Quantitative Easing
November 6, 2010 12:37 PM Subscribe
One day after midterm elections in the U.S., Fed Chairman Ben Bernanke announces the nation's plans to purchase $600 billion in Treasuries.
NPR takes Bernanke's announcement and attempts to "translate it into plain English."
The Fed's move, known as quantitative easing, has been tried with questionable degrees of success and failure in other countries. Some argue that it had a negative impact on Japan's economy, creating a bond bubble.
Despite strong criticism from other nations and some within the U.S., Bernanke defends this move, saying it will strengthen the economy by boosting employment and keeping inflation at the Fed's target rates.
The Fed's move, known as quantitative easing, has been tried with questionable degrees of success and failure in other countries. Some argue that it had a negative impact on Japan's economy, creating a bond bubble.
Despite strong criticism from other nations and some within the U.S., Bernanke defends this move, saying it will strengthen the economy by boosting employment and keeping inflation at the Fed's target rates.
Bernanke says it will strengthen the economy by boosting employment and keeping inflation at the Fed's target rates.
And if it doesn't, then what? Are we going to Eat the Rich (tm) or just deal with more long-term debt?
Someone activate the Mutant Signal!
posted by Old'n'Busted at 12:48 PM on November 6, 2010 [3 favorites]
And if it doesn't, then what? Are we going to Eat the Rich (tm) or just deal with more long-term debt?
Someone activate the Mutant Signal!
posted by Old'n'Busted at 12:48 PM on November 6, 2010 [3 favorites]
Thanks for the link, furiousxgeorge, though it seems to be more of a commentary on his feelings about any criticism of quantitative easing, instead of what it actually will do or not do for the economy.
posted by The ____ of Justice at 12:50 PM on November 6, 2010
posted by The ____ of Justice at 12:50 PM on November 6, 2010
I'll translate it into 10 words: "We are going to print a shit load of money."
posted by carter at 12:52 PM on November 6, 2010 [8 favorites]
posted by carter at 12:52 PM on November 6, 2010 [8 favorites]
So, I know little to nothing about economics.
If you're going to print money, why spend it all on bonds specifically? They expect this to cause inflation, right? Inflation is desirable because it might improve trade balances with other nations? Wouldn't anyone who holds a lot of US dollars want to dump them on hearing this news? Wouldn't this be a bad thing?
posted by phrontist at 12:57 PM on November 6, 2010
If you're going to print money, why spend it all on bonds specifically? They expect this to cause inflation, right? Inflation is desirable because it might improve trade balances with other nations? Wouldn't anyone who holds a lot of US dollars want to dump them on hearing this news? Wouldn't this be a bad thing?
posted by phrontist at 12:57 PM on November 6, 2010
My personal feelings about this is that Bernanke's move is going to have a much stronger, far-reaching impact than anything that actually took place during November 2nd's elections, for most U.S. citizens.
I am kind of amazed nobody put a post about it on metafilter...so I tried to cobble together what I could. Apologies in advance since my grasp of economics is pretty shaky.
posted by The ____ of Justice at 12:57 PM on November 6, 2010 [3 favorites]
I am kind of amazed nobody put a post about it on metafilter...so I tried to cobble together what I could. Apologies in advance since my grasp of economics is pretty shaky.
posted by The ____ of Justice at 12:57 PM on November 6, 2010 [3 favorites]
The Washington Post has a good article on what the downstream effects are for everyday people who have to work for a living.
posted by Blazecock Pileon at 12:58 PM on November 6, 2010 [1 favorite]
posted by Blazecock Pileon at 12:58 PM on November 6, 2010 [1 favorite]
The basic situation of the world economy is simple: we have an excess of desired saving over desired investment, even at a zero interest rate. It looks like this, where the savings and investment schedules are what those schedules would be if we were at full employment:
No, we have an excess of debt that can't be carried by the American economy anymore. We have a debt problem, and printing money is just fighting a debt problem with more debt.
They don't call it 'printing money' anymore because it's being lent into circulation, meaning it has to be repaid. And even at near-zero interest rate, it's still debt. You can't fight a debt problem with more debt; you have to fight it with production, deferring your own consumption, and repaying your creditors with value somewhat greater than what they lent you originally.
This is going to be very difficult, perhaps impossible. A lot of the debt is simply bad and will never be repaid. We're trying to hide that by papering over the problem with floods of money-from-nothing from the central authority, but ultimately that just weakens the dollar and cheats our creditors. If they lent us enough, say, to buy a nice new Honda Civic, they want slightly more than that returned to them in real value. If we depreciate the currency and then repay them in debased dollars, it's the same as stealing part of that Civic from them.
Cheating your creditors, particularly through this kind of fraud, never, ever results in good systemic outcomes. You cannot print your way to prosperity, you have to work for it. We end up cheating ALL creditors in US dollars, not just the ones that knew they were running risks. We end up inflating the currency, sending prices higher. This devastates the poor -- in essence, we steal our privileged consumption from the people who can afford it least. And it makes it much more expensive, or impossible, to borrow new wealth, once the creditors figure out they're being rooked.
And the rich? Oh they do really, really well, at least if they're clever. When you know a currency is being debased, and you have liquid assets, you can make legendary profit. The bankers are going to do exceptionally well.
posted by Malor at 12:59 PM on November 6, 2010 [18 favorites]
No, we have an excess of debt that can't be carried by the American economy anymore. We have a debt problem, and printing money is just fighting a debt problem with more debt.
They don't call it 'printing money' anymore because it's being lent into circulation, meaning it has to be repaid. And even at near-zero interest rate, it's still debt. You can't fight a debt problem with more debt; you have to fight it with production, deferring your own consumption, and repaying your creditors with value somewhat greater than what they lent you originally.
This is going to be very difficult, perhaps impossible. A lot of the debt is simply bad and will never be repaid. We're trying to hide that by papering over the problem with floods of money-from-nothing from the central authority, but ultimately that just weakens the dollar and cheats our creditors. If they lent us enough, say, to buy a nice new Honda Civic, they want slightly more than that returned to them in real value. If we depreciate the currency and then repay them in debased dollars, it's the same as stealing part of that Civic from them.
Cheating your creditors, particularly through this kind of fraud, never, ever results in good systemic outcomes. You cannot print your way to prosperity, you have to work for it. We end up cheating ALL creditors in US dollars, not just the ones that knew they were running risks. We end up inflating the currency, sending prices higher. This devastates the poor -- in essence, we steal our privileged consumption from the people who can afford it least. And it makes it much more expensive, or impossible, to borrow new wealth, once the creditors figure out they're being rooked.
And the rich? Oh they do really, really well, at least if they're clever. When you know a currency is being debased, and you have liquid assets, you can make legendary profit. The bankers are going to do exceptionally well.
posted by Malor at 12:59 PM on November 6, 2010 [18 favorites]
Imagine the following phone call that Ben S. Bernanke might have received this morning in the wake of last night’s election results. The time is 5:00am in Washington, D.C., and our Fed Chairman is sound asleep when he is jarred awake by the phone on his bedside table.
BB: Hello?
WH: Mr. Beranke?
BB: Yes
WH: This is the White House operator; please stand by for the President
BO: Good Morning, Ben!
BB: Uh, good morning, Mr. President. What time is it?
BO: It’s time to get this country moving again! Did you see last night’s election results?
BB: No, sir, I went to bed early — just as I always do during 2 day FOMC meetings
BO: Well, Mr. Chairman, the American people have spoken. We lost the House and lost ground in the Senate. At least my buddy, Harry, survived, but I’m going to need your help.
BB: My help, sir?
BO: Yes. Do you remember the little chat we had in the Oval Office when I was still considering whether or not to reappoint you in 2009?
BB: Yes, Mr. President. You said you might some day need my help.
BO: Right, and that day is today. I kept my end of the bargain and did reappoint you, didn’t I?
BB: Yes, sir, but what does that conversation have to do with last night’s election results?
BO: Well, Ben, with the House gone and the Senate bottled up, the only stimulus package I could get passed during the next two years will be to allow oil drilling in sensitive places like the Arctic Wildlife Refuge or Central Park. And the only jobs bill that will likely reach my desk is one to build more prisons. Fiscal stimulus is dead for the foreseeable future, Ben, so our only hope is monetary stimulus.
BB: I see what you mean, Mr. President.
BO: You’ve recently said yourself, Ben, that the economy was underperforming and that the Fed was falling short of meeting both of its dual mandates.
BB: Yes, but…
BO: Well, I’m still the Commander-in-Chief, Ben, and I now I’m asking for your help to get our economy moving again. Is your fleet of money-dropping helicopters gassed up and ready to fly?
BB: Yes, sir. We will finalize the tasking orders this morning.
BO: Good man. When will you be telling the country the good news?
BB: We’ll outline the sorties and mission profiles in a press release at 2:15pm today, sir.
BO: Excellent, Ben. Let me leave you with one final thought. Our economy is sputtering and monetary policy is the only weapon we have left. Your President and your nation are counting on you.
BB: Yes, Mr. President. I won’t let you down, sir.
Please note that while this call is completely fictional, I believe the emotions, motivations, and political realities behind this imaginary conversation are real. As we await today’s FOMC announcement, let’s hope our leaders in Washington will one day realize this mess needn’t have happened. If Alan Greenspan, Ben Bernanke, and the academics who overpopulate the Fed truly understood that asset bubbles must be prevented, then they wouldn’t feel such an urgency to hose them down with liquidity after they pop. Unfortunately, we’ve now reached the point where desperate men will think that desperate times call for desperate measures.
Jack McHugh Via Barry Ritholz' The Big Picture on 3rd November.
posted by The Lady is a designer at 1:02 PM on November 6, 2010 [6 favorites]
BB: Hello?
WH: Mr. Beranke?
BB: Yes
WH: This is the White House operator; please stand by for the President
BO: Good Morning, Ben!
BB: Uh, good morning, Mr. President. What time is it?
BO: It’s time to get this country moving again! Did you see last night’s election results?
BB: No, sir, I went to bed early — just as I always do during 2 day FOMC meetings
BO: Well, Mr. Chairman, the American people have spoken. We lost the House and lost ground in the Senate. At least my buddy, Harry, survived, but I’m going to need your help.
BB: My help, sir?
BO: Yes. Do you remember the little chat we had in the Oval Office when I was still considering whether or not to reappoint you in 2009?
BB: Yes, Mr. President. You said you might some day need my help.
BO: Right, and that day is today. I kept my end of the bargain and did reappoint you, didn’t I?
BB: Yes, sir, but what does that conversation have to do with last night’s election results?
