After 6 Years Of QE, And A $4.5 Trillion Balance Sheet, St. Louis Fed Admits QE Was A Mistake

Tyler Durden's picture

As you’re no doubt aware, the Fed is fond of using the research departments at its various branches to validate policy and analyze away bad economic outcomes. For instance, earlier this year, the San Francisco Fed came up with an academic justification for the now infamous double seasonally adjusted GDP print - they call it "residual seasonality." Then there’s the NY Fed, where researchers recently took to the bank’s blog to explain why, despite all evidence to the contrary, Treasury liquidity is "fairly favorable."

Be that as it may, someone will occasionally say something really inconvenient - like when, back in April, the St. Louis Fed warned that the American Middle Class was "under more pressure than you think," a situation the bank blamed on the diverging fortunes (literally) of the haves and the have nots in the post-crisis world. The implication - made clear in the accompanying graphics - was that QE was effectively eliminating the Middle Class.

Now, the very same St. Louis Fed (this time in the form of a white paper by the bank’s vice president Stephen D. Williamson), is out questioning the efficacy of QE when it comes to stoking inflation and boosting economic activity. 

Williamson says the theory behind QE is "not well-developed", and calls the evidence in support of Ben Bernanke’s views on the transmission mechanisms whereby asset purchases affect outcomes "mixed at best."

"All of [the] research is problematic," Williamson continues, as "there is no way to determine whether asset prices move in response to a QE announcement simply because of a signalling effect, whereby QE matters not because of the direct effects of the asset swaps, but because it provides information about future central bank actions with respect to the policy interest rate." In other words, it could be that the market is just reading QE as a signal that rates will stay lower for longer and that read is what drives market behavior, not the actual bond purchases. 

But the most damning critique of Bernanke’s response to the crisis is this:

There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation. For example, in spite of massive central bank asset purchases in the U.S., the Fed is currently falling short of its 2% inflation target. Further, Switzerland and Japan, which have balance sheets that are much larger than that of the U.S., relative to GDP, have been experiencing very low inflation or deflation.

And then there’s this:

A Taylor-rule central banker may be convinced that lowering the central bank's nominal interest rate target will increase inflation. This can lead to a situation in which the central banker becomes permanently trapped in ZIRP. With the nominal interest rate at zero for a long period of time, inflation is low, and the central banker reasons that maintaining ZIRP will eventually increase the inflation rate. But this never happens and, as long as the central banker adheres to a sufficiently aggressive Taylor rule, ZIRP will continue forever, and the central bank will fall short of its inflation target indefinitely. This idea seems to fit nicely with the recent observed behavior of the worldís central banks.

And this: 

Thus, the Fed's forward guidance experiments after the Great Recession would seem to have done more to sow confusion than to clarify the Fed's policy rule.

So in sum, the vice President of the St. Louis Fed has taken a look around and discovered that in fact, not only have trillions in asset purchases not worked when it comes to creating "healthy" inflation and boosting growth in the US, these asset purchases haven't worked anywhere they've been tried. Furthermore, he's noticed that central bankers that adhere, in a perpetual state of Einsteinian insanity, to the Taylor principle, will never be able to raise rates and finally, he thinks that the more the Fed talks, the more confused the public gets about what it is the central bank intends to do. 

We would agree on all accounts here, although when it comes to forward guidance and discerning what the Fed's goal is, actions, as they say, speak far louder than words and with the S&P 500 having levitated some 200% since March of 2009, we don't think anyone is truly "confused." 

St Louis Fed Qe Study

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Captain Debtcrash's picture
Captain Debtcrash (not verified) Aug 19, 2015 7:17 AM

This isn't good, it means they are going to try even crazier policies.  Its like driving in Korea, it's one thing I learned driving over there, when you see the flashers come on, they are about to do something crazy.  When the fed starts talking like this, they are about to cut across 6 lanes of traffic without looking. 

Headbanger's picture

No.  Translation:



VinceFostersGhost's picture



Raise rates on how many trillions of dollars?


Who's gonna pay for that?

e-recep's picture

QE worked for the cronies pretty well actually.

Mr Poopra's picture

Bingo.  Extract as much wealth as possible before you restart the game, except now you own everything from the beginning.

NoDebt's picture

I thought QE was one of those things that "doesn't work in theory but does in reality."

