If there’s no downside to “quantitative easing” and it doesn’t look like Congress is going to get its act together anytime soon why stop QE? Why not just keep it up indefinitely? In fact why not expand quantitative debt swapping to include private companies that are burdened with debt and starved for capital and, so, not hiring?
Well first off, I never claimed there is no downside to QE so that would be your assessment if you are representing that as an opinion. I’ve stated many times there absolutely are downsides to QE and I doubt you’ll find anyone who says otherwise. What you will find though are a lot of people (myself included) who would rather have a real and honest conversation about whether the benefits of QE outweigh the downsides. Sadly, half the country just wants to look at QE in a vacuum and say it’s bad, therefore the fed is fucking up the country and Bernanke is a moron. Well ok, but if these people want to sit at the grown up table, it’s actually far more nuanced than that. My opinion (and it’s neither the only one nor necessarily the right one) is that the good has outweighed the bad. So far, which is the key going forward. There is a shelf life on the effectiveness of such policies.
QE and low interest rates are fast becoming less and less effective. The fed bought us time which was a good thing, dare I say a mandatory thing, but the government is burning through that extra time with every passing day. If they don’t get their act together soon, then yes it would seem we would be forced to do more QE, which would only be marginally effective at this point and fast becoming a net negative.
The government can fix this though. They can get the budget under control. By that I don’t necessarily mean reduce it, because I’m not opposed to spending. But if you are going to spend, spend it on re-investing in America’s future. Spend it on things that have an expected future revenue stream and a realistic chance to grow the job sector. The US GDP is staggeringly high. They could if they wanted simply choose to roll out massive infrastructure and transportation programs around the US. They could choose to once again become the beacon of innovation and technology in the world.
It wouldn’t even take that long or that much money. Think of everything that has come from the space program. The moon landing, the space station, the Hubble telescope, the myriad of new technologies, the vast number of jobs, and the hope and dreams of people everywhere. ALL of that, brought to you by the same amount of money as the auto industry bail out. 50 years of space program, amounting to the cost of TARP. A single year of defence spending is more than 50 years of the space program.
The US Government is Paris Hilton with 17 credit cards and no concept of the value of money. That’s not the fed’s fault. I guarantee you if the fed was in charge of the budget, it would look radically different than it does now.
If they crack down on special interest groups and lobbying, they could also choose to reign in the banks, bring them back to being facilitators of money rather than speculators. Bring back Glass Steagall and stop this out of control spiral. The fed can only regulate laws that are already laws, they can’t write new ones. If we want to reign in the banks, which I hope we are all in favour of, that is the job of Congress.
At the end of the day the fed doesn’t have magical powers. They are only a small part of the system and they can only do what they have been doing. Buying us time, and if you’ve watched any of Bernanke’s appearances in front of Congress, imploring government to get their act together before it really is too late.
What do you think the downsides to QE are? You haven’t mentioned any so far so I got the impression that you regard “credit swapping” as a largely benign activity that has only upsides if managed carefully.
[quote]The government can fix this though. They can get the budget under control. By that I don’t necessarily mean reduce it, because I’m not opposed to spending. But if you are going to spend, spend it on re-investing in America’s future. Spend it on things that have an expected future revenue stream and a realistic chance to grow the job sector. The US GDP is staggeringly high. They could if they wanted simply choose to roll out massive infrastructure and transportation programs around the US. They could choose to once again become the beacon of innovation and technology in the world.
It wouldn’t even take that long or that much money. Think of everything that has come from the space program. The moon landing, the space station, the Hubble telescope, the myriad of new technologies, the vast number of jobs, and the hope and dreams of people everywhere. ALL of that, brought to you by the same amount of money as the auto industry bail out. 50 years of space program, amounting to the cost of TARP. A single year of defence spending is more than 50 years of the space program.[/quote]
This is the basic reason I would argue QE was a bad decision - even if it was (marginally) effective. There are so many other things that could have been done with that money. The US infrastructure is pretty bad by first-world standards, and only the government can fix it. QE, by definition, can only deliver market-driven solutions: the private sector can’t fix those things that desperately need fixing and would deliver a clear, predictable return (businesses operate better with good infrastructure).
You know and I know that there will be no new legislation from the US government now. All is well again, so there’s no need … until the next crisis, and then they’ll all be running around like headless chickens again. TBH, that’s just human nature.