BO: Well, Ben, with the House gone and the Senate bottled up, the only stimulus package I could get passed during the next two years will be to allow oil drilling in sensitive places like the Arctic Wildlife Refuge or Central Park. And the only jobs bill that will likely reach my desk is one to build more prisons. Fiscal stimulus is dead for the foreseeable future, Ben, so our only hope is monetary stimulus.
BB: I see what you mean, Mr. President.
BO: You’ve recently said yourself, Ben, that the economy was underperforming and that the Fed was falling short of meeting both of its dual mandates.
BB: Yes, but…
BO: Well, I’m still the Commander-in-Chief, Ben, and I now I’m asking for your help to get our economy moving again. Is your fleet of money-dropping helicopters gassed up and ready to fly?
BB: Yes, sir. We will finalize the tasking orders this morning.
BO: Good man. When will you be telling the country the good news?
BB: We’ll outline the sorties and mission profiles in a press release at 2:15pm today, sir.
BO: Excellent, Ben. Let me leave you with one final thought. Our economy is sputtering and monetary policy is the only weapon we have left. Your President and your nation are counting on you.
BB: Yes, Mr. President. I won’t let you down, sir.
Please note that while this call is completely fictional, I believe the emotions, motivations, and political realities behind this imaginary conversation are real. As we await today’s FOMC announcement, let’s hope our leaders in Washington will one day realize this mess needn’t have happened. If Alan Greenspan, Ben Bernanke, and the academics who overpopulate the Fed truly understood that asset bubbles must be prevented, then they wouldn’t feel such an urgency to hose them down with liquidity after they pop. Unfortunately, we’ve now reached the point where desperate men will think that desperate times call for desperate measures.
Jack McHugh Via Barry Ritholz' The Big Picture on 3rd November.
posted by The Lady is a designer at 1:02 PM on November 6, 2010 [6 favorites]
This is a disaster!
This is going to cause inflation of intertube cargo-cult "economists" railing against the fed and issuing dire warnings about hyperinflation! I expect 300% more vitriol!
posted by delmoi at 1:03 PM on November 6, 2010 [15 favorites]
This is going to cause inflation of intertube cargo-cult "economists" railing against the fed and issuing dire warnings about hyperinflation! I expect 300% more vitriol!
posted by delmoi at 1:03 PM on November 6, 2010 [15 favorites]
Malor: [I am in no way an economist] Isn't part of the motivation for this the idea that a weaker dollar makes US exports a lot more attractive, and might lure companies to start producing stuff here again, for sale elsewhere? That is, from one point of view, isn't this an attempt to start producing our way our of the hole, by creating conditions for that to be possible?
If this is pie in the sky, or not a possible outcome, I (and probably everyone else here) would like to know why not.
posted by rusty at 1:11 PM on November 6, 2010
If this is pie in the sky, or not a possible outcome, I (and probably everyone else here) would like to know why not.
posted by rusty at 1:11 PM on November 6, 2010
If they lent us enough, say, to buy a nice new Honda Civic, they want slightly more than that returned to them in real value. If we depreciate the currency and then repay them in debased dollars, it's the same as stealing part of that Civic from them.
Yeah, but now that the debt is paid we can buy a new Civic from them.
posted by furiousxgeorge at 1:15 PM on November 6, 2010 [2 favorites]
Yeah, but now that the debt is paid we can buy a new Civic from them.
posted by furiousxgeorge at 1:15 PM on November 6, 2010 [2 favorites]
If you're going to print money, why spend it all on bonds specifically?I think they are buying federal bonds, which the government can then use to fund itself If the fed didn't buy those bonds, other people would, but the interests rates the government would need to pay would end up being slightly higher.
People who couldn't get government bonds this round, would then have to figure out some safe investment, so they might invest in corporate bonds (more money for corps to spend) or just put it in the bank (more money for the bank to loan out)
At least I think that's how it works.
My personal feelings about this is that Bernanke's move is going to have a much stronger, far-reaching impact than anything that actually took place during November 2nd's elections, for most U.S. citizens.Remember, it's not just Bernanke, but rather the entire Federal Reserve board. Matt Yglesias talks about this a lot but there are two seats on the fed board and Obama hasn't even bothered to nominate anyone. According to Yglesias, this is Obama's biggest political mistake. If the fed had done this 18 months ago, the economy would look vastly different - and probably for the better. How do you think the last election would have gone if unemployment was 5% instead of 10%?
The reality is that waiting this long (though to be fair, congress could also have, and should have, done more direct stimulus spending) has left the country mired in a depression and destroyed the democrat's credibility. Yet, Bernanke, a republican, waits until a massive republican tidal wave to actually start fix the economy. Hmm...
No, we have an excess of debt that can't be carried by the American economy anymore. We have a debt problem, and printing money is just fighting a debt problem with more debt.Are you talking about government debt, or "Debt" in abstract? Lots of these amateur hour economists love to talk about that in an totally ambiguous way, and I wonder if some don't even realize the difference.
The reality on government debt is that the interest is near zero, which means the government can take on a nearly limitless amount without any additional strain (for now). And as we've seen, we can simply borrow it from the Fed, but the reality is people love lending to the government because they are guaranteed to get it back. Loaning money to the government is the same act as buying a government bond.
If you're just talking about "debt" in the abstract, it's absurd. All assets are debts (except for physical objects). When you put money in the bank, you're loaning the bank money.
posted by delmoi at 1:19 PM on November 6, 2010 [3 favorites]
delmoi: This is going to cause inflation of intertube cargo-cult "economists" railing against the fed and issuing dire warnings about hyperinflation! I expect 300% more vitriol!
delmoi, I'm gonna bookmark that, and I'm looking forward very much to reminding you, in another five years or so, about your mockery. You couldn't possibly get more wrongheaded if you tried. Deckchairs on the Titanic, indeed.
The endgame is going to either be a deflationary crash or hyperinflation. There is no other path back to anything resembling normality again. We have too much debt, and by trying to inflate away that debt with MORE debt, we compound the problem, we don't fix it.
If we give up on the idea that lending new money into the system will help us deal with our fiscal problems, we'll crash. If we don't, we'll eventually go into a hyperinflationary runaway, where we try to cancel all debt by 'drowning it out' -- which of course won't work, because we're drowning out the old debt with new debt.
I believe that hyperinflation is the most likely outcome, but I don't know how long it will take to really get there. It might take as long as two decades to fully play out. The Fed will juice the system up with a bunch of cash, and then will try to back off on the stimulus, but then the underlying deflationary crash will start looming again. So they'll have to do another wave of stimulus, and then another, and another. Each will need to be larger and come sooner than the one before. Eventually, the world will figure out what's going on, and then things will start getting very hairy, very quickly. Everything depends, mostly, on what our creditors do.
As I was saying back in the 2003 timeframe, warning that we were going into a housing bubble, and that it was going to pop and wreak enormous havoc, I'd really rather not be right. I don't like being a doom and gloomer. It gets very old. If everything goes back to copacetic and okay, then I'll be very happy. You can't imagine how cheerful it would make me to be wrong.
Unfortunately, I'm not wrong about this. I was right about the Dow/Nasdaq bubble, I was right about the housing bubble, and I'm right about the government debt bubble. But how I wish I were Just Another Internet Crank, because that would be a small price to pay to avoid the catastrophe I see coming.
posted by Malor at 1:27 PM on November 6, 2010 [16 favorites]
delmoi, I'm gonna bookmark that, and I'm looking forward very much to reminding you, in another five years or so, about your mockery. You couldn't possibly get more wrongheaded if you tried. Deckchairs on the Titanic, indeed.
The endgame is going to either be a deflationary crash or hyperinflation. There is no other path back to anything resembling normality again. We have too much debt, and by trying to inflate away that debt with MORE debt, we compound the problem, we don't fix it.
If we give up on the idea that lending new money into the system will help us deal with our fiscal problems, we'll crash. If we don't, we'll eventually go into a hyperinflationary runaway, where we try to cancel all debt by 'drowning it out' -- which of course won't work, because we're drowning out the old debt with new debt.
I believe that hyperinflation is the most likely outcome, but I don't know how long it will take to really get there. It might take as long as two decades to fully play out. The Fed will juice the system up with a bunch of cash, and then will try to back off on the stimulus, but then the underlying deflationary crash will start looming again. So they'll have to do another wave of stimulus, and then another, and another. Each will need to be larger and come sooner than the one before. Eventually, the world will figure out what's going on, and then things will start getting very hairy, very quickly. Everything depends, mostly, on what our creditors do.
As I was saying back in the 2003 timeframe, warning that we were going into a housing bubble, and that it was going to pop and wreak enormous havoc, I'd really rather not be right. I don't like being a doom and gloomer. It gets very old. If everything goes back to copacetic and okay, then I'll be very happy. You can't imagine how cheerful it would make me to be wrong.
Unfortunately, I'm not wrong about this. I was right about the Dow/Nasdaq bubble, I was right about the housing bubble, and I'm right about the government debt bubble. But how I wish I were Just Another Internet Crank, because that would be a small price to pay to avoid the catastrophe I see coming.
posted by Malor at 1:27 PM on November 6, 2010 [16 favorites]
Translation: He is a magician. A furious magician. And he wants our teeth ... for the Federal Reserve! He's cutting interest rates in half, and he wants our teeth.
Are you proud of your country, Spencer?
posted by adipocere at 1:31 PM on November 6, 2010 [3 favorites]
Are you proud of your country, Spencer?
posted by adipocere at 1:31 PM on November 6, 2010 [3 favorites]
"By the way, this is an experiment, and we don't really know how it's going to work out."Not entirely true, this is the second time they do Quantitative Easing (QE), but the first time was to ease the strain on frozen money markets in 2008, this one is known as QE2. The concept is simple enough: a weakened dollar boosts exports which leads to increased growth. The supposed risk if QE2 is not applied is deflation that would make it harder for Americans to pay down debts (sound familiar?)