Hey, that's what Bernanke said, so it must be true.  It's merely a question of who it "works" for.

Clockwork Orange's picture

Its a start, but then again you have to wonder what the objective is, right?  

If these 'academics' really believe infaltion is 1.6% and QE has been an abject failure in that regard, then they haven't bought a 6 oz box of Cheez-its lately, nor an 11 oz can of coffeee.  

Since that can't possibly be the case, you have to wander what is the newest chapter of Fraud-ville leading to ...


knukles's picture

Oh, so debasing the currency doesn't work?
No shit.  History is replete with  .... ah fuck. 
Morons.  We'd surrounded by morons and narcissists.
Tell ya' who QE worked for.  The bankers. 
Fuck all you leaches and thieves , those who have abused public trust and responsibilities.

And this conclusion from the veritable Pantheon of monetary policy, FRB St Louis.
(not a bunch of nit wits like in SF)

TongueStun's picture
TongueStun (not verified) knukles Aug 19, 2015 9:11 AM

The Zionist JEW media has never blamed Obama for a single thing that has 'happened during his watch', ostensibly, because they think a kneegrow is too stupid to know what is going on around him.....yet blaming a white Christian heterosexual President Bush was an everyday occurrence.....




Diversity = The war on Whites and Christians and Heterosexuals......everyone else is protected.

fiftybagger's picture


Apparently not quite as stupid as you, who swallows the Vatican's bait hook, line and sinker; thinking that the Jesuits who really run the world, don't.  And thinking that Jews, who are just their banking and media stooges, do.

SamAdams's picture

QE saved the banks from collapse.  It was a bank bailout all along.  If the banks had collapsed, it would have unleashed a major social upheaval.  Simply put, QE saved the bankers and politicians from the populace.  That is why they told Congress "We have to bailout now, or tomorrow there will be anarachy".

But yes, the rich got richer and are privatizing as in Greece.

And as far as Jews and the Vatican, what I know is that the towers in NY were brought down by explosives.  A Jew benefited greatly from the Tower's destruction, as did Israel.  At the same time, Bush and Cheney were complicit and actively covered the crime.  So, we have some so called Jews and some so called Christians who are involved in this deceipt and terror.  They should all be brought to justice and the fact that Obama has not done so, means it's business as usual. 



El Vaquero's picture

So, the Fed admitting it was wrong is a precurser to helicopter drops to the masses at the next crisis? 

Santini Air's picture
Santini Air (not verified) El Vaquero Aug 19, 2015 4:24 PM

n ZeroBrain fantasy land, the dollar is going to die at the exact same moment that a massive EMP happens over all industrialized nations all at once.  Unfortunately, nobody who survives knows anything about building a dam or sees any point in setting up a power grid.  Oh, and everyone who knew how to build PCB boards or ASICs is also dead.  But that's okay that pesky technology stuff didn't make it... because the ZB crew is set up with their Bushmaster AR15, eating squirrel covered in Alex Jones nascient iodine!

What a bunch of F'n gooftards....

El Vaquero's picture

You are 100% free to not post here and to not read ZH.

Santini Air's picture
Santini Air (not verified) El Vaquero Aug 19, 2015 5:58 PM

Why?  The articles are good and the comment section is mildly retarded.  Jumbling up the fact that the dollar is crashing with post-"SHTF"/ end-of-the-world fantasies.

remain calm's picture

I guess when the lynching mobs come he hoping to be spared. Sorry Mother Fucker.

Pairadimes's picture

This sanctimonious bullshit is the Fed hoping that as long as they confess to sucking at helping the economy, that people won't notice that QE was never about helping the economy, but was a massive fraud designed to cover bad private bets with public money.


Fuck you, Bernanke.

Bay of Pigs's picture

So says yet another incarnation of Fonestar who said BTC would be worth more than gold just a year or two ago.

Only down 80+% from its highs. Well done shithead.

El Vaquero's picture

Putting aside the fact that if the dollar hyperinflates, we're not going to be importing much oil and the trucks that supply food to your local supermarket are going to have a hard time rolling down the highway, what is your point?

Mentaliusanything's picture

Yes Correct! Helicopter drops of folding for the masses is like gasoline on embers. Uncontrolled ignition that will make you recoil in horror. But it does work even if for a very short time, then comes the cold and freezing reality.

