The Diminishing Returns Of Central Planning, And Why More Printing Would Have No Impact

Tyler Durden's picture


Now that all the rage is now just the NEW QE, but global coordinated NEW QE, it would make sense to observe the impact the last three episodes of quantitative easing, QE1, QE2 and Twist, have had on the market. And more importantly, whether such impact is rising, dropping, or staying the same. Well, as the following chart from BofA shows, we may be lucky if there is any favorable impact on risk assets following the announcement of more easing, and incidentally perhaps global easing is what is necessary (if not sufficient) now that the devaluation of the US dollar has become an exercise in futility. Because it now appears that only an absolute currency devaluation would work, not a relative one. What is another way of saying this: a global devaluation of all currencies relative to some benchmark... say gold. Most importantly, the only question now is how long before the entire "global intervention rumor" is faded, and what happens when the market realizes that suddenly, Syriza not winning the Greek elections is the downside case as it would mean no coordinated central bank intervention. Great job central planners - you have just shot yourself in the foot once again.

The full thoughts of BofA:

There are low rates, and then there are low rates


Of course, rates are already quite low. But it matters why they are low. Right now, much is due to a flight to safety; fear is not a good environment for growth or market rallies. Replacing that fear with a policy commitment to further support the recovery should be a net positive for the outlook. Indeed, this confidence channel is an important one: the Fed can put a floor under sentiment and prevent a selffulfilling negative spiral like what immediately followed the collapse of Lehman. Moreover, QE3 should price out deflation and “Japanification” fears.


One counter to these potential benefits is that low rates hurt savers. While true in isolation, the plausible alternative is not higher rates. It is an even deeper economic quagmire, even more negative sentiment, and likely similarly low rates.  No one — savers or otherwise — would benefit from that situation.


The law of diminishing returns


The other counter is that QE3 will have less benefit per dollar than earlier programs. That might well be correct — a recent San Francisco Fed study lends support to that view (Chart 7) — and Bernanke and Yellen both acknowledged that risk recently. But it is worth exploring the reasons why.


QE1 may have had a large effect because of nonlinearities that increase in size. If so, that argues for a larger QE3 program (and against a small extension of Twist). QE1 also improved market functioning during a crisis and signaled easy policy for a while. Forward guidance has since usurped the latter effect. Market functioning was much less of a problem during QE2 or Twist; if fears of European contagion lead US market liquidity to falter, however, QE3 could have larger effects.

Or, as the chart actually implies, more easing would have no impact whatsoever...

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Fri, 06/15/2012 - 07:11 | 2528635 fonzannoon
fonzannoon's picture

What about on gold? Relatively speaking it is stuck in a rut.

Fri, 06/15/2012 - 07:15 | 2528640 tocointhephrase
tocointhephrase's picture

Stuck in a rut? Don't you mean consolidating after a massive move, before it continues its bull run?

Fri, 06/15/2012 - 07:26 | 2528657 cherry picker
cherry picker's picture

I remember decades ago gold fell so hard, San Antonio Gold Mines out of Bissett Manitoba closed as it cost more to extract than what they could sell it for.  A few years ago it was open under a different name.

If fiat goes down in value and gold falls with it, what kind of hedge is that?  Compared the the $35 an oz I rember it being long ago it has increased much, but it is possible for it to tumble again.

I have no gold.  If I have no money, my first concern is food and shelter.  There are other things on this planet more important than gold or silver, food and water being two of them.

Fri, 06/15/2012 - 07:31 | 2528664 tocointhephrase
tocointhephrase's picture

Agreed. Food and water are number one, but if you don't have access to these directly, then how will you obtain these goods? You could work for the person who supplies these goods or I am sure they would be happy to receive payment in Gold & Silver?

Fri, 06/15/2012 - 08:07 | 2528719 Bro of the Sorr...
Bro of the Sorrowful Figure's picture

whoa whoa there. what's with all the doomsday stuff? you guys are way too focused on the long term. right now all we need to do is print another trill and everything else will work itself out. apparently you don't know shit about mainstream economics. google "keynesian economics" or "bernanke speech". that should put you back on the right track. 

Fri, 06/15/2012 - 08:03 | 2528711 LawsofPhysics
LawsofPhysics's picture

Yes, and as a farmer I will sell you some food an clean water in exchange for gold, silver, and even copper. Sorry, no paper accepted unless you are willing to work my land in exchange for your food. Sharecropping will be the new normal. Bring it.

Fri, 06/15/2012 - 09:14 | 2528887 Seize Mars
Seize Mars's picture

farmer? I thought you were an engineer or something.

