It does represent future risk to inflation - but pray tell, how would the Fed easily control this again - without serious market consequences, that is?
Inflation at 53-year low as QE money printing rages unabated!
- Thread starter Ricter
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It does represent future risk to inflation - but pray tell, how would the Fed easily control this again - without serious market consequences, that is?
But you previously said that qe was far better than the alternative. I assume you were talking about growth and unemployment consequences? So if you unwind it all, how does it not do all the damage that you say it kept us from?
Here are a few points for you guys to argue with me.
You're wrong if you think that QE amounted to "printing" and greatly expanded the money in circulation.
It did expand it some.
What QE, combined with some qualitative easing, was marvelously effective at was in bringing down, and holding down, long term interest rates, and thus rescuing home owners and turning around the Real Estate/Construction sector of the economy. Hats off to gentle Ben.
The Fed did not print, but most believe it did. The market is almost never rational despite what all the books say. So if people believe the Fed is printing they will sell the dollar and the market will go up. That's what happened in fact. So gentle Ben was able to rescue the market as well. Now that the dollar is strengthening, the market will cool some, but this will be moderated by an economy that continues a very slow recovery overall.. These things all take considerable time to play out, so be patient.
Prices are stickier (less elastic) then Adam Smith's theory would allow for. So when demand slackens, prices may hardly budge. When corporate revenues fade, some will try to bolster the bottom line by actually raising price rather than give in to slackening demand. Some prices are virtually inelastic. Medical, for example, and that's a gigantic segment of the economy.
Greenspan never understood real markets as opposed to the theoretical ones he studied in school. He though markets would correct excesses spontaneously. Bernanke, being a student of the Great Depression, seems to have a much better practical understanding.
There is only so much the Fed can do. Blame for a jobs recovery that has been far to slow, and for an unnecessarily long recovery period, can be blamed on Congress. They should have approved both the 4% increase in the top marginal tax rate and the full amount of the additional infrastructure stimulus packages that the administrations economists were calling for. Keynes was right, but halfway measures will produce a halfway result.
Of course the Fed and Treasury, in hindsight might have done things a little differently, but overall they did quite well considering the mess the Greenspan Fed created by failing to regulate mortgages. (The chief regulator did not believe in regulation! Imagine that!). We are fortunate to be done with Doctor Greenspan.
The large bank reserves represent a potential source of future inflation. But the Fed can dampen inflation by selling securities, and they hold a mother lode right now. They also, in case anyone hasn't noticed, are supposed to regulate banks.
You're wrong if you think that QE amounted to "printing" and greatly expanded the money in circulation.
It did expand it some.
What QE, combined with some qualitative easing, was marvelously effective at was in bringing down, and holding down, long term interest rates, and thus rescuing home owners and turning around the Real Estate/Construction sector of the economy. Hats off to gentle Ben.
The Fed did not print, but most believe it did. The market is almost never rational despite what all the books say. So if people believe the Fed is printing they will sell the dollar and the market will go up. That's what happened in fact. So gentle Ben was able to rescue the market as well. Now that the dollar is strengthening, the market will cool some, but this will be moderated by an economy that continues a very slow recovery overall.. These things all take considerable time to play out, so be patient.
Prices are stickier (less elastic) then Adam Smith's theory would allow for. So when demand slackens, prices may hardly budge. When corporate revenues fade, some will try to bolster the bottom line by actually raising price rather than give in to slackening demand. Some prices are virtually inelastic. Medical, for example, and that's a gigantic segment of the economy.
Greenspan never understood real markets as opposed to the theoretical ones he studied in school. He though markets would correct excesses spontaneously. Bernanke, being a student of the Great Depression, seems to have a much better practical understanding.
There is only so much the Fed can do. Blame for a jobs recovery that has been far to slow, and for an unnecessarily long recovery period, can be blamed on Congress. They should have approved both the 4% increase in the top marginal tax rate and the full amount of the additional infrastructure stimulus packages that the administrations economists were calling for. Keynes was right, but halfway measures will produce a halfway result.
Of course the Fed and Treasury, in hindsight might have done things a little differently, but overall they did quite well considering the mess the Greenspan Fed created by failing to regulate mortgages. (The chief regulator did not believe in regulation! Imagine that!). We are fortunate to be done with Doctor Greenspan.
The large bank reserves represent a potential source of future inflation. But the Fed can dampen inflation by selling securities, and they hold a mother lode right now. They also, in case anyone hasn't noticed, are supposed to regulate banks.
Obviously if you unwind to rapidly, it could do damage. You have to unwind very carefully, as the economy and productivity allows. The Fed will do it very slowly and with great attention to the affect on the economy.
The Fed is like a giant money buffer. When Treasury needs a lot of money in an emergency situation and they can't attract enough bond buyers without upping yields, the Fed can step in as a ready buyer. Then over time the Fed can unwind their position in dribbles. Time is an important variable in these operations. The folks running the Fed are much better at their jobs than we are at second guessing them.
This is not to say that we can ignore deficits forever. To the extent you don't pay debts back via productivity and revenue gains and/or fiscal cuts and tax hikes, you will be forced to pay them via inflation and lowered living standards for the middle class. This is why all the political speak about lowering taxes without proposing corresponding fiscal cuts is nonsense. But the average voter does not understand the link between deficits and inflation --there is typically a huge lag. So the politician would much rather talk of tax cuts and then later take the money they cut back, and then some, because of interest, via inflation. I don't know where people think inflation comes from, but they seem to think it is some kind of natural phenomenon that their politicians are not responsible for.
