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The Sweet, Sickly Stench Of QE 'Success'
Submitted by Grent Williams via TTMYGH.com,
Six years ago, hardly anybody outside financial circles had any idea what Quantitative Easing was – hell, many within financial circles had no idea what QE entailed.
The Fed, and the BoE did the heavy lifting in explaining it to Western audiences (Japan had been doing it so long that its citizens were bored of it and paid little attention when iterations 16, 17 and 18 were rolled out in recent years) with then-Chairman of the Federal Reserve, Ben Bernanke, leading the way as only he could:
(Jackson Hole Speech, 2010): The channels through which the Fed’s purchases affect longer-term interest rates and financial conditions more generally have been subject to debate. I see the evidence as most favorable to the view that such purchases work primarily through the so-called portfolio balance channel, which holds that once short- term interest rates have reached zero, the Federal Reserve’s purchases of longer-term securities affect financial conditions by changing the quantity and mix of financial assets held by the public.
Specifically, the Fed’s strategy relies on the presumption that different financial assets are not perfect substitutes in investors’ portfolios, so that changes in the net supply of an asset available to investors affect its yield and those of broadly similar assets. Thus, our purchases of Treasury, agency debt, and agency MBS likely both reduced the yields on those securities and also pushed investors into holding other assets with similar characteristics, such as credit risk and duration. For example, some investors who sold MBS to the Fed may have replaced them in their portfolios with longer-term, high-quality corporate bonds, depressing the yields on those assets as well.
Yeah, I know.
Others took a swing at explaining QE in terms more accessible to the layman (and woman):
(The Economist): To carry out QE central banks create money by buying securities, such as government bonds, from banks, with electronic cash that did not exist before. The new money swells the size of bank reserves in the economy by the quantity of assets purchased—hence “quantitative” easing. Like lowering interest rates, QE is supposed to stimulate the economy by encouraging banks to make more loans. The idea is that banks take the new money and buy assets to replace the ones they have sold to the central bank. That raises stock prices and lowers interest rates, which in turn boosts investment.
But the general narrative that the general public was beaten over the head with by central bankers and politicians was, essentially this:
We are going to pull a few levers and create money which is going to solve all the problems we face. Don’t worry, there will be no negative effects as a result of this policy. We will be able to maintain full control of everything and, when the time comes, we will gracefully exit the program and go back to the way things used to be just as soon as everything is fixed. In the meantime, carry on with your lives, go out, spend money, borrow more and leave the worrying to us.
The campaign to take a complicated concept and dumb it down sufficiently for a public that really didn’t want to have to do the mental gymnastics required to understand its implications had one significant tailwind – complicity on the part of the public. They wanted to be told it was all going to be OK and they were positively inclined towards the idea of ‘free’ money being printed which would, in turn, lessen their own chances of being directly impacted by the economic downturn which had come so perilously close in 2008.
Those in charge of designing and implementing QE programs knew that it was all too hard for the public to understand and they played that knowledge brilliantly.
Unfortunately for them, they were wildly successful.
The public neither knows nor cares what QE actually is. All they know is that, optically at least, it has worked because a) they are being told it has and b) the stock market is going up.
That’s essentially been the extent of the burden of proof.
They don’t understand this:
Or this:
But here’s where the success in creating the narrative that free money does no harm and has no unintended consequences turns into a potential disaster.
In the UK, left-winger Jeremy Corbyn was a last-minute addition to the leadership ballot for the Labour Party (US readers can think in terms of the Democratic Party nomination) – thrown into the mix to supposedly ‘broaden the debate’.
Well he’s broadened it alright:
(UK Daily Telegraph): the joke has backfired. Mr Corbyn is now the clear front-runner, and on Thursday the bookies installed him as the favourite.
Oops!
Corbyn’s own understanding of economics is on par with that of the average British citizen – which is perfectly fine – however, it’s what he’s doing with that knowledge that makes him far more dangerous.
Ladies and gentlemen, I give you; People’s QE:
(UK Independent): Jeremy Corbyn said that future rounds of the monetary stimulus should be redirected from the financial sector to brick-and-mortar projects.
“I am calling for a people’s quantitative easing – and asking my fellow candidates to join me in that call,” he wrote in an article for Huffington Post UK.
“The Bank of England must be given a new mandate to upgrade our economy to invest in new large scale housing, energy, transport and digital projects.
Jeremy Corbyn, MP for Islington North“This would give our economy a huge boost: upgrading our outdated infrastructure and creating over a million skilled jobs and genuine apprenticeships.”
Corbyn has been convinced that QE is a free ride, just like the majority of the electorate and so, of course, he will promise them more of what he knows appeals to them.