The Economist suggests that QE2 is necessary, but won't revive America's economy by itself and the biggest danger is that American politicians will expect that QE2 alone will solve employment problems. They also say it likely won't work as well as QE1 and will require more short-term stimulus to work at all, what do you think the chances of that happening in Congress or the Senate are? Given that stimulus condition, it sounds like the Fed's plan is set to fail.
posted by furtive at 1:45 PM on November 6, 2010
Don't we actually need inflation right now? I was under the impression that a major problem is the fact that everyone is hoarding their money in the safest places they can find, rather than investing and getting capital circulating again. Printing more money is effectively a cudgel to threaten the hoarders with devaluation of their capital if they don't get it out and put it to work. The only problem I have with this is that it wasn't done sooner.
posted by mullingitover at 1:47 PM on November 6, 2010 [1 favorite]
posted by mullingitover at 1:47 PM on November 6, 2010 [1 favorite]
Remember, it's not just Bernanke, but rather the entire Federal Reserve board. Matt Yglesias talks about this a lot but there are two seats on the fed board and Obama hasn't even bothered to nominate anyone. According to Yglesias, this is Obama's biggest political mistake. If the fed had done this 18 months ago, the economy would look vastly different - and probably for the better. How do you think the last election would have gone if unemployment was 5% instead of 10%?
The reality is that waiting this long (though to be fair, congress could also have, and should have, done more direct stimulus spending) has left the country mired in a depression and destroyed the democrat's credibility. Yet, Bernanke, a republican, waits until a massive republican tidal wave to actually start fix the economy. Hmm...
I don't think I see this in terms of Dem/Rep politics, delmoi. Bernanke was appointed by Bush but reappointed by Obama. Many Republicans hate Bernanke's policies (in particular, fiscal conversatives) and don't believe stimulus spending nor quantitative easing will get us out of this mess, and will in fact, exacerbate it.
Moreover, I don't think the economy CAN look vastly different over the course of 18 months, nor can unemployment be fixed between elections. Our economy is in bad shape because of a systemic problem, one that your average politician and citizen has neither the language nor the understanding to try and fix. To say this is a political problem that is party-based seems to oversimplify it.
posted by The ____ of Justice at 1:48 PM on November 6, 2010 [1 favorite]
The reality is that waiting this long (though to be fair, congress could also have, and should have, done more direct stimulus spending) has left the country mired in a depression and destroyed the democrat's credibility. Yet, Bernanke, a republican, waits until a massive republican tidal wave to actually start fix the economy. Hmm...
I don't think I see this in terms of Dem/Rep politics, delmoi. Bernanke was appointed by Bush but reappointed by Obama. Many Republicans hate Bernanke's policies (in particular, fiscal conversatives) and don't believe stimulus spending nor quantitative easing will get us out of this mess, and will in fact, exacerbate it.
Moreover, I don't think the economy CAN look vastly different over the course of 18 months, nor can unemployment be fixed between elections. Our economy is in bad shape because of a systemic problem, one that your average politician and citizen has neither the language nor the understanding to try and fix. To say this is a political problem that is party-based seems to oversimplify it.
posted by The ____ of Justice at 1:48 PM on November 6, 2010 [1 favorite]
Hey Malor. Isn't QE2 more or less what the Japanese tried following their real estate bubble? And isn't their public debt to GDP ratio worse than the USA's?
Where's the hyperinflation?
posted by notyou at 1:51 PM on November 6, 2010 [7 favorites]
Where's the hyperinflation?
posted by notyou at 1:51 PM on November 6, 2010 [7 favorites]
As I was saying back in the 2003 timeframe, warning that we were going into a housing bubble, and that it was going to pop and wreak enormous havoc
Happen to bookmark any of THOSE comments?
Honestly, I don't trust any economists all that much either way. If they were able to accurately predict crashes they would be prevented before they happened. Even if they do understand how an ideal market works, you can't accurately model fraud and greed and irrationality and chaos.
posted by furiousxgeorge at 1:52 PM on November 6, 2010
Happen to bookmark any of THOSE comments?
Honestly, I don't trust any economists all that much either way. If they were able to accurately predict crashes they would be prevented before they happened. Even if they do understand how an ideal market works, you can't accurately model fraud and greed and irrationality and chaos.
posted by furiousxgeorge at 1:52 PM on November 6, 2010
When I read discussions of economics or monetary policy, I'm often reminded of Deep Thought's advice to Majikthise and Vroomfondel:
DEEP THOUGHT:
And so any philosophers who are put off the mark, are going to clean up in the prediction business.
MAJIKTHISE:
”Prediction business”?
DEEP THOUGHT:
Obviously. You just get on the pundit circuit. You all go on the chat shows and the colour supplements and violently disagree with each other about what answer I’m eventually going to produce. And if you get yourselves clever agents, you’ll be on the gravy train for life.
posted by HannoverFist at 1:54 PM on November 6, 2010
DEEP THOUGHT:
And so any philosophers who are put off the mark, are going to clean up in the prediction business.
MAJIKTHISE:
”Prediction business”?
DEEP THOUGHT:
Obviously. You just get on the pundit circuit. You all go on the chat shows and the colour supplements and violently disagree with each other about what answer I’m eventually going to produce. And if you get yourselves clever agents, you’ll be on the gravy train for life.
posted by HannoverFist at 1:54 PM on November 6, 2010
I know nothing about how the supply works, but couldn't they just stop issuing bonds instead of "buying them all", which, as far as I've heard, isn't the goal anyway.You mean just give money directly to the treasury? I think the thing to remember is that the Fed is supposed to be independent from the government, and legally they can't just hand money out, they have to buy assets. They may not particularly care if the assets get paid back (look at buying up 'toxic' assets in order to get them out of the banking system).
If they wanted to give money directly to people, they would have to loan it to them.
delmoi, I'm gonna bookmark that, and I'm looking forward very much to reminding you, in another five years or so, about your mockery.Five years out now? I remember two years ago you were warning about hyperinflation, and so far we've had the exact opposite. According to you we were headed to Zimbabwe.
Anyway, what's your actual numeric prediction for what you think the annual inflation rate will reach? Because if you never use any actual numbers and instead only pile on verbiage, you're not actually making a prediction.
Don't we actually need inflation right now?Yes.
posted by delmoi at 2:06 PM on November 6, 2010
The reason people hate inflation, btw, is that it's actually a wealth transfer: From those who have wealth to those who have income. Whereas with no inflation, you can just buy government bonds and hoard your cash without worrying about investing it in anything.
posted by delmoi at 2:07 PM on November 6, 2010 [9 favorites]
posted by delmoi at 2:07 PM on November 6, 2010 [9 favorites]
Most of the media, financial and otherwise are missing the big point here. Most commenters on boards like this are missing the big point as well.
Since leaving banking I've been teaching Finance part time at a few universities, and start each class by presenting to my students market commentary that I write and sell to Investment Banks. I wrote lots of market commentary in addition to my day job while working in banking, so this is something I've kept doing and now pitch as 'The Deep Opportunity Discussion Series'.
Our goal is to look three steps ahead of the markets. Sorry, but surging inflation is the old news guys; as I've posted several times recently on MetaFilter, we've been seeing evidence of significant PPI side inflation over the last six months or so. Here are just a couple of soft commodities :
Sugar, up about 66% since June 2010
Wheat, up some 36% since June 2010
I've been presenting this data to my clients for several months now. Inflation is already here, most folks don't see it as they don't know where to look (only see it on the grocery shelf) and we see QE 2 driving more, of course.
But looking DEEPER, AHEAD of the markets, the fundamental problem is US Treasuries. Here we go.
Think back to CDOs in general, and the lower level tranches specifically. We couldn't even sell these instruments (not rated) but typically gave them away as sweeteners to those who purchased the Senior tranche. Generally it worked, as client would price out the Senior tranche and willingly accept the lower level tranche as a free, cash flow generating sweetener.
But once investor confidence started to fall NOBODY wanted these instruments. Prices gapped sharply down, from a slight discount off par value to maybe ten cents on the dollar. Collapsed 90% in other words, and driving more than one bank under in the process
Of course some of this was thanks to that pesky FASB 157, or "mark to market" not "mark to model" accounting I've talked about here before.
So as I see it we're looking at two questions here in response to The Fed's actions. Which, by the way, were clearly telegraphed well as long as two months ago, if you know where to look, which would, of course, be speeches made by the Fed Governors at various social events, trade shows, wherever. Always read their speeches if you want to stay ahead of the markets. Read The Fed's minutes to see announcements of what they have decided to do, after the fact, but if you'd to know what they are going to do before they announce it, read speeches the various Governors make. But back to our relevant questions:
First, how long until foreign bond holders start to lose interest in treasuries? Start to distrust the returns, and sell, in other words.
Let's look at this critically. We've had a decade long bull market in bonds. Yields are at record lows pretty much across the entire term structure of interest rates, the zero bound is tangible and not to be crossed so there isn't much upside to bond prices from here.
Also, we know who is holding US debt; as October 18, 2010 we can see that The Chinese hold $868.4B, compared to Japan's $836.6B, The UK's $448.4B and so on.
Interestingly (and this is the kind of thing we watch very closely at Deep Opportunity), The Chinese are reducing their holdings of US Treasuries, with their aggregate position declining by some 7.27% YOY. And we know they are getting ready to move out of Treasuries (wholesale or not, doesn't matter); we know the majority of their holdings used to be out at the 10Y tenor and the now seem to have moved lots of money down into the short end of the yield curve; 3M / 6M maybe one year. Clear signs they are preparing to exit as its easier to liquidate short term debt than longer term.
Well, even as we're seeing The Chinese starting to step away from the auctions, lightening up their holdings they are moving to backstop the Euro, purchasing Greek debt.
And market chatters tells us they also seem to be purchasing Irish and Portuguese sovereigns, but keeping this activity quiet as those markets are so damn small and they don't want to disrupt.
Second, where will the money go?
And this is what we do at Deep Opportunity, look three steps ahead.
We believe there is only one place for the money to go: commodities.
Cash? Nope, inflation will destroy it in real terms.
Real estate? Nope, we're still seeing massive deflationary pressure in global real estate prices.
Shares? Yeh, market is roaring but in the US insider selling is at record highs. So no. Please don't.
US Treasuries are perhaps the biggest bubble in the history of mankind (Chinese real estate is damn close though). If anyone doesn't believe this is a bubble tell me why lending money to the US Government for 30 years at less than 4% YTM is a good deal. It isn't.
Once that bubble bursts everyone, and I mean absolutely EVERYONE will be moving into commodities.
And that's where you want to be.
We buy stuff when nobody wants it.
We sell stuff when everyone wants it.
That's Deep Opportunity. And that's the real story here guys.
Inflation is yesterdays news, its slowly been building on the PPI side for literally, months. Most folks don't look at the data, they don't really see inflation until The Fed announces something like this, then they "know". The remainder don't see any sign of inflation until its a price tag on the petrol pump or on the grocery shelf. Too late then.
But the real art to all of this is to figure out what's going to happen far enough in advance so you can find a way to profit from it.
