing that one could create prosperity by printing money.

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TeamDepends's picture

In God we trust
All others pay cash

ratso's picture

Another ridiculous diatribe.

TeamDepends's picture

It says so right there on the bill, er, the Federal Reserve Note.

Stuck on Zero's picture

Don't just blame QE.  Blame Congress for running up unsustainable debt and blame the 0.001% for paying Congress to do its bidding.

fudge's picture

we're gonna keep on stealing from the folks

mvsjcl's picture

What I don't like about the article is that it portrays the central bankers as lackeys of the political class with statements such as, "...central bankers have been left [or rather instructed by the political establishment] to paper over the global malaise with reams of fiat currency." This is tantamount to believing that the cart pushes the horse.

GetZeeGold's picture much QE cash did you guys get?


I personally haven't seen a damn dime of that money.

odatruf's picture

"Don't just blame QE.  Blame Congress for running up unsustainable debt and blame the 0.001% for paying Congress to do its bidding."

Blame voters for sending Congress back at an average reelection rate of 90%+. In fact, the great Watergate election year of 1974 still sent 88% of incumbents back to the House in DC. And the 2010 GOP wipeout of the Obama Democrats only took out 15% of House incumbents.

Sure, sure, I know, anyone who thinks voting matters is a fool. But if even in an historic wave year fewer than 1 in 5 and closer to 1 in 10 stand any chance of being tossed out of office, its not like we've even tried the easiest tool available.



Who was that masked man's picture

Voting, on an individual basis, does NOT matter.  It's sort of like buying a lottery ticket.  Sure, the chances that SOMEBODY will win that $5 million bucks (or whatever) are 100% but the chances that person will be you are essentially nil.  If a large segment of the population can be counted on to vote in an inrelligent, informed, and rational way, sure, change can be accomplished but, like buying a single lottery ticket, the chances of your single intelligent, informed, and rational vote in creating a positive result are also essentially nil.  This is the fatal flaw in Democracy and it is what every politician counts on.  I have not voted in many, many years and I have never bought a lottery ticket in my life.

Not My Real Name's picture

The fatal flaw of democracy is tyranny of the majority -- two wolves and a sheep voting on what's for dinner. The US is supposed to be a Constitutional Republic which protects against such injustices, but it stopped being so long ago.

odatruf's picture

Exactly right. But the other side of the protection against those injustices is supposed to be a well-informed citizenry who are willing to enforce the rules via the ballot box or by other means when needed.

When we have 85-95% reelection rates, even in the face of outrageous behavior, that enforcement isn't remotely close to happening.

Can you honestly blame those in power when every signal they are sent reinforces the idea that they are doing just fine?


odatruf's picture

@Not My Real Name:  I get it. However, just like if you don't play you can win; if enough intelligent, informed, and rational voters opt out, who does that leave voting? I don't play the lottery because I don't need that outcome versus those odds. I do vote every time because I do value those outcome.

Fuck man, just go pull the trigger (opps, I mean ballot lever) for all non-incumbents. In the primary first and then the general. If ZH let us communicate directly or build a community, we could create a ZH voting bloc.

Seriously, get 50-100 people together and you can decide a local race, 500 and you'll control a State Rep or Senate race. Do that a few times and then you'll be sending people to DC.

Who was that masked man's picture

Try it bro then get back to me and let me know how it works out.

odatruf's picture

I already know how it does and can work out: so long as everyone puts an oar in the water and pulls, we do just fine.

Your turn. Don't miss a chance to voice your displeasure.

confederacy of the dunces's picture
confederacy of the dunces (not verified) Stuck on Zero Mar 29, 2015 9:21 AM

And blame the US proletariat for accepting this goverment and corrupt system as sufficing as legitimate.

Mister Delicious's picture
Mister Delicious (not verified) ratso Mar 29, 2015 10:16 AM

"Another ridiculous diatribe."

I'd bet quite a lot that you neither understand how interest on loans works, nor what the Constitution has to say about the issuing power.

crisrose's picture

The Constitution says nothing about debt.  

Federal Reserve doesn't issue money.  If you want to drive a stake thru them, exchange your FRN's for quarters.


RafterManFMJ's picture

He meant nickels, not quarters.

fudge's picture

i guess enteraining pics are not welcome ? ;-(

Squid-puppets a-go-go's picture

Tittytainment you say, eh?

.... can i have an example?

Katastrofenhausse's picture

William, great stuff once again!


The artwork sort of reminds me of WWI era propaganda posters after the  Lusitania sinking, only without the lies.

Freewheelin Franklin's picture

And vodka. Don't forget the Russian vodka.


2084: An Oral History Of The Great Warming - James Powell $2 ebook at amazon 91 pages.

What I see is the economic/social collapse played out with the ecological collapse just coming into view. Excellent.

Gwynne Dyer gives his thoughts on what 2184 will look like in his book Climate Wars

By 2080 we could be at +4 degrees C and '20:84' would symbolize that, the over-population (104%) of humans, and the Orwellian nature of society.


JLee2027's picture

A global debt reset and a currency backed by GOLD solves this issue in years, not generations.

daveO's picture

The cost of QE is greater than the income lost to savers and investors. The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.

