Late on Friday afternoon, desparate to relive his mid-October 'world-saving' heroics, The Fed's Jim Bullard unleashed some more Fedspeak aimed at the promise of moar money to save the world (i.e. stocks) if things don't work out. But it is his concluding comment that sparked the most 'keyboard-smashing-angst' for those not buying the spoon-fed omnipotence of the central planners. Bullard stated unequivocally that "the lesson of QE is that it works fairly well." While we are not exactly sure what his definition of 'works' is, as the chart below and Richard Koo's QE-dream-crushing commentary shows, by reflating assets by their hand, the central planners are putting the cart before the horse... and Japan is a perfect example of the vicious economic spiral that leads to...
First, let's look at how well QE has worked...
- *BULLARD SAYS LESSON OF QE IS IT WORKS 'FAIRLY WELL'
Hhhhmmm... for whom?
As Richard Koo explains...there is a loss of confidence in Japan’s growth potential:
The percentage seeing “greater potential to grow” slipped from 3.3% in June to 3.1% in September and just 2.9% in December.
Meanwhile, the percentage who think the economy has “less potential to grow” rose from 46.1% in June to 49.2% in September and 53.4% in December.
Have people recognized how unreasonable the reflationists’ arguments are?
Mr. Kuroda and his fellow reflationists in academia have argued that if the portfolio rebalancing effect of quantitative easing pushes up asset prices, the owners of those assets will grow richer and spend more money, thereby boosting the economy.
Ordinarily, it is improvements in an economy’s growth potential that boost asset prices by enhancing the expected profitability of those assets.
In the BOJ’s scenario, however, it is the central bank that forces asset prices higher to enhance the economy’s growth potential.
I think the survey findings confirm a realization among the general public that there is a fundamental problem with that argument, that the BOJ is putting the cart before the horse.
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So there we have it... clear as crystal in words and pictures - printing money to reflate assets in the hope it boosts the economy is fallacious at best and utterly disastrous at worst.