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John Hussman Explains Why QE Has Done Nothing To Help You
Via John Hussman's Weekly Market Comment,
Putting QE into terms everyone should be able to understand...
Decker, Bessie, Joe and you
Consider a simple economy. You use wood from your back yard to produce lumber, which you sell to Decker for $100 of currency (which Decker holds as evidence of past saving he has done). At the same time, Bessie produces milk on her farm, which she sells to Joe. But Joe needs currency to pay Bessie, and instead has a few shares of stock (which embody past saving that Joe has done). At current prices, Joe can get $100 by selling one share of stock to you in exchange for your currency. He then pays Bessie for the milk, and drinks it. Bessie is a cash cow, and adds the $100 to her stack of currency that embodies her past saving. We can assume that there are many others in the economy who have currency, stocks, and bonds that embody their past saving, but we don’t need to name them for this example. On the security side, you now own $100 of stock that used to be held by Joe, and Bessie has $100 of currency that used to be held by Decker.
On the real side, the economy has produced $200 of wood and milk, but only $100 of that output has been consumed. So there’s $100 of new saving in the economy. On balance, you and Bessie produced without consuming, and Joe consumed without producing, so you and Bessie are the savers, and Joe is the dissaver in the current period. Given $100 of overall saving, there must be $100 of new real investment. Who’s got it? Decker, in the form of unused wood inventory. Decker has neither produced nor consumed – he’s just traded his prior saving for current investment. Has there been any new security issuance? No, because neither you nor Bessie has intermediated your savings for someone’s use. The stock trade just represented existing securities changing hands.
Now suppose that Decker uses the wood to build a small stairway for a government building, for which he sends a bill to Uncle Sam for $150. If the government goes into deficit to pay that bill, it has to sell $150 worth of bonds to someone, in return for $150 of currency. Who has currency? Bessie, and she uses $150 of currency to buy $150 of freshly printed Treasury bonds. The government uses the $150 of currency to pay Decker. If you account carefully, the whole set of transactions has now produced $150 of real investment (the stairs) on balance, so the economy must have produced $150 in net new saving: your $100 and Decker’s unspent $50 profit. Yet in this case, $150 of new securities have been created in the economy, while there were no new securities created in the previous paragraph. That may not make sense until you realize that that’s the amount of savings that Bessie intermediated to the government. The net acquisition of securities is still zero, because the bonds that Bessie counts as an asset are the same bonds that the government counts as a liability.
If the Fed now launches QE, it does so by purchasing Treasury securities from Bessie, and paying for them with newly printed currency or crediting Bessie’s bank account with reserves (base money). Does that inject new purchasing power into the economy? No, it does not. It just changes the form of government liabilities held by the public, from bonds to base money. Is Bessie more likely to consume just because her savings take the form of cash instead of bonds? No – not if she didn’t have spending plans already, and not unless the economy was otherwise constrained by a lack of currency.
Now, there’s a central issue we have yet to address, which relates to changes in the value of existing securities. Once issued, all of these pieces of paper can vary in price later, so the saving that someone did in a prior period, embodied in the form of some paper security, may be worth more or less consumption in the current period than it was initially. That’s really the main effect QE has – to encourage yield-seeking speculation that drives up the prices of risky securities, but without having any material effect on the real economy or the underlying cash flows that those securities will deliver over time.
For now, keep in mind that money doesn’t go “into” the stock market – it goes through it from a buyer to a seller. The resulting price changes are purely changes in the relative value that people place on these pieces of paper, and amount to changes the amount of “paper wealth” in the economy. These changes should emphatically be distinguished from the real wealth of the economy, and the underlying stream of cash flows that will be generated over time. The relationship between those two quantities – between the price of the piece of paper and the underlying stream of deliverable long-term cash flows – tells us about valuation and probable long-term investment returns (even if speculative factors play a role in driving paper wealth over the shorter term). We’ll cover those valuation issues shortly.
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fool me once shame on you.
" " twice " " me.
" " thrice I deserve what I fucking get.
We have been fooled every year since 1913.
Every day. Look under this rock.
https://www.youtube.com/watch?v=f6AmyRTBdXI
A casino where everyone who plays wins until people head to the cash cage.
Shortly thereafter you've nothing but chips from a casino which has gone under.
So the solution is to get rid of government.