What I've posted here I've put on MetaFilter before, somewhat excerpted, and, of course, its gone out to our clients and my students at University have seen it.
But remember Deep Opportunity comes from thinking three steps ahead of the markets. Well, try to figure out what to do once everyone wants those commodities you've got.
Where will you put your money then?
posted by Mutant at 2:08 PM on November 6, 2010 [54 favorites]
Since leaving banking I've been teaching Finance part time at a few universities, and start each class by presenting to my students market commentary that I write and sell to Investment Banks. I wrote lots of market commentary in addition to my day job while working in banking, so this is something I've kept doing and now pitch as 'The Deep Opportunity Discussion Series'.
Our goal is to look three steps ahead of the markets. Sorry, but surging inflation is the old news guys; as I've posted several times recently on MetaFilter, we've been seeing evidence of significant PPI side inflation over the last six months or so. Here are just a couple of soft commodities :
Sugar, up about 66% since June 2010
Wheat, up some 36% since June 2010
I've been presenting this data to my clients for several months now. Inflation is already here, most folks don't see it as they don't know where to look (only see it on the grocery shelf) and we see QE 2 driving more, of course.
But looking DEEPER, AHEAD of the markets, the fundamental problem is US Treasuries. Here we go.
Think back to CDOs in general, and the lower level tranches specifically. We couldn't even sell these instruments (not rated) but typically gave them away as sweeteners to those who purchased the Senior tranche. Generally it worked, as client would price out the Senior tranche and willingly accept the lower level tranche as a free, cash flow generating sweetener.
But once investor confidence started to fall NOBODY wanted these instruments. Prices gapped sharply down, from a slight discount off par value to maybe ten cents on the dollar. Collapsed 90% in other words, and driving more than one bank under in the process
Of course some of this was thanks to that pesky FASB 157, or "mark to market" not "mark to model" accounting I've talked about here before.
So as I see it we're looking at two questions here in response to The Fed's actions. Which, by the way, were clearly telegraphed well as long as two months ago, if you know where to look, which would, of course, be speeches made by the Fed Governors at various social events, trade shows, wherever. Always read their speeches if you want to stay ahead of the markets. Read The Fed's minutes to see announcements of what they have decided to do, after the fact, but if you'd to know what they are going to do before they announce it, read speeches the various Governors make. But back to our relevant questions:
First, how long until foreign bond holders start to lose interest in treasuries? Start to distrust the returns, and sell, in other words.
Let's look at this critically. We've had a decade long bull market in bonds. Yields are at record lows pretty much across the entire term structure of interest rates, the zero bound is tangible and not to be crossed so there isn't much upside to bond prices from here.
Also, we know who is holding US debt; as October 18, 2010 we can see that The Chinese hold $868.4B, compared to Japan's $836.6B, The UK's $448.4B and so on.
Interestingly (and this is the kind of thing we watch very closely at Deep Opportunity), The Chinese are reducing their holdings of US Treasuries, with their aggregate position declining by some 7.27% YOY. And we know they are getting ready to move out of Treasuries (wholesale or not, doesn't matter); we know the majority of their holdings used to be out at the 10Y tenor and the now seem to have moved lots of money down into the short end of the yield curve; 3M / 6M maybe one year. Clear signs they are preparing to exit as its easier to liquidate short term debt than longer term.
Well, even as we're seeing The Chinese starting to step away from the auctions, lightening up their holdings they are moving to backstop the Euro, purchasing Greek debt.
And market chatters tells us they also seem to be purchasing Irish and Portuguese sovereigns, but keeping this activity quiet as those markets are so damn small and they don't want to disrupt.
Second, where will the money go?
And this is what we do at Deep Opportunity, look three steps ahead.
We believe there is only one place for the money to go: commodities.
Cash? Nope, inflation will destroy it in real terms.
Real estate? Nope, we're still seeing massive deflationary pressure in global real estate prices.
Shares? Yeh, market is roaring but in the US insider selling is at record highs. So no. Please don't.
US Treasuries are perhaps the biggest bubble in the history of mankind (Chinese real estate is damn close though). If anyone doesn't believe this is a bubble tell me why lending money to the US Government for 30 years at less than 4% YTM is a good deal. It isn't.
Once that bubble bursts everyone, and I mean absolutely EVERYONE will be moving into commodities.
And that's where you want to be.
We buy stuff when nobody wants it.
We sell stuff when everyone wants it.
That's Deep Opportunity. And that's the real story here guys.
Inflation is yesterdays news, its slowly been building on the PPI side for literally, months. Most folks don't look at the data, they don't really see inflation until The Fed announces something like this, then they "know". The remainder don't see any sign of inflation until its a price tag on the petrol pump or on the grocery shelf. Too late then.
But the real art to all of this is to figure out what's going to happen far enough in advance so you can find a way to profit from it.
What I've posted here I've put on MetaFilter before, somewhat excerpted, and, of course, its gone out to our clients and my students at University have seen it.
But remember Deep Opportunity comes from thinking three steps ahead of the markets. Well, try to figure out what to do once everyone wants those commodities you've got.
Where will you put your money then?
posted by Mutant at 2:08 PM on November 6, 2010 [54 favorites]
Furiousxgeorge, malor joined in 2004, but one of his first comments was this gem:
"As far as "what to buy" -- just don't store your wealth in dollars, in the broad stock market (energy, food, and commodity stocks are probably still good), or in real estate. The coming shift in value will move to 'things' instead of 'paper'.. Normally this would be good for real estate, but that's already in a titanic bubble, driven by massive Fed-provided liquidity, very low interest rates, and STUPIDLY low lending standards. "
Accuracy, broken clocks, etc...
posted by Orange Pamplemousse at 2:11 PM on November 6, 2010 [4 favorites]
"As far as "what to buy" -- just don't store your wealth in dollars, in the broad stock market (energy, food, and commodity stocks are probably still good), or in real estate. The coming shift in value will move to 'things' instead of 'paper'.. Normally this would be good for real estate, but that's already in a titanic bubble, driven by massive Fed-provided liquidity, very low interest rates, and STUPIDLY low lending standards. "
Accuracy, broken clocks, etc...
posted by Orange Pamplemousse at 2:11 PM on November 6, 2010 [4 favorites]
Mutant--thanks for your feedback, as always, much appreciated.
Where will you put your money then?
Metals? That seems to be the current trend.
posted by The ____ of Justice at 2:16 PM on November 6, 2010
Where will you put your money then?
Metals? That seems to be the current trend.
posted by The ____ of Justice at 2:16 PM on November 6, 2010
But the real art to all of this is to figure out what's going to happen far enough in advance so you can find a way to profit from it
In the short term, in the now. In the context of the global economic ecosystem as it exists. But what then? Who is looking a tad further into the future to start pondering whether the fundamental premises on which the whole ecosystem rests are obsolete and need to relooked at from scratch in order to design a more sustainable one for our/your/their own old age if not for the coming generations?
Mind you, IANAIB
posted by The Lady is a designer at 2:20 PM on November 6, 2010 [2 favorites]
In the short term, in the now. In the context of the global economic ecosystem as it exists. But what then? Who is looking a tad further into the future to start pondering whether the fundamental premises on which the whole ecosystem rests are obsolete and need to relooked at from scratch in order to design a more sustainable one for our/your/their own old age if not for the coming generations?
Mind you, IANAIB
posted by The Lady is a designer at 2:20 PM on November 6, 2010 [2 favorites]
Are sugar and wheat inflation or speculation combined with bad harvests? Or does the inflation cause the speculation?
posted by furiousxgeorge at 2:30 PM on November 6, 2010 [1 favorite]
posted by furiousxgeorge at 2:30 PM on November 6, 2010 [1 favorite]
Once that bubble bursts everyone, and I mean absolutely EVERYONE will be moving into commodities.
Are sugar and wheat inflation or speculation combined with bad harvests? Or does the inflation cause the speculation?Global Warming! Actually, buying long-term options on Ag commodities might be a good way to profit off climate change. Hmm... You could even look for regions that would be more likely to be affected by climate change, and invest there.
posted by delmoi at 2:41 PM on November 6, 2010
Huh, after I finished that comment, I tabbed over to google reader, where I saw this post by Krugman:
posted by delmoi at 2:45 PM on November 6, 2010
Are Rising Commodity Prices An Inflationary Signal?Here's his conclusion in the actual article:
No, they aren't.
Right now everyone seems to believe that rising commodity prices are telling us to beware of inflation. I think that’s dead wrong.In other words, high commodity prices were driven by increasing economic activity. Since the economy is coming back prices are going up.
...
Where, in all this, is evidence of huge inflationary pressures? The basic story seems, again, to be one of a secular upward trend reflecting real factors, with more or less the kinds of fluctuations around that trend that you’d expect given the business cycle.
It’s also worth pointing out that the commodities price spike of 2007-2008 was seen by some as a harbinger of major inflation; they were wrong.
There’s really nothing here to shake my view that deflation, not inflation, is the threat.
posted by delmoi at 2:45 PM on November 6, 2010
so it back to scrooge at the corn exchange.
this does not Auger well.
posted by clavdivs at 2:47 PM on November 6, 2010
this does not Auger well.
posted by clavdivs at 2:47 PM on November 6, 2010
Inflation is yesterdays news, its slowly been building on the PPI side for literally, months. Most folks don't look at the data, they don't really see inflation until The Fed announces something like this, then they "know". The remainder don't see any sign of inflation until its a price tag on the petrol pump or on the grocery shelf. Too late then.
inflation, really? I don't think you can talk about inflation by cherry-picking a couple of commodities. But, don't take my word for it, ask Paul Krugman what he thinks. And, you can't really talk about inflation in terms of macroeconomics if wages are still falling.
You are talking about either a demand driven uptick in prices or a speculative bubble. Maybe an investor can make money off this, and I'm sure you can find a hedge fund to sell you on a derivatives scheme to do it, but this is a terrible basis for making economic policy.
posted by ennui.bz at 2:58 PM on November 6, 2010
inflation, really? I don't think you can talk about inflation by cherry-picking a couple of commodities. But, don't take my word for it, ask Paul Krugman what he thinks. And, you can't really talk about inflation in terms of macroeconomics if wages are still falling.
You are talking about either a demand driven uptick in prices or a speculative bubble. Maybe an investor can make money off this, and I'm sure you can find a hedge fund to sell you on a derivatives scheme to do it, but this is a terrible basis for making economic policy.
posted by ennui.bz at 2:58 PM on November 6, 2010
Denninger has gone apoplectic over QE2.
Why does he use typography like he's trying to sell herbal remedies?
