This page has been archived and commenting is disabled.
Finally The "Very Serious People" Get It: QE Will "Permanently Impair Living Standards For Generations To Come"
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.
»
- 81445 reads
- Printer-friendly version
- Send to friend
- advertisements -
Awesome article, the polar opposite of that horse feathers(!) article yesterday on Golden Rice. Congrats Tyler. Now get to work!
Like dozens of Acts that do and are the opposite of what they imply, Patriot Act for example, QE is a form of inflation and simply robbery by dilution.
The fact that so many can be robbed in broad daylight by simply giving it a pretty name speaks for itself.
QE = Robbery.
Monetary stimulus = Robbery.
Inflation = Robbery.
Deficit Spending = Robbery.
Entitlement = Robbery.
Tax = Robbery.
ZIRP = Robbery
Liquidity Injection = Robbery.
Central Bank = Robbery.
and so on...
If you get on your knees....maybe Nancy Pelosi will give you some TARP money.
God, I did not need that visual BEFORE breakfast
I don't understand why the people did not go postal (or co-pilot) over QE, since it was obvious it was to save banksters' rear ends.
most people are not savers so they didn't feel any personal effect. It has totally fucked me and I want to see everyone of these bankster fuckers hanging with their dicks cut off and stuffed in their mouths
Tell that to the Japanese people who have been going though this for years...
The thing about this is it has nothing to do with economics, it is common fucking sense. So to give any meter whatsoeve to unintended consequences is just bullshit. We have gone full retard into a bread and circus economy and it in all likelyhood will never recover from it. Add to that the manical greed of the uber wealthy (which is what they have done for so long and has worked so well for them in terms of buying their local politicians) and death of our economy is near certain. You can talk to uninformed but serious people on the street and they know something is wrong and are preparing for some drastic social collapse. Shit,, for the mioddle class this is total economic collapse. It is here now. And I love to hear Bath house barry's concern cross his gay lips for sure. Our representative government has failed us miserably and the clock is ticking as to how long this will go on before the masses figure out the whole game is rigged and decide to do something about it. Game over.
If you look closely and look with a different set of eyes, it's easy to see that Fb is nothing but an unending questionaire about what you like, or more importantly what you would like to have instead of a functioning representative government. Iwatch is the absolute epitome of something shiny for the masses to keep them pacified. I see it already as a symbol of control. Wear this shiny object and it'll report data forever back to your handlers. Much like someone would tag a wild animal to keep track of its wanderings, however this is much more evil. The attempt here is to fleece not even you but your children. Nothing will say I'm dumb as a stick as someone wearing a brand new shiny iwatch. Shiittttt
C'mon. "Duh".
We must euthanzie the sick, disabled and aged who do not have a support network right away.
The motto needs to change, “You ain’t out problem!” is fine.
Humanity often enters the future by first going down the toilet like excrement.
Its happened so often in the past : Caesar, Genghis Khan and all those others including Kaiser Wilhem and then Hitler.
With WW2 and Cuban Crisis we have reached a watershed on military front : Its no longer "to the victors the spoils"; as now Man's overkill ability has stymied his imperial urge. Meanwhile the Empire cheats small time via asymmetric wars picking on the small "fall guy". But its a game of diminishing returns like in Syrac/Sahel, like in Afghan/Nam before for the two super powers, who both bit the dust in their knee jerks to sell war to suckers.
With the Peak cheap energy asymptote and peak planet degradation we have reached another new watershed : Our consumerist/capitalist society can scrape out little productivity gains based on the Pax Britannica cum Pax Americana twin industrial/post industrial old paradigm : Whats good for East India Company/GM-Exxon-MIC is good for the world all fueled on cheap fossil fuel oil and cheaper slave labour ! That is now crumbling right in front of our eyes like Caesar's empire, or Charles V's "the sun never sets" type vision that Q Victoria cut and pasted into "Britannia rules the waves" days. As in the meantime our new planetary masters decided to enrich themselves on other people's oil and other people's labour; not a good way to sustain an empire if you alienate your own people along the road. Now "the natives are getting restless" all over the world, on all continents, as its the 1% vs the 99% on a global scale that defies national boundaries and cultures.