It's run by those who have the mindset of a mentally unbalanced German copilot but without the guts to suffer the same consequences as the victims.
Why watch that video when you can watch the one that comes immediately after...
https://www.youtube.com/watch?v=KRTuow0CUzk
Well Bessie sounds hot and I want to get in her pants.
Do you want this cake?
Start working at home with Google ! Its by-far the best mixed bag of goods I've had. Last Thursday I got a trademark new Bmw since getting a check for $6474 this - 4 weeks past. I began this 8-months ago and immediately was coming with house at least $77 per hour. I work through this connection, go.to tech marker for work detail.... www.globe-report.com
QE effectively removes hundreds of billion in interest that the savers have lost every year. The result is no economic help, fewer jobs, and even more deflation (of some things).
"That’s really the main effect QE has – to encourage yield-seeking speculation that drives up the prices of risky securities, but without having any material effect on the real economy or the underlying cash flows that those securities will deliver over time."
Exactly. And that was the objective. "Main Street" was never a consideration.
I don't get access to the discount window. I have to hold my tongue out and wait for the trickle down.
You have to make a quantum leap there with your thinking, fella. But thats the truth, pure and simple.
How's that wait going?
QE is attempting to fix stupid with duct tape
"QE is attempting to fix stupid with duct tape"
You are definitely getting picked up in Jade Helm for that comment Ted.
yeah, i probably should have signed on to vpn prior to making that statement
+1
Didnt need a fuckin article to tell me that QE wasnt aimed at the peasants.
Go tell the people wbo dont get it. (Which 'shouldnt' be ZHers).
Totally OT..but i reccomended ZH to several people. I fex articles that I 'think' the common man could grasp (and are relevant , yet not over the top).
The problem is, when an 'educaded' person visits this site..and sees articles at the top of page tHaT aRe TyPeD iN a MiX oF cApS aNd lOwErCaSe...It'S kInDa dIfFiCulT tO TaKe tHiS PlAcE sErIoUsLy.
And to be honest..i feel the same way when i see that. Is there some reason for the kindergarten looking headlines up there? If there is a logical explaination i would love to know so I (we) might be taken seriously one day (as I 'try' to fwd relevant articles)
Thanks.
It'S kInDa dIfFiCulT tO TaKe tHiS PlAcE sErIoUsLy......
Once they visit the comments section all that other stuff becomes irrelevant.......
"John Hussman Explains Why QE Has Done Nothing To Help You"
Because it wasn't supposed to.
If they had wanted to help the people they would have conjured up checks for everyone courtesy of the magical wealth machine.
There...shortened the article quite a bit.
Newsflash: generating paper wealth is most Americans primary goal
Certainly this was written for a 3rd grader, to take home to their parents to read. Not us at ZH. I'm still trying to figure out Schiff's fishing book.
Why do I want Joe's stock? It would help me understand better if the cow had a name....lol.
Mr. Hussman has lived long and prospered, and is shaking his head with disbelief same as I am, as to why can't the US Citizens see what is going on? And why aren't they outraged?
I applaud people who are not looking for the greater fool, because, like in his story, its one big circle-jerk. As long as I'm not Joe, I have $100 and I am the winner, yes or no?
Here's a simple example. For every dollar Fed lends out it demands 2. Case closed.
There's not enough money in the world to pay it back! Its a mathematical impossibility, default somewhere is inevitable. Yet the Fed is adamant in avoiding ANY bond loss for/from its bankerz, its on a crusade against "deflation" which really means a decrease in the money supply, see point #1 above.
Just say a European country defaults on its debts, and some of that is USD...that just means now there is even LESS USDollars available to pay any other debtor's outstanding principal and interest.
If Bessie gives me a hummer and swallows the yogurt - and I than give her a devalued FRN in the amount $5 has GDP net increased?
What silly metaphors!
Here is another view:
Imagine a gang of criminals rolls into the community where live Bessie, Joe and Decker. That gang uses bribery, intimidation and assassination to make sure that there is no longer any "rule of law" to restrain what that gang is allowed to do, Instead, that gang can now command the sheriffs to shoot anyone who does not agree to what that gang wants, while the judges will declare that is O.K. ...
There is a much better metaphor to describe what has happened to the American economic system, and that is home invasion, whereby a gang of criminals have been able to capture control over the government, in order to legalize their crimes, no matter how insane and absurd that appears on the surface, at first glance, because behind the scenes there was bribery, intimidation and assassinations, that made sure that the government worked for the best organized gangs of criminals.