Anyway, what he said about QE is the same thing that I said: It's a transfer of cash from people who have cash to people who have income. That's why the rich are so opposed. If there's no inflation, you don't need to invest your money in anything productive (which carries a risk).
On the other hand, people with income (but not a lot of cash) should see their incomes rise.
And of course, all that investment means more jobs for the poor and middle class.
posted by delmoi at 3:06 PM on November 6, 2010 [1 favorite]
Why does he use typography like he's trying to sell herbal remedies?
Anyway, what he said about QE is the same thing that I said: It's a transfer of cash from people who have cash to people who have income. That's why the rich are so opposed. If there's no inflation, you don't need to invest your money in anything productive (which carries a risk).
On the other hand, people with income (but not a lot of cash) should see their incomes rise.
And of course, all that investment means more jobs for the poor and middle class.
posted by delmoi at 3:06 PM on November 6, 2010 [1 favorite]
Mutant--if people start investing in commodities as you have suggested, won't the prices of energy and food go up and be even harder for the poor and middle class to buy?
posted by The ____ of Justice at 3:22 PM on November 6, 2010
posted by The ____ of Justice at 3:22 PM on November 6, 2010
Fred Kaufman explains commodity futures index fund trading flaws (demand shock) with Chuck Mertz about 3/4 thrugh the podcast. Goldman is central to wheat price inflation, not drought.
posted by hortense at 3:27 PM on November 6, 2010
posted by hortense at 3:27 PM on November 6, 2010
Think back to CDOs in general, and the lower level tranches specifically. We couldn't even sell these instruments (not rated) but typically gave them away as sweeteners to those who purchased the Senior tranche. Generally it worked, as client would price out the Senior tranche and willingly accept the lower level tranche as a free, cash flow generating sweetener.
I always suspected financial markets worked like this, but the confirmation is still somewhat terrifying...
posted by Skeptic at 3:31 PM on November 6, 2010
I always suspected financial markets worked like this, but the confirmation is still somewhat terrifying...
posted by Skeptic at 3:31 PM on November 6, 2010
Mutant:
I think you're correct in terms commodities. Although, isn't is possible commodities are already in a bubble?
Nonetheless, let's recall that commodities are - oil, wheat, sugar, coal.
Energy. Food.
And as prices ramp up, it's not only going to hammer the average consumer, and the poor in particular, but could actually decimate poorer nations. We're talking increased geo-political instability as a necessary outcome - a desired outcome! - of speculation.
I'd like to see my money grow as rapidly as anyone else, but Jesus Christ, this is just an example of how fucked the system really is.
posted by kgasmart at 3:45 PM on November 6, 2010 [8 favorites]
I think you're correct in terms commodities. Although, isn't is possible commodities are already in a bubble?
Nonetheless, let's recall that commodities are - oil, wheat, sugar, coal.
Energy. Food.
And as prices ramp up, it's not only going to hammer the average consumer, and the poor in particular, but could actually decimate poorer nations. We're talking increased geo-political instability as a necessary outcome - a desired outcome! - of speculation.
I'd like to see my money grow as rapidly as anyone else, but Jesus Christ, this is just an example of how fucked the system really is.
posted by kgasmart at 3:45 PM on November 6, 2010 [8 favorites]
i'm just sick and tired of being terrified all the goddamn time.
nature shows love to show how giant schools of fish can act like a massive organism. it's amazing; these individual fish, as far as we know, aren't engaging in conscious communication, and no one leader can be identified. and yet, each one participates in harmony with the others. sometimes they manage to dart away from the massive, hungry whale. sometimes the whole lot of them turn and swim straight into the killer whale's mouth.
that's us right now, and i don't think there's anything we can do about it.
posted by TrialByMedia at 3:47 PM on November 6, 2010 [2 favorites]
nature shows love to show how giant schools of fish can act like a massive organism. it's amazing; these individual fish, as far as we know, aren't engaging in conscious communication, and no one leader can be identified. and yet, each one participates in harmony with the others. sometimes they manage to dart away from the massive, hungry whale. sometimes the whole lot of them turn and swim straight into the killer whale's mouth.
that's us right now, and i don't think there's anything we can do about it.
posted by TrialByMedia at 3:47 PM on November 6, 2010 [2 favorites]
I am for this action I think it makes good sense but what about now specifically makes this a good idea? All or Bernanke's writings indicate that he supported quantitative easing, but faced with years of near double-digit unemployment he did nothing until record republican gains in the mid-terms. I can even understand the idea that since the fed is fairly agile this might be seen as a response to deficit hawk posturing and changes in people's expectations but I can't help but think the timing of the policy is partially informed by partisan considerations. We have an independent fed for a reason but we also have a fed that is appointed by the president and we have had republicans heading the federal reserve for over 20 years now and in some cases they seemed to be exercising their power with an eye on certain electoral goals.
posted by I Foody at 3:53 PM on November 6, 2010
posted by I Foody at 3:53 PM on November 6, 2010
phrontist wrote: "If you're going to print money, why spend it all on bonds specifically? They expect this to cause inflation, right? Inflation is desirable because it might improve trade balances with other nations? Wouldn't anyone who holds a lot of US dollars want to dump them on hearing this news? Wouldn't this be a bad thing?"
It's bad in that it makes things we buy from foreign countries cost more, oil and other commodities being the biggest issue, (except in the case China, who artificially keeps their exchange rate down), but it should increase the competitiveness of our goods in foreign markets. We need inflation right now. We're staring down the barrel of deflation at the moment, after all. Deflation is what kept Japan in their liquidity trap for so long.
I'm sympathetic to the austerity sentiment Mutant and Malor are espousing, I really am. However, when I look at the performance of the economies of countries who have actually implemented such measures, there is no there there. It's fine theory, but it seems to have failed in practice.
Fundamentally, our economic issues have nothing to do with debt. Our present economic trouble is being driven far more by the hoarding of cash by banks and others. This reduces the velocity of money, thus reducing the effective amount of money in circulation. QE2 is designed to replace this hoarded money, similar to how the Fed's original quantitative easing was designed to replace the money that essentially evaporated when the housing bubble popped.
posted by wierdo at 3:57 PM on November 6, 2010
It's bad in that it makes things we buy from foreign countries cost more, oil and other commodities being the biggest issue, (except in the case China, who artificially keeps their exchange rate down), but it should increase the competitiveness of our goods in foreign markets. We need inflation right now. We're staring down the barrel of deflation at the moment, after all. Deflation is what kept Japan in their liquidity trap for so long.
I'm sympathetic to the austerity sentiment Mutant and Malor are espousing, I really am. However, when I look at the performance of the economies of countries who have actually implemented such measures, there is no there there. It's fine theory, but it seems to have failed in practice.
Fundamentally, our economic issues have nothing to do with debt. Our present economic trouble is being driven far more by the hoarding of cash by banks and others. This reduces the velocity of money, thus reducing the effective amount of money in circulation. QE2 is designed to replace this hoarded money, similar to how the Fed's original quantitative easing was designed to replace the money that essentially evaporated when the housing bubble popped.
posted by wierdo at 3:57 PM on November 6, 2010
On not preview, our having more dollars just makes the price of oil and other commodities produced in or bought by foreign nation more expensive in dollar terms. It does nothing to the price in Euros or Renminbi or Canadian Dollars or Pounds or Zimbabwean Dollars or Dominican Pesos.
We're not magically making ourselves richer at the expense of others. It doesn't do shit to anyone that's not holding dollars.
posted by wierdo at 3:59 PM on November 6, 2010
We're not magically making ourselves richer at the expense of others. It doesn't do shit to anyone that's not holding dollars.
posted by wierdo at 3:59 PM on November 6, 2010
Shares? Yeh, market is roaring but in the US insider selling is at record highs. So no. Please don't.
That's partly motivated by the likelihood of the Bush tax cuts expiring after December 31, though. If you have big money in the market you save millions by cashing some out now rather than later.
posted by anigbrowl at 4:09 PM on November 6, 2010 [2 favorites]
That's partly motivated by the likelihood of the Bush tax cuts expiring after December 31, though. If you have big money in the market you save millions by cashing some out now rather than later.
posted by anigbrowl at 4:09 PM on November 6, 2010 [2 favorites]
We have a debt problem, and printing money is just fighting a debt problem with more debt.
This is typical of the simpleminded "common sense" thinking that got us into this mess. It is nothing but an empty slogan.
posted by JackFlash at 4:23 PM on November 6, 2010
This is typical of the simpleminded "common sense" thinking that got us into this mess. It is nothing but an empty slogan.
posted by JackFlash at 4:23 PM on November 6, 2010
i'm just sick and tired of being terrified all the goddamn time.
How is this terrifying? Are you a multi-millionaire who doesn't like investing? Are you on a fixed-income (not social security, which does annual cost of living increases?)
This QE is good news for everyone who's not a millionare. So obviously rich people with massive cash in the bank are trying to scare everyone, and confuse everyone by not explaining what's actually happening in a coherent way.
posted by delmoi at 4:40 PM on November 6, 2010 [1 favorite]
How is this terrifying? Are you a multi-millionaire who doesn't like investing? Are you on a fixed-income (not social security, which does annual cost of living increases?)
This QE is good news for everyone who's not a millionare. So obviously rich people with massive cash in the bank are trying to scare everyone, and confuse everyone by not explaining what's actually happening in a coherent way.
posted by delmoi at 4:40 PM on November 6, 2010 [1 favorite]
It is nothing but an empty slogan.
Maybe, but at least it's trying to offer at least a partial solution. What have you got left?
That's partly motivated by the likelihood of the Bush tax cuts expiring after December 31, though. If you have big money in the market you save millions by cashing some out now rather than later.
But that should be sending prices down, surely? Everyone trying to get out to lock in those returns at that tax rate?
high commodity prices were driven by increasing economic activity. Since the economy is coming back prices are going up.
Or -
Inflation is too much money chasing too few goods. The government is flooding us with too much money.
If you care to fill in the free registration, John Authers has a nice coverage of the issue in today's Financial Times.
posted by IndigoJones at 4:42 PM on November 6, 2010
Maybe, but at least it's trying to offer at least a partial solution. What have you got left?
That's partly motivated by the likelihood of the Bush tax cuts expiring after December 31, though. If you have big money in the market you save millions by cashing some out now rather than later.
But that should be sending prices down, surely? Everyone trying to get out to lock in those returns at that tax rate?
high commodity prices were driven by increasing economic activity. Since the economy is coming back prices are going up.
Or -
Inflation is too much money chasing too few goods. The government is flooding us with too much money.