And, if they get the chance, they will vote for him. Of course.
(Jeremy Warner): …It sounds a bit like The X Factor – perhaps we could get Simon Cowell to chair the MPC live on TV and we could all text in to say how much cash we want the Bank of England to print this month. It turns out, however, that the idea is for the Bank to “be given a new mandate to upgrade our economy to invest in new large-scale housing, energy, transport and digital projects”.
Mark Carney might well feel he has enough to do already, what with controlling interest rates, inflation and regulating the City. But, heck, in a few spare hours on a Friday afternoon, he could just print a couple of hundred extra billion, and use the money to start building publicly-owned housing estates. Yet a few hundred years of history suggest that central banks financing governments directly creates inflation, and another few hundred suggest that state-owned companies don’t usually work well.
Jeremy Warner’s warning was stark – its implications terrifying:
(Jeremy Warner): Everything about “Corbyn-omics” is delusional. Unfortunately, that does not mean it does not have an audience. By September, Mr Corbyn might well be leading the Opposition – or at least be shadow chancellor under Mr Burnham.
The success of the narrative created around QE; that it is the mythical ‘free lunch’ that we all intuitively know can’t exist but secretly hope does, has played perfectly to the public and now, having endured for two electoral cycles, the next wave of politicians also believe it will have no consequences and are actually using it when planning the message they feel will endear them to the electorate.
What plays better than free money?
The same phenomenon will be front and center again tonight when the first GOP debate takes place with billionaire reality TV star, Donald Trump front and centre.
Nobody is better equipped to pander to a public who desire impressive promises of handouts which bear little or no scrutiny, as this remarkable excerpt from The Guardian demonstrates:
(UK Guardian): “Asked recently what he would replace Obama’s signature healthcare law with, [Trump] replied: “Something terrific.”
Who wouldn’t vote for something terrific?
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Its a stench, the stench of the decomposing economy.
A helicopter drop to the masses? Do it, motherfuckers! Humanity needs to be taught a lesson. TANSTAAFL!
To understand the ORIGIN of this wonderfull mess called the FED and its frightful garnishes of QE, read this>>
https://biblicisminstitute.wordpress.com/2015/07/28/how-the-ashkenazi-je...
More money always makes everything more affordable.
Everyone knows that!
More QE means more Gold buying... Keep the paper coming and I'll keep flipping.
The point was made by the guy that did the cartoon videos of "BTFD".
Kudos to the most prescient guy for the masses.
Assholes like Peter Schiff were too stupid to see what the point of the cartoons was. BTFD got the followers a huge return while Schiff led his acolytes to the poorhouse.
PS, I am impervious to downvotes, just look at the record.
the people of the USA can't even vote for their freedom...they are so media hypnotized! Look at the destruction of inner cities and yet they for the same corrupt mayors year after year
Did this thought ever occur to you? They are stuck!
They don't see it the same way you do.
All they see is that they've been lied to, and have absolutely no trust in the liars. They percieve the liars are promising them freedom and are just lying to them because they only want to oppress them even more.
They don't trust a fucking word any Republican says because they have witnessed firsthand what Republicans have always done to them, over and over again.
Have you ever talked to any of these people down there in those places?
I have... and thats exactly how they feel and thats what they think.
Now... couple that with increasing numbers of impoverished every day in America and you end up with a really bad day in Republicanville.
I truly think the masters of Wall Street would have eaten the seed corn if they were the first settlers and have died of starvation! Their Greedy destructive ways are an abomination!
most people (certainly ZH'ers) don't need anymore "preachin' to the choir". just total, complete, cleansing revenge.
Nobody on the ground or on Main Street has seen any of this "money". It never went into production. It might as well have never happened.
And this then begs a really interesting question, for those of a questioning mind -- what exactly did happen?
I'm pretty sure just about everyone out there is insolvent, not illiquid. The global financial system blew the fuck up, period. It's ashes now. Dumping liquidity into that kind of carnage can't have changed things much. But so long as there is a tsunami of money sloshing around then the insolvent players can always lay their hands on some of it temporarily, but then it's a "left hand paying off the right" sort of thing. Like taking cash out of you bank to make a deposit into your account. If all you notice are the individual transactions then it looks good. If you ever stop and do the math it looks nutty -- like nothing happened. But that is what QE was about, as far as I can tell.
Nothing happened, but it was a really convincing nothing and enough (to now) to con people into not understanding that the global financial system blew the fuck up.
The butcher, baker, and candlestick maker should be able to concentrate on their profession and not worry about who has mounted them from behind. A sufficiently civil society will protect the innocent from land sharks.