That gang of criminals was able to get the government to legalize that gang of criminals being able to counterfeit the public "money" supply, subject to some (steadily diminishing) limits, but that sort of counterfeiting was still a crime for everyone else! Furthermore, the government agreed that it would also operate within those systems of legalized counterfeiting, while also providing the force to make sure that everyone else agreed to accept those frauds, and to adapt to living inside of those fundamentally fraudulent financial accounting systems.
Being able to make the public "money" supply out of nothing as debts was equivalent to being able to create "capital" out of nothing. That kind of black hole of capitalism was actually the utter opposite of what capitalism was supposed to be, and therefore, those kinds of enforced frauds systematically annihilated the original relationships between Bessie, Joe and Decker. Since that "money" was being created out of nothing, that also enabled the prices of everything to be systematically eroded and undermined, since the price of "money" itself was nothing, or at least nothing that made sense, except for the relatively tiny initial investment that the triumphant organized crime gang made in bribery, intimidation and assassination, in order to dominate the political processes enough to be able to capture control over the government, after which that organized crime gang was able to make Bessie, Joe and Decker pay for everything else that happened in their community, as they were robbed blind, until they eventually end up with nothing left worth robbing ...
John Hussman has been attempting to explain QE without reference to the basic fact that money is measurement backed by murder. Therefore, the ways that QE is primarily due to the social situation created by the best organized gang of criminals capturing control over the powers of government, and thereby effectively privatizing the government's power to rob, and to kill to back up that robbery, does not appear anywhere in his explanation, except perhaps as buried so deep under bullshit that nothing regarding those basic social facts can be seen.
Any attempt to explain the political economy that does not include human ecology is ABSURDLY RIDICULOUS, but, of course, that is the version of political economy that is approved of by the best organized gangs, that controlled the biggest organized crime gang, the government, which are the silly explanations that those groups wanted to be presented, as their bullshit "explanations" of the economic relationships between Bessie, Joe and Decker.
Such a superficial analysis does not get within light years of the real problems. It pretends that there is still some kind of "free market capitalism" that has managed to survive through the political processes that have allowed "capital" to be created out of nothing by a privileged few. A deeper analysis is possible, however, the vast majority of people do not like that, but rather, prefer to believe in their favourite ideological fairy tales, which are based on taking for granted, without any critical awareness, that the political economy is dominated by the best organized gang of criminals, and thereafter, becoming as socially successful as possible by adapting to operate within those systems.
OF COURSE, QE has done nothing to help the vast majority of people! I repeat one of my replies that I previously posted under this article: The Bank-State Bargain - Breaking The Basic Rules Of Capitalism
QE is a central bank euphemism for their opening the flood gates of fraud, in order to attempt to compensate for lesser banks no longer being able to find enough "borrowers" to enable to those lesser banks to continue to make enough new "money" out of nothing as "loans," in order to keep the public "money" supply growing. QE is the "lenders" of last resort making enough "money" out of nothing to try to make up for the inability of other "lenders" to be able to continue to make enough "money" out of nothing.
If one wants to understand political economy, then one should place that inside of the human ecology, and those should be approached as manifestations of general energy systems, which necessarily match the principles and methods of organized crime. However, doing that requires a profound series of intellectual scientific revolutions ... which otherwise provide no useful actionable intelligence regarding how to become personally successful by taking advantage of those already established systems of entrenched organized crime, surrounded by layers of controlled opposition groups.
Since the political economy IS almost totally dominated by triumphant organized crime, facing those social facts tends to be relatively useless, if not worse, because anyone who wants to make "money" has to do so WITHIN the established systems being based on ENFORCED FRAUDS, which tends to be more possible, as a socially successful strategy, the more that one agrees to parrot the banksters' bullshit about what that political economy is supposed to be doing (despite it actually doing the opposite of everything that it states that it is supposed to be doing.)
Human history has been successful warfare based on backing up deceits with destruction, morphing into successful finance based on enforcing frauds. Therefore, paradoxically, it has traditionally been the most successful personal strategy to cooperate with the best organized gangs of criminals that were operating those systems. However, IN FACT, there is now almost nothing but organized crime, surrounded by controlled opposition groups, which have become criminally insane, like parasites killing their host, or like a totally metastasizing cancer, that is killing the organism that cancer is growing in.