However, to go back to sound money, pre August 15 1971, well that would be the "emperor has no clothes" moment

"When Nixon’s policy became clear to the Fed Chairman, Arthur Burns, that August week, Burns exclaimed, “What a tragedy for mankind!” It’s high time to put the whole thing, farce, tragedy, you name it, into the historical dustbin and return to the gold-based monetary system we were so near to in the 1980s, and which for eras before had supervised unexampled economic runs at the standard of the industrial revolution."

jcdenton's picture

Well at least someone is paying attention. Now for the naysayers, here's a little support for the contention: (search keyword "Jews.")

And does anyone really need to interpret the following for ya?

Look up the address in Munich, and notice that Google Earth has this blocked. Why is that, when the actual residential address no longer exists?

Now we cannot take down the Vatican. It has a purpose. But when it steps over the line, then someone has to throw it back from that line, and keep it in check. And the last time that was done, we are close to that 500 year anniversary.

It should not be shocking news and/or revelations that men like Madison, Locke, and Milton (yes, Milton) held the former Augustinian monk in very, very high regard ..

Perhaps the rest of us can wake up and do it right a second time around, given that we have the chance ..

Cruel Aid's picture

the old media is so obviously agenda driven youd have to be deaf dumb and blind not to be aware of it. We all know the power of persuasion from  e.bernaise and his ilk.

Fahque Imuhnutjahb's picture



NO INFLATION?!?  Bullshit.  The wealth and income of the .0001% has inflated tremendously.  What type of inflation was goal seeked (sought?)

should be the question.  Many belittle the Fed. as being incompetent; I on the other hand think they are getting the results they desire.

Tall Tom's picture

Some of the inflation went to the .001%...NOT THE BULK OF IT.


But this paragraph alone just demonstrates how clueless they are...



There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation. For example, in spite of massive central bank asset purchases in the U.S., the Fed is currently falling short of its 2% inflation target. Further, Switzerland and Japan, which have balance sheets that are much larger than that of the U.S., relative to GDP, have been experiencing very low inflation or deflation.


The economic activity and inflation was EXPORTED...TO CHINA.


Just where in the hell did all of those funds come from??? China is NOT the World Reserve Currency and they just cannot print like the USA does.


Damn. The Empirical Evidence stares them right in the face and they are too fucking blind to see it.


It worked...But just not in the way that they had intended.


With the collapse of China all of that massive liquidity is headed like a TSUNAMI back to American Shores. They will liquidate EVERYTHING in order to stay afloat. They will dump their Treasuries.


But like a Tidal Wave in the deep ocean is is not discernable from any other wave just yet. But it is coming. You can be assured that it is coming.


Yes we will get deflation alright. But after that LOOK OUT. That will happen by July next year.


In late September and early October the markets will be trashed. We will see a Deflation of the likes which nobody here has experienced. And the rebound will shock you.


Just like in Weimar Republic Germany a massive deflation preceded their hyperinflationary destruction.


Deflations precede HYPERINFLATIONS. Do not be fooled.

Dsyno's picture

I'm shocked at all the racist ZH'ers on here. I consider ZH to be full of intelligent people, but the comments from some of these people are disgusting, immature, and vile.

Are they old farts from another era? Get the fuck outta here and go back to your shit hole, drink your whiskey, scratch your ass while you bitch about how the world would be a better place without Jews/blacks/whatever your racist shithead thinks up. Keep it off these forums.

OldPhart's picture

Are they old farts from another era?

Some of us are.

g speed's picture

well now that you brought it up if you're a nigger then I hate hate you and if you're a jew then I hate you too and if you're a whatever then I hate you more for that cause whatever your race that is the most useless fucked up problematic race there is and should be exterminated by all the other races cause its yours and so is inferiour and toxic to all other life  -----well you started it---dumb mother fucker--take you race talking shit outta here--enough of your PC crap.

armageddon addahere's picture

It started years ago. Paid trolls with an agenda, derailing and redirecting discussion with racist, anti Semitic and other bullshit posts when the Tylers were getting too close to the truth. With the added benefit of giving the place a bad name.

Eventually they drove away all the most knowledgeable  posters and reduced the level of discussion to what you see today.