If you care to fill in the free registration, John Authers has a nice coverage of the issue in today's Financial Times.
posted by IndigoJones at 4:42 PM on November 6, 2010
Fundamentally, our economic issues have nothing to do with debt. Our present economic trouble is being driven far more by the hoarding of cash by banks and others. This reduces the velocity of money, thus reducing the effective amount of money in circulation.
This, coupled with a casual glance over some wealth disparity and marginal tax rate graphs that go back to the 19-teens or so, makes a hell of a lot more sense to me than the debt theories. Money, right now, is very very concentrated. When money is massively concentrated, the overall economy sucks, because a few people who have all the money don't need to buy that much, compared to a lot of people who all have enough money and a little to spare. Money that is concentrated doesn't move. Money that isn't moving isn't doing its job. It might as well be buried. So effectively, there's a large economy with very little active money in it.
The problem is that the system is organized such that any massive injection of money into the fonancial markets is overwhelmingly likely to be soaked up by the very people and institutions who already have all the money. I don't see how this will accomplish very much except make sure the rich stay rich another few years. Our money is concentrated because of policy mistakes that go back 30 years. Without policy to fix them, nothing the Fed can do is going to solve anything.
posted by rusty at 4:46 PM on November 6, 2010 [12 favorites]
This, coupled with a casual glance over some wealth disparity and marginal tax rate graphs that go back to the 19-teens or so, makes a hell of a lot more sense to me than the debt theories. Money, right now, is very very concentrated. When money is massively concentrated, the overall economy sucks, because a few people who have all the money don't need to buy that much, compared to a lot of people who all have enough money and a little to spare. Money that is concentrated doesn't move. Money that isn't moving isn't doing its job. It might as well be buried. So effectively, there's a large economy with very little active money in it.
The problem is that the system is organized such that any massive injection of money into the fonancial markets is overwhelmingly likely to be soaked up by the very people and institutions who already have all the money. I don't see how this will accomplish very much except make sure the rich stay rich another few years. Our money is concentrated because of policy mistakes that go back 30 years. Without policy to fix them, nothing the Fed can do is going to solve anything.
posted by rusty at 4:46 PM on November 6, 2010 [12 favorites]
It's been obvious that this has been needed for months. The Fed just waited till after the election to move.
posted by Tashtego at 4:51 PM on November 6, 2010
posted by Tashtego at 4:51 PM on November 6, 2010
This QE is good news for everyone who's not a millionare.
Or who is not a foreign government holding US notes. They are decidedly not happy with us just now and will make their displeasures known. Which may be bad news for we non-millionaire Americans.
Those countries are trying to tighten their belts and pay down their debts. America - not so much.
Meanwhile, where is the QE2 money going?
The little pop in the stock market should give you a clue.
Toil and trouble.
posted by IndigoJones at 5:03 PM on November 6, 2010
This QE is good news for everyone who's not a millionare.
BUT--if commodity prices rise due to money having no where else to go...doesn't it mean people without a lot of money suffer at the gas pump and grocery store?
And why will incomes necessarily rise because of this?
Not trolling...genuinely concerned.
posted by The ____ of Justice at 5:12 PM on November 6, 2010 [2 favorites]
BUT--if commodity prices rise due to money having no where else to go...doesn't it mean people without a lot of money suffer at the gas pump and grocery store?
And why will incomes necessarily rise because of this?
Not trolling...genuinely concerned.
posted by The ____ of Justice at 5:12 PM on November 6, 2010 [2 favorites]
I'm very interested in Malor and Mutant's response to Krugman's premise mentioned above that rising commodity prices do not necessarily indicate an inflationary trend.
posted by Mei's lost sandal at 5:26 PM on November 6, 2010
posted by Mei's lost sandal at 5:26 PM on November 6, 2010
IndigoJones wrote: "Inflation is too much money chasing too few goods. The government is flooding us with too much money. "
No, the Fed is being timid in replacing money that has already been lost. The money supply has been shrinking for the past year.
The ____ of Justice wrote: "BUT--if commodity prices rise due to money having no where else to go...doesn't it mean people without a lot of money suffer at the gas pump and grocery store?"
Oil prices will increase because the dollar is falling, not because there are too many dollars chasing oil. You'll note that aside from the speculative bubble we had a few years back, oil prices pretty much move in concert with the relative value of the dollar. As the Euro and other currencies have risen relative to the dollar, oil prices have increased. During the period immediately after the credit market freeze and everyone rushed into dollars, you'll note the price of oil fell drastically.
posted by wierdo at 5:26 PM on November 6, 2010
No, the Fed is being timid in replacing money that has already been lost. The money supply has been shrinking for the past year.
The ____ of Justice wrote: "BUT--if commodity prices rise due to money having no where else to go...doesn't it mean people without a lot of money suffer at the gas pump and grocery store?"
Oil prices will increase because the dollar is falling, not because there are too many dollars chasing oil. You'll note that aside from the speculative bubble we had a few years back, oil prices pretty much move in concert with the relative value of the dollar. As the Euro and other currencies have risen relative to the dollar, oil prices have increased. During the period immediately after the credit market freeze and everyone rushed into dollars, you'll note the price of oil fell drastically.
posted by wierdo at 5:26 PM on November 6, 2010
This is really just a devaluation of the dollar. It was the only way to do it. FDR did it in the 1930s when he played around with the gold standard. Nixon did it when he ended Breton Woods and gave up on the gold standard altogether.
If you have student loans or a mortgage on a fixed interest rate this is actually good for you since inflation will make your payments less of your actual earnings over time. If you are an aging boomer living off your retirement savings and your social security that won't keep up with inflation well you may be totally screwed. Particularly if you don't have something in an inflation protected security.
posted by humanfont at 5:30 PM on November 6, 2010 [1 favorite]
If you have student loans or a mortgage on a fixed interest rate this is actually good for you since inflation will make your payments less of your actual earnings over time. If you are an aging boomer living off your retirement savings and your social security that won't keep up with inflation well you may be totally screwed. Particularly if you don't have something in an inflation protected security.
posted by humanfont at 5:30 PM on November 6, 2010 [1 favorite]
How is this terrifying? Are you a multi-millionaire who doesn't like investing? Are you on a fixed-income (not social security, which does annual cost of living increases?)
Slow down, dude. You're putting words into my mouth. What I'm saying here is that there definitely isn't a consensus as to whether QE will work. If it does, great. But what I see here is a worldwide financial system that's been operating out of control for the past two years. Central banks are throwing everything they can at it, and they're increasingly unsure if any of it will work. That's what terrifies me. Not this specific action...just, well, everything that's happened to the global economy in the past two years is terrifying.
posted by TrialByMedia at 5:34 PM on November 6, 2010
Slow down, dude. You're putting words into my mouth. What I'm saying here is that there definitely isn't a consensus as to whether QE will work. If it does, great. But what I see here is a worldwide financial system that's been operating out of control for the past two years. Central banks are throwing everything they can at it, and they're increasingly unsure if any of it will work. That's what terrifies me. Not this specific action...just, well, everything that's happened to the global economy in the past two years is terrifying.
posted by TrialByMedia at 5:34 PM on November 6, 2010
... everything that's happened to the global economy in the past two years is terrifying.
You know what's terrifying? Political leaders who want to doing nothing in the face of a national emergency and just stand around and hope things get better. This is what brought us an 11 year Great Depression of misery and a Lost Decade (and counting) in Japan. Doing nothing is a choice that has real consequences as surely as a choice to try to improve the situation.
In the mean time, while we do nothing, millions of people are losing their jobs, their homes, their life savings. Many are forced into retirement with nothing to live on but Social Security, all of their savings wiped out.
Keynes said: "The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again."
posted by JackFlash at 5:52 PM on November 6, 2010 [1 favorite]
You know what's terrifying? Political leaders who want to doing nothing in the face of a national emergency and just stand around and hope things get better. This is what brought us an 11 year Great Depression of misery and a Lost Decade (and counting) in Japan. Doing nothing is a choice that has real consequences as surely as a choice to try to improve the situation.
In the mean time, while we do nothing, millions of people are losing their jobs, their homes, their life savings. Many are forced into retirement with nothing to live on but Social Security, all of their savings wiped out.
Keynes said: "The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again."
posted by JackFlash at 5:52 PM on November 6, 2010 [1 favorite]
I find it weird that the translation of the Fed's statement in the FPP refers to QE2 as "creating money out of thin air". But when the Fed adjusts interest rates which was what it used to do up to now, doesn't that also effectively create money out of thin air?
posted by storybored at 6:14 PM on November 6, 2010
posted by storybored at 6:14 PM on November 6, 2010
Oh, and speaking of where to put one's money, isn't a good proxy for commodities, the marvelous Canadian?
Canada:
Gold: check
Iron ore: check
Wheat: check
Potash: Most definitely
Oil: Yes'm
Gas: That too.
Maple Syrup: Sweet!
posted by storybored at 6:17 PM on November 6, 2010 [1 favorite]
Canada:
Gold: check
Iron ore: check
Wheat: check
Potash: Most definitely
Oil: Yes'm
Gas: That too.
Maple Syrup: Sweet!
posted by storybored at 6:17 PM on November 6, 2010 [1 favorite]
um Canadian dollar that is.
posted by storybored at 6:18 PM on November 6, 2010
posted by storybored at 6:18 PM on November 6, 2010
Damn it, I put all my money in Canadian Club before I got to the clarification.
posted by furiousxgeorge at 6:19 PM on November 6, 2010 [6 favorites]
posted by furiousxgeorge at 6:19 PM on November 6, 2010 [6 favorites]
You know what's terrifying? Political leaders who want to doing nothing in the face of a national emergency and just stand around and hope things get better. This is what brought us an 11 year Great Depression of misery and a Lost Decade (and counting) in Japan. Doing nothing is a choice that has real consequences as surely as a choice to try to improve the situation.
Just to clarify, yet again: I AM NOT ADVOCATING DOING NOTHING. I'm just sick and fucking tired of the economy being a fucked up mess. That's all.
posted by TrialByMedia at 7:38 PM on November 6, 2010
Just to clarify, yet again: I AM NOT ADVOCATING DOING NOTHING. I'm just sick and fucking tired of the economy being a fucked up mess. That's all.
posted by TrialByMedia at 7:38 PM on November 6, 2010
Jesus Christ people!? If you've found this point in the thread and you haven't reached the conclusion I'm about to drop on you then God help you.
