Ever Less Bang For The Printed Buck
As markets crave their next fix of the money-printing elixir, perhaps it is worth noting the ever-decreasing impact that the quantitative easing experiments have had on 'measures' of the real economy. This seems to suggest that either: "we're gonna need a bigger boat" and the ongoing QEs will need to be exponentially larger than the prior in order to enact change in the 'measures' of real economy; or, the Fed has hit its limit as yet another 'multiplier effect' has been proved wrong in the limit and all we get to play with is the unintended consequences of a hidden inflation peering into view. Of course this is typical Keynesian dogma: if at first you don't succeed, do it again but bigger, more global, and with more geopolitical danger.
From QE1 to QE2 to Twist, the real economic impact, as measured by the ECRI weekly growth index, has risen by smaller and smaller amounts. What is also evident is the 'overshoot' that our horde of economists has consistently forecast with each QE as the ECO surprise Index rips higher on the liquidity flood and then reverts rapidly as reality sinks and sustainability becomes fallacy and not fact.
Finally, LTRO managed to juice the ECRI growth rate a little more this year - as is clear from its break out of the red oval - which was looking perilously similar to 2008 - and indeed, given the ECB's cornered nature, may still prove to be the analog to watch.