Learning from the American QE debate

johngerard

We'll get trillions of dollars worth of QE in the coming years. It's going to become 'normal'. And the BoE will follow, albeit not to the same degree, of course. The US Fed can do what it likes. It's answerable to no-one and no legal body. Obama is only the second most powerful man in the US - Bernanke is top-dog. Congress is now out of the stimulus business, so it's left to the Fed to get that printer in the basement of the Marriner Eccles building running. However, things just aren't bad enough to merit another round of full-on QE yet, hence Operation Twist yesterday. We'll have to see the S&P500 below 1000 (currently 1128), then Bernanke will be calling up the local Best Buy to get a job-lot on green ink. By the end of the year, probably. Rinse and repeat, just like the last two rounds of QE. Ultimately, it means a new global reserve currency backed with a basket of commodities, for international transactions only, by the end of the decade. This bulls*it can't go on.

Michel d'Anjou

The Fed has moved once again to create a "false market in securities" which is to be regretted, for this is part of a policy to simply inflate the debts away (as used also in the UK). It is very damaging to savers and older people in general but will have also very significant impacts in the pension and insurance worlds. Companies will need to contribute more to their pension plans (with the consequence that they will continue to abandon traditional defined benefit plans) and insurance companies will need to increase premiums in order to achieve minimum levels of profitability. Frankly the authorities are getting desperate. And worth remembering the cuts haven't started in the UK yet. So very uncomfortable times lie ahead.

Hugo Chav

“Printing money is the last resort of desperate governments.”

George Osborne

Hugo Chav

Apologies I missed of some words:

“Printing money is the last resort of desperate governments when all other policies have failed.”

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"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."

Ludwig von Mises

Hugo Chav

Jeremy Grantham interview in MarketWatch - 22/9/11:

Policymakers and politicians have acted like “children at play,” Grantham has said. As he sees it, they’ve created a tower of debt and an illusion of wealth, and have not been held responsible for their frivolous actions.

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When the hell is Sir Mervflation and his merry band going to be held to account for allowing house prices to triple between 1997 and 2007? Did we ever see any member of the MPC dissent on this inflationary powderkeg? Instead of Central Bank like the Bundesbank we got one like the Bank of Argentina.

AJK

Rather than the Bank of England creating £50bn by by buying gilts, wouldn't it be better to raise income tax thresholds and abolish NI by the same amount? It's still alot of money we haven't got. However, the poor woukd more likely spend it!

Baron

Whether QE pushes inflation noticeably higher in the short term hasn’t been proven yet, if consumer demand, the largest chunk of every country’s GDP truly collapses worldwide, companies operating in an competitive environment aren’t very likely to push prices up.

What QE does is it converts near cash to cash, the way things are shaping up, the banks will need a lot of the latter if they’re to avoid going under, destroying confidence in banking, demolishing the current financial set-up.

El Sid

You've linked to the summary of the report on QE rather than the full thing, it's essential reading for anyone wanting to pontificate on the subject of QE :
http://www.bankofengland.co.uk/publications/quarterlybulletin/qb110301.pdf

It goes to show that the effects are rather more complicated than the average commentator makes out. As for "boosting markets for year-end bonuses" - the main slab of QE happened in late spring 2009, just the worst time possible for bonuses, and as the BoE comments, the stock market was the one area where it didn't really work as expected.

It's also incorrect to say that "QE only delivers inflation" - that's only true if the velocity of money stays constant, which wasn't true when credit markets dried up. You could argue that we're seeing something similar at the moment - and the one thing that QE is really suited to is compensating for long-term drops in the velocity of money. That's not to say I'm a huge fan, or that I think that the BoE went about it in the right way - but if you are going to print money, then it should only be when you are seeing long-term, semi-permanent declines in the velocity of money. A Greek default could be the trigger for such a decline happening.

Dimoto

I wonder what the "monetary hawks" in the Fed would say if they had a Brit colleague arguing continuously for QE.

We don't need to worry about the ECB or "the Germans" (yet), we invited a (loud) American "Keynesian" on to the MPC, to help us decide on our monetary policy.

How completely ludicrous is that ?

elderly gent

QE will bring inflation, inflation reduces the debt burden, salaries increase, result, confidence returns. (Heaven help us if we get the reverse). This will only work as long as we can expand the economy at the same time, flooding the market with cheap imports is a hinderance to that aim. Our manufacturing capability must be restored and it should be remembered that small businesses feed off the larger ones. Get it right and the UK can benefit from the downturn in mainland Europe and the USA.

michael

S0 QE turns out to be a temporary cash injection to enable the bankers to give handouts to themselves and the government for what amounts to a fist full of IOU's.

- If they need to get their hands on some f*cking flash cash, they should be offering better incentives/interest rates to savers.

What kind of cerebrally challenged 'me and my mates' economics is this?

alexsandr

how do we keep any stimulus money in teh UK economy. Just giving cash to people they will either spend it on imports or pay down debt so no benefit really...