Answer? Guns. Big guns. With optics. Preferably simple guns, but whatever you can grab at K-mart will suffice. Guns!
posted by Baby_Balrog at 8:50 PM on November 6, 2010 [1 favorite]
Answer? Guns. Big guns. With optics. Preferably simple guns, but whatever you can grab at K-mart will suffice. Guns!
posted by Baby_Balrog at 8:50 PM on November 6, 2010 [1 favorite]
....there are two seats on the fed board and Obama hasn't even bothered to nominate anyone. According to Yglesias, this is Obama's biggest political mistake. If the fed had done this 18 months ago, the economy would look vastly different - and probably for the better. How do you think the last election would have gone if unemployment was 5% instead of 10%?
Why would this make a difference to unemployment?
posted by Skygazer at 8:55 PM on November 6, 2010
Why would this make a difference to unemployment?
posted by Skygazer at 8:55 PM on November 6, 2010
....there are two seats on the fed board and Obama hasn't even bothered to nominate anyone. According to Yglesias, this is Obama's biggest political mistake.
THIS IS NOT TRUE. Obama nominated people months ago, but they've been held up by objections in the Senate. You know that guy Peter Diamond, the one who won a Nobel prize? He was one of the nominees. Back in April.
Get your facts straight.
posted by anigbrowl at 9:26 PM on November 6, 2010 [7 favorites]
THIS IS NOT TRUE. Obama nominated people months ago, but they've been held up by objections in the Senate. You know that guy Peter Diamond, the one who won a Nobel prize? He was one of the nominees. Back in April.
Get your facts straight.
posted by anigbrowl at 9:26 PM on November 6, 2010 [7 favorites]
Obviously, that is directed at the original source of this mistake.
posted by anigbrowl at 9:28 PM on November 6, 2010
posted by anigbrowl at 9:28 PM on November 6, 2010
Sugar, up about 66% since June 2010
Wheat, up some 36% since June 2010
I don't know about sugar, but with Russia's fires and dramatic unpreparedness for them, can we really say it evidence of a general increase in the price of goods and services? And from the little I do know of sugar production, it's a fairly protected market, to the benefit of both sugar and corn growers in the US.
posted by pwnguin at 9:40 PM on November 6, 2010
Metals? That seems to be the current trend.
You have to be ahead of the trend to make the real money. If you're jumping in when everyone else is that's nothing but a coin flip. You gotta buy when there's blood in the streets and sell when the champagne corks are popping. Right now everybody and his brother is hawking gold... that is a big warning flag.
Those commodity prices Mutant links to are not signs of big inflationary pressure. That doesn't necessarily mean he's not right, it just means those data aren't good evidence that he is. Yes, a bunch of commodity prices are up over the past 2 years. They're up after crashing from big spikes in '08, in a lot of case back to just above where they were in '05. Don't be investing your money based on random internet people advice, including mine. Well, I haven't given advice except to beware free advice but you know what I mean.
Oh, and Malor dammit, the Metafilter Drinking Game actually requires you to say "Zimbabwe", not just allude to it. Please correct this in future comments.
posted by Justinian at 9:48 PM on November 6, 2010 [1 favorite]
You have to be ahead of the trend to make the real money. If you're jumping in when everyone else is that's nothing but a coin flip. You gotta buy when there's blood in the streets and sell when the champagne corks are popping. Right now everybody and his brother is hawking gold... that is a big warning flag.
Those commodity prices Mutant links to are not signs of big inflationary pressure. That doesn't necessarily mean he's not right, it just means those data aren't good evidence that he is. Yes, a bunch of commodity prices are up over the past 2 years. They're up after crashing from big spikes in '08, in a lot of case back to just above where they were in '05. Don't be investing your money based on random internet people advice, including mine. Well, I haven't given advice except to beware free advice but you know what I mean.
Oh, and Malor dammit, the Metafilter Drinking Game actually requires you to say "Zimbabwe", not just allude to it. Please correct this in future comments.
posted by Justinian at 9:48 PM on November 6, 2010 [1 favorite]
oh, and cotton prices have been hovering around levels that we haven't seen since Reconstruction.
posted by TrialByMedia at 9:48 PM on November 6, 2010 [2 favorites]
posted by TrialByMedia at 9:48 PM on November 6, 2010 [2 favorites]
The concept is simple enough: a weakened dollar boosts exports which leads to increased growth.
So, what, exactly, will we be exporting? Boeing jets, sure, I guess. Do we still manufacture jet engines? Do they get sold to anyone but Boeing? Do Canadair and Embraer really count as export markets? Weapons and military hardware, maybe?
Do we have anything but those to export? We sure aren't gonna sell many cars overseas.
Wheat? Corn? Barley? Beef? Pork bellies? Orange juice?
Aren't we exporting about as fast as we are physically able to at the moment, and it's still a trickle compared to imports?
posted by zoogleplex at 10:42 PM on November 6, 2010
So, what, exactly, will we be exporting? Boeing jets, sure, I guess. Do we still manufacture jet engines? Do they get sold to anyone but Boeing? Do Canadair and Embraer really count as export markets? Weapons and military hardware, maybe?
Do we have anything but those to export? We sure aren't gonna sell many cars overseas.
Wheat? Corn? Barley? Beef? Pork bellies? Orange juice?
Aren't we exporting about as fast as we are physically able to at the moment, and it's still a trickle compared to imports?
posted by zoogleplex at 10:42 PM on November 6, 2010
Do we have anything but those to export? We sure aren't gonna sell many cars overseas.
Via The BBC whose headline claims done deals but a closer look implies a less exuberant interpretation, however:
The White House said the deals for new export business with India would help to support around 54,000 jobs in the United States.
Some of the deals expected to contribute to this included:
* The sale by Boeing of 30 new 737 aircraft to private Indian airline SpiceJet. The White House says this will help support over 12,000 US jobs.
* Preliminary agreement had been reached on the Indian purchase of 10 Boeing C-17s military transport planes.
* The sale by GE of fighter 107 F414 jet engines to the Indian military.
* A separate deal with GE worth $500m (£309m) for the sale of six heavy duty gas turbines and three steam turbines to India's Reliance Energy Ltd.
* Harley-Davidson plans a new plant in India to assemble American-made motorcycle kits.
* The White House said India had identified GE subsidiary GE Transportation, based in Erie, Pennsylvania, and Electro-Motive Diesel, of LaGrange, Illinois, a unit of Caterpillar Inc, as bidders to supply Indian railways with over 1,000 diesel locomotives over 10 years.
posted by The Lady is a designer at 3:21 AM on November 7, 2010
Via The BBC whose headline claims done deals but a closer look implies a less exuberant interpretation, however:
The White House said the deals for new export business with India would help to support around 54,000 jobs in the United States.
Some of the deals expected to contribute to this included:
* The sale by Boeing of 30 new 737 aircraft to private Indian airline SpiceJet. The White House says this will help support over 12,000 US jobs.
* Preliminary agreement had been reached on the Indian purchase of 10 Boeing C-17s military transport planes.
* The sale by GE of fighter 107 F414 jet engines to the Indian military.
* A separate deal with GE worth $500m (£309m) for the sale of six heavy duty gas turbines and three steam turbines to India's Reliance Energy Ltd.
* Harley-Davidson plans a new plant in India to assemble American-made motorcycle kits.
* The White House said India had identified GE subsidiary GE Transportation, based in Erie, Pennsylvania, and Electro-Motive Diesel, of LaGrange, Illinois, a unit of Caterpillar Inc, as bidders to supply Indian railways with over 1,000 diesel locomotives over 10 years.
posted by The Lady is a designer at 3:21 AM on November 7, 2010
Or who is not a foreign government holding US notes. They are decidedly not happy with us just now and will make their displeasures known. Which may be bad news for we non-millionaire Americans. -- IndigoJonesAnd how exactly are they going to do that? Did you miss what this was? We are buying our own notes with money we just printed -- and therefore we don't need them. Yes, the U.S. government
Those countries are trying to tighten their belts and pay down their debts. America - not so much. -- IndigoJonesIn the case of China, that's completely false. They did a massive stimulus and they don't even have any debt - instead they have massive savings. I'm not sure what's going on in Germany, but the government there has always been far more generous with benefits then the U.S, and on top of that they are instituting work sharing programs to keep unemployment low. In fact, the German unemployment rate is lower then it's been since 1993, and has been dropping since July of 2009.
I haven't heard of any complaints from the Japanese. But anyway, the idea that the US government should be more worried about how foreign governments feel then the unemployment in the U.S. is absurd.
Meanwhile, where is the QE2 money going?Yes, it's going into the economy, which is what we want. Doing QE when up against the zero bound is the equivalent of reducing the interest rate, which always makes the stock market pop in normal times. (zero bound being when the fed's interest rate for lending to banks is nearly zero)
The little pop in the stock market should give you a clue. -- IndigoJones
BUT--if commodity prices rise due to money having no where else to go...doesn't it mean people without a lot of money suffer at the gas pump and grocery store?Rising incomes is what inflation is. If commodity prices rise relative to other expenses, that's something else.
And why will incomes necessarily rise because of this? -- The ____ of Justice
But what I see here is a worldwide financial system that's been operating out of control for the past two years. Central banks are throwing everything they can at it, and they're increasingly unsure if any of it will work. -- TrialByMediaI dunno, Krugman hasn't exactly been happy with the Fed/Congress's response. And he was actively bitching about the EU austerity mania. I wouldn't call what the Central banks have been doing "throwing everything they can at it"
posted by delmoi at 6:22 AM on November 7, 2010 [1 favorite]
We probably make most of the world's grain and soybeans too.
posted by The Lady is a designer at 6:23 AM on November 7, 2010
posted by The Lady is a designer at 6:23 AM on November 7, 2010
But what I see here is a worldwide financial system that's been operating out of control for the past two years. Central banks are throwing everything they can at it, and they're increasingly unsure if any of it will work. -- TrialByMedia
I dunno, Krugman hasn't exactly been happy with the Fed/Congress's response. And he was actively bitching about the EU austerity mania. I wouldn't call what the Central banks have been doing "throwing everything they can at it"
posted by delmoi at 6:22 AM on November 7
[dips comments in acrylic to preserve for documentation]
posted by The Lady is a designer at 6:26 AM on November 7, 2010
I dunno, Krugman hasn't exactly been happy with the Fed/Congress's response. And he was actively bitching about the EU austerity mania. I wouldn't call what the Central banks have been doing "throwing everything they can at it"
posted by delmoi at 6:22 AM on November 7
[dips comments in acrylic to preserve for documentation]
posted by The Lady is a designer at 6:26 AM on November 7, 2010
Who is looking a tad further into the future to start pondering whether the fundamental premises on which the whole ecosystem rests are obsolete?