This statement assumes the plantation can keep running on a deficit, forever. When no one accepts the plantation's script (IOU's), things will change. If you don't have savings and rely on Uncle Sugar, you may not have a future. So, not counting a few million dead, living standards will go up. /sarc/ Forest overgrowth and fire tells us what we need to know. Fireproof your savings or leave the forest while you still can! 
ekm1's picture

It seems those serious people read my comments on Zerohedge since May 2013 when I declared that QE is harming the economy on purpose and by design.


Well, thank you for recycling my commentary.

kowalli's picture

you need to be stupid to think that printing can solve anything

ekm1's picture

QE was actually designed to do harm.

There was no intention to fix anything.

dexter_morgan's picture

exactly. ultimately, the constitutional republic that was the USA must be destroyed in order to advance the ZWO globalist agenda. a nation that is bound to inalienable truths is a major problem for the ZWO and hence the long war to discredit and shred the constitution in media and academia. 

This is designed to bring them that much closer to their goal

palmereldritch's picture

Take these vulturous lying asshole parasites always at the opposite of their word and their labels.

e.g. Quantitative Easing actually means Ponzi Acceleration

stacking12321's picture

what's your basis for that belief, ekm?

my take is that qe was designed to postpone collapse, so that those in power who are skimming off the top can continue skimming a bit longer.


A Lunatic's picture

Which makes the economy....hmmmm, what's the word we're looking for here?? Healthy........, no, that doesn't seem right.....think,think,think...............uhmm....

General Decline's picture

Sounds like violent agreement. Yes, the are holding off the inevitable while making it intentionally very bad for the general population. I believe they get a charge from suffering. It's a way of paying homage to their god, I suspect.

Evil Franklin's picture

Sounds like Monsters, Inc.  One can get power from scaring the masses.  It's been forgotten or ignored that one could do even better with the opposite.

General Decline's picture

Hollywood often drops subtle hints as to how the world really works. Never thought of Monster's Inc. nice catch.

aerohelo's picture

I agree. QE is a desperate attempt by individuals with an academic perspective, without real world business experience, to stave off economic collapse. Unfortunately their efforts only exacerbate the problem and the end result will be magnified rather than mitigated. I don't believe that Bernake, Yellen, et al, are malignant people bent upon the destruction of the middle class. They're simply trying to manipulate something that is too complex for them to control.

cnmcdee's picture

The people in the federal reserve, the government and the banks do not have to actually accept the fruits of their labor.  When people are laid off or go hungry - they simply watch from a distance and adjust their policies - not to help the common man but to help protect the system.

They care not if a million or a hundred million starve as long as their accounting numbers are protected and the debt is protected. 6000 years ago they started building the pyramids and it was constructed with an endless supply of slaves.  Today it is just the same except the pyramid is virtual.

Our children will live in abject poverty because of the results of these  long term policies and the elite will reply with 'hmmm guess it didn not work - oh well my job / mansion / limo was protected."

It is horrible on the order of a Stalin  / Mao Zse Tung, or Pol Pot.. and it won't be in a far away land it will be here.  Naturally the end result will be war, famine, and the rest of it..  Sad.


Debt-Is-Not-Money's picture

But it's still shown on the reverse of the $1.00 note.

Seeking Aphids's picture

It is really hard to believe that the board of the Fed was unable to understand what those on this site have been saying for years: that QE would do more harm than good. They may not have been trying to destroy the middle class but it is hard to argue that a very serious attempt to save the banks and banksters was not undertaken via QE and ZIRP at the expense of those saving for and/or living off savings for their retirement. Long term poverty for vast swathes of the population is the byproduct of QE.....not deliberate you say? Do you really believe that or are you afraid to consider the implications to your world view if you accepted the opposing viewpoint? All imho.

Fun Facts's picture

QE is a wealth transfer mechanism. From all of us, to the bankster cabal.

These people are not stupid. They are calculating satanic criminals who think they are gods on earth and the rest of the world are sub humans put here specifically to be their slaves.

They would like everyone to believe it's an accident that they have eviscerated the middle class and taken the wealth of the world for themselves over the past 200 years.

chunga's picture

Yes, they sure would like us to believe the results of their actions are due to miscalculations and honest mistakes by them.

Let's put the stolen wealth "mistake" into context by reminding ourselves of another honest mistake they've apparently made. "They" have simultaneously placed all of us into a state of constant surveillance and a complete militarty police state where potentially everything is against the "law".

Thought Crime is now a reality.

If there is such a thing as evil, this is a great example. I have no faith in humanity whatsoever and the meek willl not inherit anyhting but slavery and chains.

Handful of Dust's picture

The Fed board and banker elite know exactly what the results would be but they also know they are dealing with a vulnerable and apathetic population.



chunga's picture

Personally I believe that the vast majority of humans are decent and incapable of evil. In a fair fight evil always seems to win and it only takes few humans to ruin everything.

This probably sounds blasphemous but who cares. It might be a great time for at least one of these umteen deities out there to come along but they seem pretty apathetic too. Nothing else seems to work. 

crisrose's picture

The vast majority of humans are quite capable of evil as long as their televisions tell them their evil actions are moral.