Whence the new asymptote of fiat money Hegemon meeting his Nemesis, in drowning debt strangulation of consumer spend/save to re-ignite the Promethian flame of past glory.
Our current crisis is harbinger of a new way to live which must incorporate a new vision of economic growth where the two levers of growth find a new definition : sustainable non polluting renewable energy and non deblititating labour utilisation based on a new division of profit sharing.
But like I said : we have to go down the toilet shute once again. Oligarchs don't like to lose their purple clothes and the right to decide who wins, who loses in the hunger games played out daily in their imperial Colosseum; until it gets burned down in flames by the new barbarians, for want of Empire's ability to reform the old paradigm to a new one (or by the inevitable rise of a new oriental empire to outshine the West that's had its day and eaten its cake).
Its one or the other. Entropy maximisation is a bitch. So teaches us that other bitch : cold eyed History; Nemesis to house of Atreus, ever since Cassandra prophesied it would end that way.
Oh, THAT Scott Minerd.
Well, everyone knows he's just a tinfoil hat loony.
http://uk.reuters.com/article/2015/03/23/uk-swiss-snb-imf-idUKKBN0MJ0YP2...
And the IMF recommends the SNB to conduct quantitative easing to weaken the franc. They need another Central Bank to continue the useless shit they started to keep the markets going a little longer. If Jordan had wanted to fall into the IMF trap he would not have abandoned the franc floor.
They don't, really, think they're creating prosperity. They know they're supporting big banks at the cost of everyone else. The only thing that matters, to them, is supporting the .01%, America, Americans and the dollar be damned.
Jim Willie says supply lines will be cut and the implication is Americans will starve.
if nothing else, a question that should have been asked of the quasi-Keynesians like Krugmanbearpig is - what happens if 3 years into a 'revcovery' things go south again, what is your answer?
More deficit spending, of course.
So, the whole worldview is dependent on a long term multi-year recovery that is less and less certain as manufacturing leaves, unskilled immigrants arrive, and the dollar's reserve status is eroded.
A second question is- at what point does the debt service itself endanger any putative recovery? We're already at about 10 cents of every dollar of tax revenue going to debt service, and while a good chunk of that is staying in the country, to be recycled as more debt and interest - why does that help the productive economy?
A third question is - even if massive debt doesn't prevent a recovery that otherwise would have happened, doesn't a massive debt act as drag on the economy and prevent new investment?
I'm no econ pHd - but it seems to me that very basic questions would cause one to have great concerns with an economic worldview [and it is a worldview, not a science] in which government spending is somehow more productive to "the economy" than private spending {I'm sure one can cherry pick data to make it seem so, but any model which is premised on government taking my dollar to spend because its better for growing the economy than me simply spending what I have after being taxed is prima facie absurd - I'm more likely to spend the cash wisely, and locally than I am to spend on bombs and bullets for a putsch regime in eastern europe....
Hence, maybe, the juvenile and shrill objections that come out of Krugman and his disciples. We arent just wrong, and dumb - we are morally depraved.
But where's the bloody evidence that QE and bailouts did anything at all but enrich the same banks even as wealth and income disparity has grown.
Phrased differently - what evidence would actually suffice for the Keynesian Cult to begin to wonder if perhaps they...might be wrong?
Above it all, one fact remains concerning the Aldridge Plan: It was intentional.
The Octopus drawing and the cover of Crozier’s book explain how this attack on America was known to anyone willing to listen. And, now, 100 years later, this attack has gathered-in the American economy, its future and its people.
The Octopus’ tentacles wrap around the Treasury where handpicked criminal Jack Lew presides… it wraps around the Capitol with its prostitute Congress, and the White House with its latest banker puppet… it reaches to envelope the banking system and the farms to represent America’s private property, and last, but not least, it clutches American industry.