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Just stop. You've been shown where Ben Bernanke has admitted it was printing. When the Chairman of the Fed says it's printing, your argument is done. Have the decency to let it die.
Now whether it expanded money in circulation, you can make an argument on technicality. The money bought bonds it would otherwise have not bought, and those bonds would have been purchased by someone else instead. If you have $1000, and I have a used car with no money that I am trying to sell you, the amount of money in circulation for this argument is $1000. If Ricter comes along to buy that car from me for $1000, and then you say "Well, now I can go spend my money on something else" the amount of cash in the argument is $2000. Call it whatever you want to appease your semantics, but money available for use (read: the purchase of assets) is now greater. The only real difference is that in the case of the banks, it was done through the use of leverage while they kept the cash parked.
Except when the return on holding money, through the suppression of interest rates, is effectively zero (or even negative when you account for inflation). Then you need to turn that money - if you are capable - into hard assets.
Neither understood markets. Bernanke, being a student of the Great Depression, doesn't understand them any better than Greenspan did. If he did, and QE were to work, the macro economic data in this country would be much, much better for all the money we spent to get it there. Instead, we have nothing to show for it but a Fed with a gorged balance sheet, ZIRP and no way to raise rates without bursting the bubbles it has created. And therefore, when the next recession comes (if we're not already in it), it'll have no power to soften the blow because it can't do anything except begin to gorge even more. See where that ends.
Agree wholeheartedly. This is why the Fed should have done very little and let the market sort it out. If they had just supported liquidity to make sure nothing locked up, the market would have cleansed itself. Bad debt would have been removed. Those who made bad decisions would have paid for it. We would have had a painful time of it but by now would have been showing real promise. Bernanke should have stood up and said "This is not the Fed's fight. Congress, get off your ass and do something." Instead, he let Congress bully him into doing everything. Remember Schumer's "Get to work, Mr. Chairman." hilarity.
Just LOL.
Agree on regulation of banks, but how can they do that when they are essentially owned/bullied by the banks? As for the selling of securities, let them try and watch what happens to markets all over the world. They don't have the guts. In fact, the next move will probably be more QE, not selling of anything.
You still didn't answer the question. First you said that qe did all these wonderful things and saved us from disaster. Then you say that undoing it would be relatively easy, with no ill effects. How can it be great on the way up and do nothing on the way down?
But back to the whole qe argument in general. The gov't borrowed a number of trillions of dollars and the fed helped them do it with financial repression. What this resulted in was the risk takers that were in way over their heads being bailed out and the prudent , conservative people getting hosed by the low interest rates. In capitalism the risk takers should have paid. In socialism, the pain would have been spread around. But what we got was even worse than socialism because the risk takers not only didn't pay, they got rewarded. Yes, even worse than socialism.
And what did we do to get the above result? We put the gov't in hock for many trillions more dollars and almost guaranteed that we'll experience lower than optimal growth going forward for many years and most likely zirp, too, because the gov't can't afford realistic interest rates with this level of debt.
You have bought the line the left tells about how the middle class and poor were saved from unemployment and poverty by all this. But lets not forget that when this all commenced, we were told that without all the stimulus and financial repression, unemployment would go over 8 percent and by using these measures unemployment would stay under 8 percent. That didn't happen. With all this gov't interference, unemployment went higher than what we were told it would go if we did nothing.
So we bailed out the risk takers, screwed the prudent, loaded up on gov't debt, and almost certainly guaranteed both lower growth going forward and continued increased meddling by the federal reserve and didn't accomplish what they told us the objective was for unemployment.
Leaving aside the inequity of it all, we are totally screwed going forward.
I'll just add one more thing about the macro policies. We got totally leveraged up prior to 08 financing assets that didn't turn out to be productive enough to pay for themselves and then the crisis came. Common sense tells a person that the unproductive assets be liquidated. But common sense didn't prevail. We had to turn to the Keynesian theory of aggregate demand and try to pump out enough money to create demand for all the unproductive assets.
That is craziness on steroids. Unproductive assets should have been liquidated. It will only prolong the time till they have to be liquidated and there will be trillions more debt to deal with.
That is craziness on steroids. Unproductive assets should have been liquidated. It will only prolong the time till they have to be liquidated and there will be trillions more debt to deal with.
" You've been shown where Ben Bernanke has admitted it was printing." I haven't actually. Do you care to point it out to me?
I mentioned that Soros preferred that the troubled assets remain with the banks. I tend to think his approach would have been better in the long run. But we have to give the Fed some credit here, because by rescuing real estate they also made those securities that the Fed traded for credits to the Banks' reserve accounts worth something. It is too soon to know, but my guess is that the Fed will come out all right on them, and probably even make a little profit when they eventually unwind the securities they took off the banks hands. Remember they were bought by the Fed at a discount.
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Do you not read the posts you respond to or is this a version of trolling?
http://thedailyshow.cc.com/videos/q7hzaa/the-big-bank-theory
I gave this link to you in this post.