“The campaign to take a complicated concept and dumb it down sufficiently for a public that really didn’t want to have to do the mental gymnastics required to understand its implications had one significant tailwind – complicity on the part of the public.’
The real problem is that super predators (wolves), funded by usury out of private banking, have usurped government – they control it with money power. The sheeple want to believe that all is well. Even when you tell them there are problems, their minds close. Only a small percentage of the population is sheep dogs able or willing to follow the shell game and sniff out the rent seeking. The public is not complicit, by and large, they are innocent and trusting, and have taken a screw job, especially as their labor value has been shifted away from them through various schemes.
What plays better than free money?
It is FED keyboard numbers that are created from nothing, and then buy existing debt instruments. Typically, the FED can buy in the markets it has access to, namely the overnight market. That means that reserve loops of banks are where the FED tends to buy. The private banking system, has the ability to "make ready" those things the FED is going to purchase. If the FED intends to buy so many TBills, the TBTF primary dealers will acquire those bills on either the primary or secondary market. The transmission path to reserve loops is reserve money buying the paper assets. If one looks close, it becomes apparent that the word "asset" really means a debt instrument.
So, FED keyboard money channels into reserve loops and buys debts. This then changes the ratio composition of the money supply to less debt and then more money. However, the money often gets trapped in channels, especially as the FED now pays for money in reserve channels. Yes, interest is paid for money held in reserves; this action prevents a rate collapse to zero on the overnight market.
TBills being pulled from the secondary market actually defunded Shadow Banks ...entities like GE capital. This this unfunded their system, which in turn actually stifled credit creation for medium size business.
Low interest rates are a function of keyboard money chasing TBills, MBS and other "instruments." Why? TBills are really bonds...they are misnamed. Bond price up, and interest rate down. If bonds are being held high with money chasing them, then they command lower interest rates.
The lower interest rates then are supposed to convince new debtors to show up for a new hypothecation cycle.
This is where the conceit of the bankers breaks down. IN A BALANCE SHEET RECESSION, private debts are already too high. THE SHEEPLE got themselves into trouble during the housing bubble, and hence their private debt position was too high relative to income. This type of debtor is unlikely to show up and take on new debt. Of course we now know they refinanced homes, took out student loans, and then took out car loans.
QE then extended another debt cycle into the future, held overpriced homes at their too high price, and really did nothing to alleviate personal debts. Winners were those who could borrow cheaply, those from the finance Casino, and then do carry trades and other fiancial schemes that have little to do with the real economy.
So, is not free money, it is the ablity for finance to borrow cheaply.
If it was free money, it would have been debt free spent directly into productivity channels. Ironically, that FREE MONEY, would have gone on to pay down the private debts.
Even after all this time, the term BALANCE SHEET RECESSION, is not used, and this is the real diagnosis. QE was not the right medicine for a BSR.
QE is endogenous money created from within the Banking System, it can only come into being with a swap on a double entry ledger.
Exogenous money, outside of the private banking system is the real necessary medicine. Also, fraudulent debts should be erased, as predators should not be rewarded. Ideally, exogenous money is Treasury money spent directly from the Treasury debt free. This money would cycle in and out of debts, drawing said debts down to zero over time.
But, the bankers and other propaganda artists will always insist that money = credit, and this misdiagnosis is at the heart of the problem.
It is not necessary to bold, italicize, AND underline an entire paragraph of text. It makes it harder to read. Bold and italics are plenty.
Have we met, Grent?
Are you aware that I'm offering $1,000,000 (one million dollars) to any one as informed as you obviously are, who can provide a link to where in the rules and regulations of the Board of Govenors of the Federal Reserve System, it says that every time the Fed electronically creates money which it uses to buy assets from banks and institutions, IT HAS TO PUBLICLY INFORM EVERYBODY?
No, Grent, they don't have to tell the president, the Congress, the Supreme Court, Lloyd Blankfein, Grent Williams, or Tyler Durden.
THE FED DOESNT HAVE TO TELL ANYBODY WHEN IT PRINTS. (unless you show me a link)
The only reason we had TARP, QE1, QE2, and QE3 was to rehardonize the troops on Wall Street, who went a little limp after Lehman Brothers.
Thanks to the QEs, by 2012 their boners and bonuses were back and Jim Cramer saw the shining city on the hill.
But believe me there was a lot more printing going on than met the eye. Which is why the Fed had to stop telling everybody how much they were printing because some of those snoopy spoilsports were keeping a running total.
I may have told you too much. I better stop.
Send me the link, buddy, you might be able to buy one of the smaller Greek islands with your reward.
Oh, goody. Caracas on the Thames. Can't wait.....