The cover of the book nails the intent: Corporation Currency. What fool could miss this wholesale assault on America; an assault worse than any military attack our country has ever experienced? What fool cannot see that the banking cartel plan Aldridge put in motion with the Rothschilds, the Kuhn Loebs, the Rockefellers, and the Warburgs was to steal from generations of Americans to put themselves in position to control the world: its people, its resources and its future?
The attackers were foreign and their co-conspirators were treasonous Americans; from the first the diabolical system began to suck the life from every institution and resource in the country. But now it’s different. The cartel has pushed America into a box canyon where it will surely perish unless it fights. And, now, with a Fed system that’s unraveling, when the Fed is in a state of confusion taking Draconian steps to try to save what it’s captured, America must take the sword to these master criminals and push them not only from our shores but from the world.
We must kill The Octopus.
I hope you're not betting on thigns actually happening that way,
I think there is something scarier than "QE will permanently impair living standards for generations to come" and it's this...
QE will permanently impair living standards for generations to come, there's ZERO doubt about that! What scares me more is that, the 1%ers will not ACCEPT lower living standards. They just don't know (or will not?) how to deal with that. Which means, they'll have to do a "mini-QE" of their own. That means getting a liquidity boost by taking from you DIRECTLY! This will be in the forms of bail ins, precious metal seizures, tax rises, etc. Face it, any wealth you have they're going to it, they're going to get it all.
THIS is what scares me. This is going to be their final push in order to totally impoverish us. They are going to throw the kitchen sink at us (no doubt it'll be MY kitchen sink, the thieving swines!). They're going to declare war on us. Everything that has happened so far has just been a warm up, THIS is the main event.
I don't want to make this sound like a call to arms (I'm a liberal UK citizen, we don't like guns! ;O)) but sometimes you have to defend yourself against these swines; be that, your wealth, your resources, or whatever. That time, I think, is now...
P.S. Sorry if this sounded a bit "I'm mad as hell and I'm not going to take it anymore!", but sometimes you just get pushed to the brink....!
"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"
Bailing out the Banks and implementing QE is the equivalent of having production line employees show up for work drunk, giving them more booze, and after they pass out, promoting them.
'Aldrich' Ames...?
Senator Nelson Aldrich.
Ames was the traitor, still in prison.
"In the long run 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.
We're a very long way from "optimal" allocation of capital and investment. With so much labor sitting on the sidelines, you don't need much more than a shovel in the way of capital.
And just how optimal is capital and investment allocation that goes to implements of war and the cleaning up thereafter? How optimal is capital and investment allocation that goes predominately to drugs and medical care but achieves the same results (actually poorer results than) if nothing were done?
Our economic knobs don't need fine verniers. They need to be watching the proper inputs and adjusting the proper flows to even be useful, let alone "optimal". Actually, they need to be left totally unattended and let things stabilize in a natural fashion.
These knob twisters need to get a clue. When you don't know what you're doing, doing nothing is a very good strategy. This "losing sight of our goal, we redoubled our efforts" nonsense must stop.
For all you yongsters,and senile old folk; Back in the 60's,an electrician,plumber,or carpenter,made as much money as a professional football player..A 15 year old working at McDonalds,or a migrant farm laborer,made as much as a government employee.High school kids rented their own apartments (in the San Fran Bay Area),just by working part time jobs..No,most Americkans really have no clue just how fucked up this country has become..
No, there are no true shortages. Financial chicanery does create artificial shortages, which are of course entirely intentional.
The control of currency printing is the chief method of enslaving the masses since outright slavery has become untenable. We are all slaves to an oligarchy that also owns the government.
Currency has become slavery.
Government enforces slavery.
In other words common people not Jews or Royalty will be shoveling their productivity by the buckets full throughout eternity to the other people who are born Jewish or Royalty. Doesn't seem fair.
John Adams (1734-1826),
First Vice President and Second President of the United States, supported the first PRIVATE "Bank of the U.S." - but he NEVER trusted banks or bankers.