Don’t you think it’s possible that the Fed is not simply the government’s scapegoat? Isn’t it far more likely that they all end up drinking in the same bar after work, laughing themselves silly about how they get to blame everything on each other? If the Board of Directors believed that government policy would plunge the country into a black hole, or if they believed that money spent on propping up incompetent banks might be better spent on making America great again, they could say so, with the force of authority. They could refuse to carry out instructions that damage the country; they could revolt. They could resign en masse. They’ve done none of those things. Why? Because they think the chain of command is more important than facing reality, or that their professional integrity should be put aside at the whim of uneducated politicians? Poor show, I say.
I love how hard you’re trying to keep it marginalized, rather than just admitting what seems obvious when you look at the facts. What the US did worked, at least for now, this is a fact. Sure you can argue that it will be short lived if you want, or that we will pay the price later. But to try to say that it didn’t work, or that it only marginally worked, seems to be intentionally ignoring the facts.
There was literally NOBODY that was predicting such a fast and furious recovery after what we experienced in 2008. Everybody now is an arm chair hindsight expert, but in 2008, NOBODY would have predicted we would have such a strong US economy. The dollar where it is, manufacturing, exports, energy market, the housing market roaring back, unemployment at 5.8%, GDP remaining robust, come on ! What more do you want? There’s no way you were predicting in 2008 a better result than we actually got.
So QE worked, we know this. The facts support this, let’s move on. From here there’s really only two things still left to debate.
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Are we going to pay a bigger price later? And if so, what could we do right now to make the future damage less?
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What other things could have been done instead of QE that would have worked even better than the smashing success of a recovery we have already seen? We’ve talked about two. If there are “so many” other things, list a bunch, let’s talk about them.
I tend to think and speak taking as many of the intercorrelations into account as possible and reaching a conclusion I can stand behind. I don’t tend to break it down so systematically and say advantages a, b, c, and disadvantages x, y, z etc… In my opinion QE was a net positive for the economy and it sparked one of the greatest recoveries any economy has ever seen. That’s likely why you’ve only heard positives from me, because I view it as a positive overall. That doesn’t imply though as you say it’s benign and has no downsides.
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Although the fed’s balance sheet exists basically outside the main economy, that doesn’t mean that it can be expanded forever. At some point it has to be drawn back down. Now of course time will fix that problem, because they didn’t just flush the money. They do actually receive an income stream from it with an expiry date, and that income is returned to the people every year. So yeah, a net positive, but there is an aspect of negative in there, and that is the fed’s balance sheet is bloated, which will limit future monetary policy choices.
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Because of the awesome recovery we have seen, it’s sort of a double edged sword. Things worked out so well that at this point, there will be less incentive for government to change anything right now. Due to QE’s success, they’ve had plenty of time to sit on their ass and do nothing. If it didn’t work so well, we may have had to make some tough policy decisions already. As I’ve said many times, QE only buys time, it doesn’t actually fix anything. The fed did their job, and now it’s governments turn. I fear they will once again drop the ball.
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I am very far from a fan of the banking industry. I have been openly critical of it for years, written articles on it, recorded blog posts and videos about it, screamed it every chance I get. I want much more stringent regulation, and I want Glass Steagall back. QE’s success was again the double edged sword. I believe it was necessary to stop us from falling off the cliff, but it also breeds moral hazard. The banks haven’t yet had to take responsibility for their mismanagement, and I fear they are on the same path to self destruction they were on just 7 years ago. Not a whole lot has changed and they are already up to their same old tricks. Again, QE bought us time and some breathing room, but it’s high time the government start cracking down. Start creating some laws, start increasing regulation, and start handing out some fines, convictions, and make them pay for what they’ve done. QE may have interfered with that process, and we may re visit the crisis of 08 in the years to come if government doesn’t step up and actually deliver something.
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QE post 2008 was necessary, but it would have been even more effective if it was 10 or 20 years earlier. The fact that interest rates were already historically low before the QE programs, that means that we already knew from the beginning it wasn’t going to get the full bang for the buck that it would have. It still needed to be done, but it’s definitely dancing on a pretty narrow tight rope when you do it with low rates already.