Fri, 06/15/2012 - 09:49 | 2529038 Ident 7777 economy
Ident 7777 economy's picture

The phrase 'Leading us on' comes to mind ... suddenly, the magic is gone when the curtain is drawn back (think: Wizard of Oz style revelation). Maybe he/she is proposing a hypothetical going forward ...

Fri, 06/15/2012 - 10:03 | 2529114 TMT
TMT's picture

Farmer?  Engineer?  I think you're getting your logins mixed up.  Weak.  FAIL.

Fri, 06/15/2012 - 08:22 | 2528748 mayhem_korner
mayhem_korner's picture

If fiat goes down in value and gold falls with it,


False premise.  Gold's purchasing power doesn't change.  If fiat's purchasing power is debased, the exchange rate of fiat units per gold unit will rise.  Until you get that, the rest of your thinking will be flawed.

It is precisely because gold is a non-consumable medium of exchange that makes it so valuable.  If all you have is food and water, guess what you will need to trade for fuel, seeds, vitamins, medicine, etc. that you haven't stored up?  Food and water.  Gold and silver fill that void, enabling you to preserve the sustenance items.

Fri, 06/15/2012 - 08:45 | 2528789 ATM
ATM's picture

I think you are being much too simplistic. Golds utility as a direct medium of exchange is fine but that isn't going to be its main use. The main reason someone should own gold is as a bridge from one monetary system to the next. If you dont want to have all of your stored wealth wiped out during the great reset that has to come you own physical gold which will carry wealth from our current system to the next.

All these "we'll be trading using physical gold" claims I think miss the bigger point. Yes you will be able to trade with gold but it will be as a very last resort. Gresham's Law. We will use anything other than gold first.

Fri, 06/15/2012 - 09:19 | 2528922 mayhem_korner
mayhem_korner's picture



Agreed.  I was responding to the very narrow context of Mr. rely-on-food-and-shelter alone.  Currency will be important in the transition.  I plan to rely heavily on cigarettes because they come in different denominations - singles, packs, cartons - and will always be in demand thanks to nicotine.  :)

Fri, 06/15/2012 - 09:51 | 2529054 Ident 7777 economy
Ident 7777 economy's picture

What is the shelf life of an un-opened cig pack or carton?

Fri, 06/15/2012 - 10:19 | 2529187 CharlieSDT
CharlieSDT's picture

You mean, what is the shelf death a pack of cigs?

Fixed it for you.

Fri, 06/15/2012 - 08:44 | 2528767 El Viejo
El Viejo's picture

CP: Yep!

Chaos theory says first come diminishing returns then comes negative returns and it can happen violently. (Black Swan) Then, of course there is Gladwell's Tipping point and a very good point made by someone in the US Navy: You can set new goals, but if the underlying structure isn't changed it is likely to be a  fruitless venture.

It happens like this: Diminishing returns; the search for more; the underlying structure remains in place; a tipping point is reached; Black Swan occurs (negative returns); If the underlying structure still does not change rinse-repeat (oscillation); then if the number of injured parties increases to a tipping point a painful forced change occurs and the old guard is dethroned.

Fri, 06/15/2012 - 07:37 | 2528667 lakecity55
lakecity55's picture

If you're in Fizz, ya gotta hold onto it. Long term. Things are gonna happen!

Keep Stackin!

Start Packin!

My off-duty is a Kel-Tec .380 in a Fobus tension holster. It's comfortable, weighs nada, and is easiy concealed.

I can hit center target at 15 yards (ya gotta spend some range time), but you're only gonna need it for 7 yards.

Use the new Hornady or Winchester rounds made for maximum penetration.

On duty, it's in an ankle holster to back up Big Brother, the Glock 22.

Fri, 06/15/2012 - 07:15 | 2528641 VonManstein
VonManstein's picture

Gold will go up against other assets regardless of QE.. it may fall in nominal terms but other assets will fall faster. But, most likely, it will keep going up in nominal terms regardless

Fri, 06/15/2012 - 07:16 | 2528642 Buckaroo Banzai
Buckaroo Banzai's picture

Gold is behaving like Schroedinger's cat. Until the box is opened, it will remain in a suspended state.

Fri, 06/15/2012 - 07:21 | 2528647 tarsubil
tarsubil's picture

Ugh, I haven't been inside the open box in months.

Fri, 06/15/2012 - 08:47 | 2528800 El Viejo
El Viejo's picture

You don't want to be around when Pandoras box is opened.

Fri, 06/15/2012 - 07:20 | 2528646 e-recep
e-recep's picture

be patient. you will be dazed and amazed.

Fri, 06/15/2012 - 07:20 | 2528644 EL INDIO
EL INDIO's picture

The BOE has indeed announced new stimulus!