Miffed Microbiologist's picture

Dsyno, the people here are simply done with all the PC, feminist agenda, globalist agenda, gay/transgender agenda, environmental agenda, socialist agenda, corporate agenda. We're done with fat acceptance, illegal immigration, corporate welfare, EBT, MSM propaganda, an unstoppable MIC and eroding personal freedoms. We're just done.

So grow a pair, suck it up and quit with the asinine offensiveness. Sorry, you won't get a participation trophy here for showing up.


Miffed Microbiologist's picture

Ha ha! Only someone here would say that. Honestly, I'm worried when I finally have to go back to corporate life after hanging out here for a couple of months. Two words out of my mouth and I'll be hogtied in the corner.


P.s. Started the second book. Can't read it before bed or I get disturbing dreams. I hope it isn't truly prophetic but my skin is crawling. There are others who see.

knukles's picture

Margaret Atwood's trilogy:  Oryx and Crake, The Year of the Flood and MaddAddam

jcdenton's picture

You must be a woman. Or, at the very least someone pretending to be one. For people say of the Caucasus, that favor their culture and lifestyle over another. That is not a crime. It's a preference. As long as they do not violate the sensibilities or say the right of free expression of those non-Caucasus, what is the problem here? If someone causes physical harm to another, regardless of ethnic origin, it is a matter of rule of law. Not, a hate crime with special penal consequences.

If I assert that most that call themselves Jews, are probably Ashkenazim, that originate from Khazaria, that have no Semitic [Hebrew] blood at all in their genome, and have generationally adopted the Hebrew religion and culture via force, certainly not among the "chosen" of the Bible, no more than any gentile; AM I -- antisemitic?

And for the record I'm 56, not quite the quintessential "old fart," and my preference is for Shiner Bock ..

silverserfer's picture

dsyno why you hayt'n so much dawg? Youve only been here 12 weeks. Stopped being shocked you pussy.   

Crash Overide's picture

What's sad is it took some folks 6 years to figure out QE was a fraud just like the FED.

tarsubil's picture

I bought a 29 oz can of diced tomatoes a couple weeks ago. I couldn't believe they made a friggin' 29 oz can. What a joke.

armageddon addahere's picture

They have been making those for 100 years?????

OldPhart's picture

NO, you used to get a 4 ounce can, 8 ounce can, 16 ounce can, 32 ounce can, and for the bigun's, you'd get a five pound can, really bigguns was a #10 can which was about ten pounds (looking through the hoard for a #10 [don't have any]).

Now we have these odd ounce counts.  Campbell's soup, for instance, in 10 3/4 ounce instead of the 16 ounce size.  Same price or more.  (Dollar General has 16 ounce cans for a dollar.  Grocery store has 10 3/4 ounce for $1.56.)

Coffee used to be sold in three pound and five pound cans.

There used to be such a thing as five gallon ice cream.

Soda cans were 12 and 16 ounces.  Not 11.5 and whatever the 16 oz replacement is.

Bread used to weigh a minimum of a pound and a half.

The inflation isn't only the price, it's in the reduction of the content.  I think this all started around 2005/2006, and most of us just didn't pay attention.


tarsubil's picture

What the fuck? Are you retarded? 29 oz is not a standard weight. It is 3 oz off 2 lbs. It makes no sense in terms of sales and packaging besides hiding price per lb increases. Why don't you go read some science books because you're talking like a fucking retard?

Crash Overide's picture

"Bingo.  Extract as much wealth as possible before you restart the game, except now you own everything from the beginning."


Yeah but this time it will be different, the fix is in and people are armed with knowledge and other things...

One can hope the people won't allow it anymore.

Kassandra's picture

Or possibly, people are just armed.

ZH Snob's picture

yes.  QE has enriched the uber wealthy beyond belief.

these fed guys really know how to spin a paper whirlwind full of half-truths, outright lies and excuses.  they want us to believe that their intention was to improve the economy when in reality all they've done and continue to do is to hide behind theory papers like this while filling the coffers of their subsidiary banks.



Croesus's picture


Does anyone recognize who the speaker is, in picture#2?



detached.amusement's picture

hey, isnt that julio iglesias?


IRC162's picture

Why yes, that is officer Frank "Ponch" Poncherello from CA Hwy Patrol.  

JRobby's picture

"QE worked for the cronies pretty well actually."

Very well indeed! Don't look for it to be unwound to soon.