Some people, but probably not enough.
posted by Bangaioh at 8:11 AM on November 7, 2010 [1 favorite]
Some people, but probably not enough.
posted by Bangaioh at 8:11 AM on November 7, 2010 [1 favorite]
Germany, China, Brazil and South Africa have criticised the US plan, with the German Finance Minister Wolfgang Schaeuble saying it was "clueless" and would create "extra problems for the world".
China's Central Bank head Zhou Xiaochuan has urged global currency reforms, while South Africa said developing countries would suffer most.
South Africa's finance minister Pravin Gordhan warned that "developing countries, including South Africa, would bear the brunt of the US decision to open its flood gates without due consideration of the consequences for other nations."
The US policy "undermines the spirit of multilateral co-operation that G20 leaders have fought so hard to maintain during the current crisis," he said.
Fed's Bernanke defends new economic recovery plan
posted by The Lady is a designer at 1:02 PM on November 7, 2010
China's Central Bank head Zhou Xiaochuan has urged global currency reforms, while South Africa said developing countries would suffer most.
South Africa's finance minister Pravin Gordhan warned that "developing countries, including South Africa, would bear the brunt of the US decision to open its flood gates without due consideration of the consequences for other nations."
The US policy "undermines the spirit of multilateral co-operation that G20 leaders have fought so hard to maintain during the current crisis," he said.
Fed's Bernanke defends new economic recovery plan
posted by The Lady is a designer at 1:02 PM on November 7, 2010
Huh. Malor and Mutant arguing similar positions.
Ultimately, QE2 has to be done (and probably QE3 and 4). Malor is probably right, it probably will end up in high (as opposed to hyper) inflation, soaring commodity prices and pissed off bond holders. It probably will result in pain, strained international relations and various strains of trouble.
The problem is that the alternative, an Austrian School austerity approach to cull the weak and 'reboot' the economy results in happy creditors but also roving gangs of unemployed as a quarter of the workers are shown the door (see AU or NZ or CA in the Great Depression).
posted by bystander at 6:51 PM on November 7, 2010 [1 favorite]
Ultimately, QE2 has to be done (and probably QE3 and 4). Malor is probably right, it probably will end up in high (as opposed to hyper) inflation, soaring commodity prices and pissed off bond holders. It probably will result in pain, strained international relations and various strains of trouble.
The problem is that the alternative, an Austrian School austerity approach to cull the weak and 'reboot' the economy results in happy creditors but also roving gangs of unemployed as a quarter of the workers are shown the door (see AU or NZ or CA in the Great Depression).
posted by bystander at 6:51 PM on November 7, 2010 [1 favorite]
The Obama boom is about to hit. Jobs report was just the first wave. The Santa claus rally is next.
posted by humanfont at 7:09 PM on November 7, 2010
posted by humanfont at 7:09 PM on November 7, 2010
You mean the Bohner boom of course. :)
posted by furiousxgeorge at 7:14 PM on November 7, 2010
posted by furiousxgeorge at 7:14 PM on November 7, 2010
Boehner.
posted by furiousxgeorge at 7:15 PM on November 7, 2010
posted by furiousxgeorge at 7:15 PM on November 7, 2010
Boner.
The Obama boom is about to hit. Jobs report was just the first wave. The Santa claus rally is next.
Republicans will just take credit, and the democrats won't be capable of mounting a coherent argument anyway, so the press will just let them.
posted by delmoi at 12:22 AM on November 8, 2010
The Obama boom is about to hit. Jobs report was just the first wave. The Santa claus rally is next.
Republicans will just take credit, and the democrats won't be capable of mounting a coherent argument anyway, so the press will just let them.
posted by delmoi at 12:22 AM on November 8, 2010
>And how exactly are they going to do that?
Stamp their feet, for one. Currency wars is a distinctly possible other. Which is why the US government should be concerned about how foreign governments feel. Beggar thy neighbor is a bad economic policy. Helped lead to WWII.
it's going into the economy, which is what we want.
It's going into little speculation bubbles. Which is happy making for a certain kind of investor/speculator like the rich folk you were you were griping about earlier. And though the government would like it to go into housing, that is, to re-inflate what is still a highly out of kilter real estate market, they cannot force people to buy. Moreover, the banks are not desperate for money to lend. They have plenty, and did before QE2. So too do large corporations. Pouring more money in the pool is not going to help.
In the case of China, that's completely false.
Did I mention China? I was referring to the Europeans, who are indeed cutting back. Which is provoking stiff upper lips in Britain, strikes in France. China has a surplus. Of dollars. Which will become worth less as we inflate. Which is making them unhappy.
I haven't heard of any complaints from the Japanese.
IMF meeting in October. They expressed displeasure at prospect of QE2. Partially for selfish reasons, but then again, they did the same thing and got their flat decade, so, an example to live by.
Of course, I could be wrong, but I've got to go with Mutant and stay out of stocks for now.
posted by IndigoJones at 6:04 PM on November 9, 2010
Stamp their feet, for one. Currency wars is a distinctly possible other. Which is why the US government should be concerned about how foreign governments feel. Beggar thy neighbor is a bad economic policy. Helped lead to WWII.
it's going into the economy, which is what we want.
It's going into little speculation bubbles. Which is happy making for a certain kind of investor/speculator like the rich folk you were you were griping about earlier. And though the government would like it to go into housing, that is, to re-inflate what is still a highly out of kilter real estate market, they cannot force people to buy. Moreover, the banks are not desperate for money to lend. They have plenty, and did before QE2. So too do large corporations. Pouring more money in the pool is not going to help.
In the case of China, that's completely false.
Did I mention China? I was referring to the Europeans, who are indeed cutting back. Which is provoking stiff upper lips in Britain, strikes in France. China has a surplus. Of dollars. Which will become worth less as we inflate. Which is making them unhappy.
I haven't heard of any complaints from the Japanese.
IMF meeting in October. They expressed displeasure at prospect of QE2. Partially for selfish reasons, but then again, they did the same thing and got their flat decade, so, an example to live by.
Of course, I could be wrong, but I've got to go with Mutant and stay out of stocks for now.
posted by IndigoJones at 6:04 PM on November 9, 2010
IndigoJones wrote: "Europeans, who are indeed cutting back."
Last I saw, that hadn't actually happened yet. It's a promise of future action, aside from a few isolated cases.
posted by wierdo at 6:12 PM on November 9, 2010
Last I saw, that hadn't actually happened yet. It's a promise of future action, aside from a few isolated cases.
posted by wierdo at 6:12 PM on November 9, 2010
Guys I've been out of action for a few days due to a pretty nasty cold, but wanted to post an update in case anyone is still following this thread.
In spite of comments unthread, I'm not in the hyperinflation camp; The United States has already had two nasty bouts (as I'm sure anyone who claims its in our future is well aware) with hyperinflation. I previously did an FPP regarding outlining an argument as to why The United States wouldn't see hyperinflation, and although at least one component is in place (monetary), we're a long way away from hyperinflation.
Uncomfortable, double digit inflation which is a very probably outcome is one thing; hyperinflation is something completely different and I'm willing to bet, like the 80's, we'd see nominal interest rates approaching 20% before the government sacrifices the US dollar. Yes, in spite of how painful such usurious rates would be to everyday folk the government won't let the dollar go the way of the Turkish Lira or the Georgian Coupon.
And I'm hardly "cherry picking" commodity data to support my argument. My apologies, but I don't really know where to find extensive commodity pricing data for free on the internet, but if anyone has access to a Bloomberg terminal, you can easily see what we've been looking at for the last few months. Most university libraries can help you access this data but I've got a few screen dumps to share.
Across the board, most commodity indices have seriously risen, looking back one or five years.
If we look at the UBS CMCI index, we see a 33% increase across the past year.
Looking at the DJ UBS Industrial metals index, we see an almost 50% increase over the past 18 months.
The CRB Commodity Index shows a 20% increase over the past 18 months.
Now we don't think this is driven by economic activity; GDP in most of the G7 has been terrible, and incidental indicators such as The Baltic Dry Index by now means show increased demand for shipping (i.e. raw materials being shipped to Chinese factories and finished materials being shipped to North America & Europe).
If there was increased economic activity we'd expect to see this reflected in more frequently updated indicators (there are many we look at) besides the BDI.
Finally, mainstream media is starting to pick up on the inflation story now; Secret Walmart Survey Shows Inflation Already Here.
Hardly an authoritative source, but interesting nonetheless.
posted by Mutant at 11:52 AM on November 14, 2010 [2 favorites]
In spite of comments unthread, I'm not in the hyperinflation camp; The United States has already had two nasty bouts (as I'm sure anyone who claims its in our future is well aware) with hyperinflation. I previously did an FPP regarding outlining an argument as to why The United States wouldn't see hyperinflation, and although at least one component is in place (monetary), we're a long way away from hyperinflation.
Uncomfortable, double digit inflation which is a very probably outcome is one thing; hyperinflation is something completely different and I'm willing to bet, like the 80's, we'd see nominal interest rates approaching 20% before the government sacrifices the US dollar. Yes, in spite of how painful such usurious rates would be to everyday folk the government won't let the dollar go the way of the Turkish Lira or the Georgian Coupon.
And I'm hardly "cherry picking" commodity data to support my argument. My apologies, but I don't really know where to find extensive commodity pricing data for free on the internet, but if anyone has access to a Bloomberg terminal, you can easily see what we've been looking at for the last few months. Most university libraries can help you access this data but I've got a few screen dumps to share.
Across the board, most commodity indices have seriously risen, looking back one or five years.
If we look at the UBS CMCI index, we see a 33% increase across the past year.
Looking at the DJ UBS Industrial metals index, we see an almost 50% increase over the past 18 months.
The CRB Commodity Index shows a 20% increase over the past 18 months.
Now we don't think this is driven by economic activity; GDP in most of the G7 has been terrible, and incidental indicators such as The Baltic Dry Index by now means show increased demand for shipping (i.e. raw materials being shipped to Chinese factories and finished materials being shipped to North America & Europe).
If there was increased economic activity we'd expect to see this reflected in more frequently updated indicators (there are many we look at) besides the BDI.
Finally, mainstream media is starting to pick up on the inflation story now; Secret Walmart Survey Shows Inflation Already Here.
Hardly an authoritative source, but interesting nonetheless.
posted by Mutant at 11:52 AM on November 14, 2010 [2 favorites]
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posted by furiousxgeorge at 12:43 PM on November 6, 2010 [1 favorite]