Fri, 06/15/2012 - 07:40 | 2528671 GMadScientist
GMadScientist's picture

Good thing they implemented all that austerity! LOL

Fri, 06/15/2012 - 09:53 | 2529062 Cthonic
Cthonic's picture

One foot on the breaks, and one on the gas hey... when I drive that slow, you know it's hard to steer.

Fri, 06/15/2012 - 07:20 | 2528645 tarsubil
tarsubil's picture

Ben Bernanke: "I have not yet begun to print!" *fist raised defiantly*

Fri, 06/15/2012 - 07:24 | 2528651 Mordan I
Mordan I's picture

Compulsive precious metals purchase syndrome (CPMPS) AKA gold purchase disorder (GPD) :)


Fri, 06/15/2012 - 07:24 | 2528652 Silver Garbage Man
Silver Garbage Man's picture

This is why I unloaded my retirement accounts, paid the tax and loaded up on Gold and Silver. It is the only safe place to be with all the insanity and short term thinking.

Fri, 06/15/2012 - 07:24 | 2528653 Cdad
Cdad's picture

what happens when the market realizes that suddenly, Syriza not winning the Greek elections is the downside case

As always, spot on.

And in relation to this matter, Tyler, on how "more printing would have no impact," don't forget to take your victory lap here:

No one has stayed on the subject of GM more steadfastly than ZH...and here come the first whispers that the government intervention in GM may not have been enough.  Of course, the real answer is that GM allowed itself to be bailed out and now the public entirely rejects the company's products...but details shcmeetails.  I mean seriously...who could have forseen that screwing over millions of bond holders and shareholders would have left a bad taste in the nation's collective mouth?  No one could have seen that coming.  


Fri, 06/15/2012 - 07:25 | 2528654 TooBearish
TooBearish's picture

I hasn't worked because they haven't done enough of it - P Krugman.

Fri, 06/15/2012 - 22:07 | 2531197 Bohm Squad
Bohm Squad's picture

At first, I thought you had misspelled a word - but then I realized that is probably the actual quote.  ;)

Fri, 06/15/2012 - 07:30 | 2528661 flacon
flacon's picture

Just a note: The LME is not the same as the LBMA. LBMA is where the PM trading happens.

Fri, 06/15/2012 - 07:27 | 2528658 lolmao500
lolmao500's picture

Just make it real big. Like a few trillions over a few months.

Fri, 06/15/2012 - 07:28 | 2528659 Squid-puppets a...
Squid-puppets a-go-go's picture

I wonder if any country has tried a system of de-coupling the interest on savers from the interest on borrowers?

Given that we are talking about fractionally reserved (made up) money anyway, it has to be one of the most unexamined furphies in our economic cargo cult that savings and borrowings interest has to be somehow in lockstep.

Fri, 06/15/2012 - 07:29 | 2528662 nah
nah's picture

make it rain

Fri, 06/15/2012 - 07:29 | 2528663 LULZBank
LULZBank's picture

 Most importantly, the only question now is how long before the entire "global intervention rumor" is faded, and what happens when the market realizes that suddenly, Syriza not winning the Greek elections is the downside case as it would mean no coordinated central bank intervention. Great job central planners - you have just shot yourself in the foot once again.


Great piece of analysis, Tylers!!!

HATS OFF and Thank you for all your contributions!

Fri, 06/15/2012 - 07:34 | 2528668 JackT
JackT's picture

Tyler, the tone of your writing seems worn..almost as if you are absolutely disgusted. Is it because the passing of each day further proves that "they" really are inept?

Fri, 06/15/2012 - 07:41 | 2528675 LULZBank
LULZBank's picture

I guess hes tired of allthe BS, like we all are, and want it to end sooner?

Here's somethign for the LULZ:

Mansion House speech: George Osborne presented with GCSE maths book

Fri, 06/15/2012 - 08:00 | 2528702 i-dog
i-dog's picture

I'll take this one ... 'cos I'm disgusted, too ... at the insanity of all the pundits continuing to suggest yet another bandaid, or yet another rearrangement of the deckchairs. Too much debt can't be solved by more debt; too much government can't be solved by more government; too many unenforced regulations can't be solved by more regulations; too much central planning can't be solved by further centralisation of planning; too much money printing can't be solved by changing the name of the money being printed (or the location of the printers).

In short: The current paradigm is broken beyond repair, so a new paradigm is needed. The imperialist and expansionist paradigm of the past 5,000 years has reached saturation and can't be continued any further without global war (which they are planning) and global depopulation (which they are planning). We need to find another way that doesn't involve re-colonising Africa or the Middle East.

Until some of the pundits therefore start talking about rebuilding a new world organically and fractally from the ground up - that is, by encouraging each and every group with a different view of the way forward to attempt their own way forward in their own neck of the woods - whether at community or homogenous nation state level - then I ain't listening any further ... I'll just be waiting for the inevitable global solution of global war to start.