“I have never had but one opinion concerning BANKING. They [banks] are like party spirit, the delusion of the many for the interest of a few.” - John Adams in letter to John Taylor of Caroline; Quincy, Massachusetts, March 12, 1819 as cited in “The Life and Works of John Adams”, 10 volumes, (Charles Francis Adams, Editor); Boston, 1850-1856, X, Page 375
No they DON'T get IT.
And no you don't get it Tyler
QE and ZIRP kept the world from collapsing in 2008 --- and these policies continue to delay the total and utter collapse of civilization.
You want QE stopped --- good luck with that --- get ready to eat grass and bark.
WE HAVE PEAKED ON CHEAPLY EXTRACTABLE OIL.
I will repeat that for the 'serious people' (such people have the hardest time understand this because they have the most to lose) - WE HAVE PEAKED ON CHEAPLY EXTRACTABLE OIL
QE and ZIRP have made shale oil possible - which has bought us 6+ years without collapse. Anyone who reads ZH would know that the shale story is hype, a ponzi scheme, dotcom mania all over again --- and that this type of oil production will not last much longer.
AND THEN WHAT? The world runs on OIL - and that oil MUST be produced cheaply.
HIGH PRICED OIL DESTROYS GROWTH (see $147 oil 2008)
According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf
THE PERFECT STORM (see p. 59 onwards)
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf
OIL BECOMING TOO EXPENSIVE TO EXTRACT
It emerged this week that the drilling of wells in the North Sea has crashed by around 50% this year, compared to the year-ago period. The reason for this is simple: the cost of extracting oil in North Sea has quintupled over the last decade, discouraging companies from investing within the region. http://www.fool.co.uk/investing/2014/07/18/surging-north-sea-project-costs-are-putting-the-regions-future-at-risk-tullow-oil-plc-premier-oil-plc-xcite-energy-limited/
The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth. http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/
Sanford C. Bernstein, the Wall Street research company, calls the rapid increase in production costs “the dark side of the golden age of shale”. In a recent analysis, it estimates that non-Opec marginal cost of production rose last year to $104.5 a barrel, up more than 13 per cent from $92.3 a barrel in 2011. http://www.ft.com/intl/cms/s/0/ec3bb622-c794-11e2-9c52-00144feab7de.html#axzz3T4sTXDB5
Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120,” he said
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html
HELLO SERIOUSLY (FUCKING DELUSTIONAL) PEOPLE --- YOU ARE FUCKED ALONG WITH THE REST OF THE 7 BILLION OF US RATS THAT HAVE OVERRUN THE PLANET.
GET IT?
Best post I've seen in awhile. QE is doing EXACTLY what it was supposed to do.
"QE was actually designed to do harm. There was no intention to fix anything."
Probably the stupidest comment ever posted on ZH.
Worthy of IDIOCRACY
So let me get this right --- I am a billionaire --- and I want the Fed to pump up bubbles so I can pocket a few billion more -- with the end goal being to blow the economy to pieces.
Hey - when the global economy blows to pieces what happens to me and my billions?
Duh. That doesn't sound like a very good idea to me.
THINK YOU FUCKING DONKEYS!!!!
Do you think these guys are stupid --- or might there be another reason why they are committing suicide (I have given you the reason so you don't even have to think)
well i don't even have the illusion to be richer.... it doesn't work or what ?
It's not that some now "get it", despite what they want you to believe... it's that many of the elite are coming out now with these warnings to try to frame the narrative as that they just realized it, but are rushing to tell the people (conveniently too late) because the know the jig is almost up and they don't want the pitchforks to come for them and they want to be seen as 'one of the good guys'... I doubt it will work, which is ironic as it as similar to their warnings, I suspect it is too late for them as well and will end badly for them.
It will end badly for them if they get nuked... short of a nuclear war they win. Don't kid yourself. The deep state is undefeatable at this moment in history.
Really the serious people get it ? The debt overhang is here to stay crippling generations ahead so long when Preys believe that no RESET is required.
You honor debts when you do not have Predatory Lenders. Haircuts and Defaults are the only way for Survival. You burn traps and starve the 1% Predators. You don't wish that some other prey get caught first and you live for another day.