The Ever Diminishing Returns Of Central Bank Intervention, Or QE As The Godfather Trilogy

Tyler Durden's picture

To anyone who is still confused about why the Fed is on the fence about QE 3, the chart below, inspired by David Rosenberg's daily note, should explain it all. While we have repeatedly shown that the intervention of central banks in the FX arena gets progressively weaker with each incremental incursion by central planning into formerly free and efficient markets, the same can be said for not only fiscal stimulus (today's bankruptcy of Solyndra being merely the ironic cherry on top of the house of cards), the same is most certainly true about monetary intervention as well, in the form of LSAP or any other form of duration extension. And while many have already explained extensively why QE was a flop, here is Rosie with an angle we had not considered before: movie trilogies: "it's not as if QE2 accomplished anything except a blip on the screen as far as the market was concerned, and it elicited no lasting benefit for the economy either. QE1 did work but that was when the system needed to be saved - the S&P rallied 74% on that program. QE2 was nothing more than a gimmick shrouded in deflation concerns [uhm, this coming from Rosie? we'll let it slide] that never materialized, and during this program the stock market ended up rising just 16%. And so what will QE3 bring except more in the way of diminishing returns and resource misallocation caused by central bankers attempting to play around with mother nature by manipulating asset prices? Call it the equivalent to the Godfather Triology: Godfather I was epic; Godfather II not quite as good but still fine; and Godfather III was a dud." And as for the appropriate visual...