Fri, 06/15/2012 - 08:53 | 2528817 Mitzibitzi
Mitzibitzi's picture

Trouble is... we (the productive) have invented all this kick-ass new technology and so the elite figure it's worth one more go at the thousand times failed central-planning fiat-currency system that serves their purposes so well - and has for thousands of years.

Cos now they have much better means of surveillance, CCTV on every street, almost invisible drone weapons that can take out any house, car or person the things can see - anywhere on Earth. They can read all our email, look which websites we visit, know where we shop and what we buy. They're carefully steering us towards non-physical currency. All kinds of fun ways to make sure we're not individually or collectively upto something they don't like.

All this new shit has given them hope that this time things can be different; this time they can set up a fiat system that funnels the benefits of everyone else's productivity to them - but won't blow itself up after 20-50 years like all the others have. 

All the toys may benefit them but they work equally for us. Which is why they're trying to tilt the playing field some more with SOPA and all the other bullshit that's designed to twist the Internet into something that will perform the same job, because that's so useful, but is under their control.

It won't work, of course.

Fri, 06/15/2012 - 09:23 | 2528946 i-dog
i-dog's picture


BTW, I haven't given up ... I'm just biding my time until I can actually make a difference. The 'elite' (they're not really...they're inbred morons with delusions of grandeur!) will not only have "one more go", they'll keep trying and trying to keep the game going -- as they have for thousands of years -- until we, as a supposedly intelligent species, come up with a new paradigm that completely shuts them out from deciding who owns what and who pays.

Fuck the church...fuck the nobility...fuck the moneychangers...and fuck the system they are desperately trying to hang on to.


Fri, 06/15/2012 - 08:08 | 2528705 falak pema
falak pema's picture

ain't fun looking into the abyss; we become the abyss, that is the danger! 

It makes me impertinent and poetically horny; looking into the abyss; and I sing Bob Dylan, Otis Reading, Aba, ...take your pick; as long as its not Götterdämmerung! 

Fri, 06/15/2012 - 07:41 | 2528677 GMadScientist
GMadScientist's picture

I really didn't think they'd find a way to ramp the correlation even higher (cinch up the straps on the explosive vest, as it were).

I'll try to stop thinking before they do something worse.

Fri, 06/15/2012 - 07:43 | 2528679 Mordan I
Mordan I's picture

It may end quickly. As in a full stop.

Fri, 06/15/2012 - 07:48 | 2528681 falak pema
falak pema's picture

Its like this short story I read : It began like this : "Dad, I think I have a problem on which I need your advice..."

"What is it Alice? COme talk to me about it." Replies Dad.

Turned out Alice had a crush on her Dad! It went from soap opera to melodramatic to incestuous soft n erotic to hard porno grab as grab can; desperate, recurrent obsession. 

I think thats where we are in this current crony capitalistic financial  crisis movie, with no holds barred and no regulations allowed. "Ever more, upwards and over the top, never stop", gets gored galored and more hubristically, pathologically sordid. ALice and her Dad couldn't look at each other in the eye without feeling lust and bite the dust, hit frantic the rug,  from that day on. It ruined the family and happiness in bliss became hell in concupiscence, badly hidden then openly displayed; then aggressively flouted like in " only we undertand what joy this brings us". Makes a great story but not a great reality; sometimes we are the reflection of our reality shows, those that make the advertising and media world go round,  as THIS virtuality has become the sick universal norm.

When oligarchs let all their boils and soils hang out you know that its getting to the end of the story and what began on an off the beaten track, ephemeral, adventure trail, unique unnatural but oh so natural moment to be shared then controlled, CDO-CDS fat tail spree, is now land of tragic Atreus. It'll be knives and betrayal songs, moans and groans; like all throughout history !

Fri, 06/15/2012 - 07:50 | 2528690 LULZBank
LULZBank's picture

Your post had all the vital ingredients. Sex, violence and drama.

Fri, 06/15/2012 - 07:48 | 2528686 Mordan I
Mordan I's picture

2000 years from now someone will dig up my gold and say thanks. They will wonder what happened in those Dark times. 

Fri, 06/15/2012 - 09:19 | 2528920 IAmNotMark
IAmNotMark's picture

Bury your story with it. 

And include a copy of 1984 and a Mad magazine.  Totalitarian insanity  absurdity :)

Fri, 06/15/2012 - 07:52 | 2528692 kralizec
kralizec's picture

I'm sure telling them it will have no impact will have an impact.


Fri, 06/15/2012 - 07:57 | 2528695 Mordan I
Mordan I's picture

All Romans have been recalled to Rome and the Emperor Honorious told the people of Britain that they no longer had a connection to Rome and that they should defend themselves.

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