Articles like the one above are struggling to present economic relationships in a simplified, idealized world, that does not address the central social facts regarding organized crime. Therefore, that kind of superficial analysis never penetrates any deeper, and therefore, will never resolve the deeper problems on the level that those problems should be resolved ... IF one was going to do anything else than continue to try to take personal advantage of criminally insane economic systems, based on making "money" out of nothing, destroying the value of everything else.
However, still quite paradoxically, most people continue to be more personally successful by working for the predatory parasites, and assisting their cancers to grow, because, in that way, they personally make more "money." Basic bribery, intimidation, along with the occasional assassination of those who could not otherwise be bribed or intimidated, continues to actually control the real political economy, which works according to the principles and methods of organized crime. Moreover, that core of organized crime is surrounded by controlled opposition groups which agree to promote the banksters' bullshit that that is not the case, and those who do so as the best professional liars and immaculate hypocrites then tend to continue enjoy the more personally successful lives, within those systems, wherein the public "money" supply can be made out of nothing by privately controlled banks, while governments continue to enforce those frauds against everyone else, including even the government itself, because some of the benefits from those frauds are distributed to enough of the groups which are necessary to keep those systems of organized lies operating robberies going.
The heart of the established political economy is NOT production, but rather that the production of destruction controls production. Furthermore, IF one actually wants to realize more of the ideals of a "free market capitalism" then that could ONLY be done by making those ideals more realistically consistent with the principles and methods of organized crime. The systems that actually exist are what happens after one adds fraud and murder to "free market capitalism," and thereupon, that enforced fraud becoming the dominant factor that controls everything else.
If there were ever going to be developed better resolutions of the real problems due to the central banks being the Fraud Kings, that can legally counterfeit the public "supply," then those genuine solutions would have to be developed in ways which were consistent with understanding how and why civilization actually operates according to fractal patterns of the principles and methods of organized crime. However, the paradoxical ways that those are most socially successful through being the most dishonest about themselves means that our society appears to be terminally sick and insane.
I would NOT count on Bessie, Joe or Decker learning more of the radical truths about their actual economic predicament, nor would I count on their businesses surviving through the self-destructive paradoxes that surround their lives, whereby the "money" that values everything has become a psychotic fetish. The paradoxical problems that Bessie, Joe and Decker would have to surmount would involve them going through a double whammy of cognitive dissonance. First they would have to face the facts that their economic relationships are actually dominated by the principles and methods of organized crime, and then, second, they would have to able to agree about how to do that better, for their mutual benefit.
I would not count on that happening. The vast majority of Bessies, Joes and Deckers have been almost totally brainwashed to believe in the banksters' bullshit world view, while those few who somewhat wake up to those social facts then want to continue to promote bogus "solutions," which are still not consistent with fully facing those social facts. Rather, I would predict most of the Bessies, Joes and Deckers will continue to become even more psychotically insane, and regress under the increasing stresses that they face, because their actual situation is INSIDE of out-of-control organized crime, surrounded by almost nothing but controlled opposition groups that stay within the same frame of reference of bullshit that the dominant organized crime gang was able to promote as the publicly significant social stories.
The degree to which the core of organized crime is triumphantly out of control is the degree to which that society has become criminally insane. QE is an expression of the Fraud Kings' criminal insanities, which are based on the long history of previously being able to, step by step, construct systems of legalized lies, backed by legalized violence, as the established systems of ENFORCED FRAUDS, within which QE is being done. Those frauds are symbolic robberies, which are making a tiny minority more "wealthy," as measured inside of that monetary system, while the the vast majority, and those systems as a whole, are being impoverished and destroyed ... Furthermore, we probably have not seen anything yet, since the same systems of organized crime, surrounded by controlled opposition, continue to be able to almost totally dominate the public spaces, because those systems continue to make a tiny minority much more fantastically "wealthy" from the perspective of the fundamentally fraudulent financial accounting systems.
Unless, or until, enough of the Bessies, Joes and Deckers go through BOTH of the necessary first two steps to understand that the established political economy operates on the basis of organized crime, AND how and why that must necessarily be the case, then they will never be getting remotely close to taking any saner third step to respond to that social situation. At the present time, I see no good reasons to predict such a series of political miracles. Too bad, so sad!