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Pushing rates this low and pumping liquidity into the system forces market participants to chase higher yields, potentially creating bubbles that will at some point burst. I’m far less concerned about individuals though. They will always find a way to fuck up their finances. What I am concerned about is the pension funds, social security programs, insurance programs, that are all based on having a certain level of risk free rate in order to make their models work. Now that rates are so low, it is EXTREMELY important to have good fund managers at the helm who won’t just chase yield and increase leverage in risky assets to make their models work, because mistakes in this post QE environment will be far more costly than they were before. Unfortunately, good and responsible fund managers are very few and far between. We will likely see some tragedies in the years to come due to yield chasing and mismanagement.
I could probably go on for quite a while, like novel length response, how much time have you got? Books have been written on the negatives of QE and I think I could probably fill one myself. QE has quite a few downsides. Fortunately, it also has many positives. It’s my job to look at the big picture and try to come up with some good analysis which will help me in the future. After doing that, right or wrong, I’ve concluded that it was a good thing overall. I guess you could say, the lesser of two evils. QE is no doubt, not a good idea, and should be avoided if at all possible. But given the very grim situation we were facing, it was necessary and far better than the alternative.
Are you trying to say that corruption does not exist within the elitist world and that we need a degree in some fucking institution to figure out we are being fucked over? Granted, economics has got more opinions than religion but you can bet your fucking ass the Fed and the self appointed cronies the run the show are not immune from corruption and care not for the economic status of the US or working class people. Their goal is to keep the game afloat as long as they can. I only hope that when the cards come crashing down , these criminals are hunted down and hung in the street.
This is exactly what I’m thinking. You can see the money being pumped in every night (Taiwan time) when the bell on wall street rings, even when the global economic data is telling you it’s not a good idea to buy right now. Sure, fund managers think differently to traders, but can’t they see that obviously there will be a downward trend for at least a few days, or even one day, so we can hold some of this cash and buy at a lower unit cost?
I guess some of the better fund managers might do this, but many just have an automatic buy system, regardless of the market signals. After all, it’s not their money, and it makes their job easier.
The Swiss National Bank recently introduced a negative interest rate. You can get 17% on the Russian Ruble.
We live in interesting times.
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The recovery isn’t all that awesome, as recoveries go.
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Such as it is, it’e got nothing to do with quantitative snake oil, and everything to do with another kind of oil. If not for fracking, we’d all be fracked.
[quote=“Charlie Phillips”]The Swiss National Bank recently introduced a negative interest rate. You can get 17% on the Russian Ruble.
We live in interesting times.[/quote]
The banking system already died. They failed, they went bust. The problem is they alone think they’re inside a video game where they can bounce on a box (or sign a piece of paper) and gain a 1up and they can just replay the level.
Meanwhile the usage of the words ‘trillions’ and ‘quadrillions’ which were once specialized and used only in certain scientific fields such as planetary physics have now become commonplace in finance. Combine that with human greed and lust for power at the top and you have all these reports about all the major banks recently being fined billions for committing epic fraud once again, reports that 10000 of the wealthiest people are holding upward of $THIRTY TRILLION in offshore accounts not including their estates bullion art etc, etcetc
The worst of it is, millions upon millions of human hours have gone into thinking about the nature of money. And this has been the result so far. Normally by this point you would have something to show for it, instead of having created a near catastrophe.
Words of wisdom!
Here is what happens if you don’t give banks preference over people:
washingtonsblog.com/2012/08/ … wrong.html
While in the US, on the other hand, the “taxpayers” will be asked again to hold the bag:
washingtonsblog.com/2014/12/ … tives.html
What many people still don’t realize is that the biggest threat to the US is not China but capitalism.
(Never mind that China is in the grip of capitalism, too, and will, by the latest, see its demise after that of the US.)
And here some much more entertaining reading on some financial matters:
rollingstone.com/politics/ne … l-20120314
[quote=“yuli”]Here is what happens if you don’t give banks preference over people:
washingtonsblog.com/2012/08/ … wrong.html[/quote]
Interesting example. I’m not familiar with the details (I’d quite like to go have a look, next time I’m in Europe) but AFAIK Iceland is pretty much back where it was pre-apocalypse. If that’s so, it would suggest (but of course not confirm - a single datum is not data) that interventions are not especially useful.