quantitative easing

[....lybob]

[Magox]

youtube.com/watch?v=uwhMVB0XzPU

Jesus Santa Maria, only would an MSNBC, Rollingstone, Daily Kos or HuffingtonPost commentator/journalist make the assertion that this is some sort of "racket" that is meant to only benefit the banks. Janet Yellen, Ben Bernanke, Peter Diamond and most other central bankers are academics, they are not former bankers bailing out their co "fat cat bankers".

 

Other than nonsensical comment, I do agree that this comes at the expense of the dollar, which means that low to mid-income earners will get punished the most because A) savings rates get crushed B) inflation eats away a larger portion of their disposable income.... I just got done writing about this in my latest newsletter.

 

However, this goes 100% at odds with Krugman, he seems to believe that we should do a mega QE.

[....lybob]

start at 14.20

 

 

[....lybob]

[....lybob]

 

[jjamie12]

youtube.com/watch?v=uwhMVB0XzPU

Yeah. Hyper-inflation is, like, SO totally awesome for banks.

[TPS]

Yeah. Hyper-inflation is, like, SO totally awesome for banks.

MT was rignt about QEI, as it was a blanket swap of reserves for worthless mortgages. If QEII is about buying long term US T-Bonds, then his point is ludicrous.

On Hyper-inflation, until people understand the "nature" of modern money and banking, they will continue to believe the US is on it's way to the Zimbabwe outcome--it's not. The FED has not printed money. Does anyone here understand this?

 

The FED bought bad assets and credited the "reserve account" of banks which are HELD on account AT the FED. The FED now pays interest on excess reserves equivalent to the T-bill yield, so banks are indifferent about using these to buy Treasuries themselves. Almost the entire $1 trillion "given to the banks" through buying MBS is made up of these reserves. Only when banks use those reserves to lend to someone or thing that will spend it, will we see inflation. As long as there are excess labor and capital resources, it won't happen. That said, we are seeing investors increase funds flowing to commodities (including gold), making bets that these prices will rise. Commodities are the next asset bubble.

[Magox]

MT was rignt about QEI, as it was a blanket swap of reserves for worthless mortgages. If QEII is about buying long term US T-Bonds, then his point is ludicrous.

On Hyper-inflation, until people understand the "nature" of modern money and banking, they will continue to believe the US is on it's way to the Zimbabwe outcome--it's not. The FED has not printed money. Does anyone here understand this?

 

The FED bought bad assets and credited the "reserve account" of banks which are HELD on account AT the FED. The FED now pays interest on excess reserves equivalent to the T-bill yield, so banks are indifferent about using these to buy Treasuries themselves. Almost the entire $1 trillion "given to the banks" through buying MBS is made up of these reserves. Only when banks use those reserves to lend to someone or thing that will spend it, will we see inflation. As long as there are excess labor and capital resources, it won't happen. That said, we are seeing investors increase funds flowing to commodities (including gold), making bets that these prices will rise. Commodities are the next asset bubble.

Yes they have "printed" money, what part of that don't you understand? Money is being created "printed" and then used to buy treasury bonds and MBS. That is printing, you seem to be one of the few people on this planet who purport to understand economics that doesn't understand this.

 

What do you think happens when people Refi their home loans or buy new homes? Where is that money coming from? Do you think that the Fed buying MBS or 30 year treasuries had something to do with those low interest rates? Do those savings from lower interest rates get filted back into the economy? You are having a hard time understanding this concept.

 

I do agree and I told you over a year ago that we won't see a problem with inflation until more of that money gets released into the economy. When the unemployment rate gets back down to around 8% in a few years, oil will be over $125 a barrel. That's inflation my friend. Oil next year will be over $100 and that will be with unemployment over %9.5

 

Also, you seem to agree with the Fed on many things, then why is it that William Dudley #2 on the Fed said recently:

 

Federal Reserve Bank of New York President William Dudley said the outlook for U.S. job growth and inflation is “unacceptable” and that more monetary easing is probably needed to spur growth and avert deflation.

 

“We have tools that can provide additional stimulus at costs that do not appear to be prohibitive,” Dudley, who serves as vice chairman of the Fed’s policy-setting Open Market Committee, said today in a speech to business journalists in New York. “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.”

 

If printing money isn't inflationary, then why are they printing money to increase inflation?

 

You will be wrong on your bet that there won't be inflation, we are already seeing it right now, specially in the developing world. You seem to believe that it is unjustified the rise of commodity prices, well keep telling yourself that. The only thing that will kill off this commodity run will be when the world starts raising interest rates AGGRESSIVELY to combat INFLATION. Or another round of systemic risk that causes mass liquidiations and margin calls on all asset bubbles, which of course would lead to more monetary easing and fiscal stimulus which woulr reflate those prices once again.

 

 

Man, you are thick-headed when it comes to this topic.

[Magox]

Here, an article from today, a point that you seem incapable of grasping:

 

http://noir.bloomberg.com/apps/news?pid=20601087&sid=acZudC6SsBGU&pos=7

 

Federal Reserve policy makers may want Americans to expect inflation to accelerate in the future so they spend more of their money now.

 

Central bankers, seeking ways to boost flagging growth after lowering interest rates almost to zero and buying $1.7 trillion of securities, are weighing strategies for raising inflation expectations as well as expanding the balance sheet by purchasing Treasuries, according to minutes of the Fed’s Sept. 21 meeting released yesterday.

 

Some Fed officials are concerned that expectations of lower inflation will become self-fulfilling, damping demand by increasing borrowing costs in real terms, the minutes said. By encouraging Americans to believe prices will start rising at a faster pace, the Fed would reduce inflation-adjusted interest rates and stimulate the economy. Chairman Ben S. Bernanke said in 2003 that Japan could beat deflation by using a “publicly announced, gradually rising price-level target.”

 

“The Fed is on the verge of actively targeting a higher inflation rate,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. U.S. stocks advanced, sending benchmark indexes to five-month highs, the dollar fell and gold declined for the first time in three days after the minutes were released.

 

Trying to raise inflation expectations is untested in the U.S. The policy may backfire if actual inflation drifts higher than the Fed would like, potentially eroding gains won in the early 1980s by former Fed Chairman Paul Volcker, who raised interest rates as high as 20 percent to subdue prices.

 

‘Elegant’ Theory

 

“The theory is elegant, but it’s unclear in practice whether short-term moves in inflation expectations really drive real growth,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York and a former Fed researcher.

 

Jim O’Sullivan, global chief economist at MF Global Ltd. in New York, said in a Bloomberg Television interview that the biggest risk is “boosting long-term inflation expectations more than they lower real interest rates.”

 

Bernanke on Oct. 15 will deliver a speech on “Monetary Policy Objectives and Tools in a Low-Inflation Environment” at a conference at the Fed Bank of Boston. Some of the panels at the conference will deal with Japan’s experience of deflation.

 

The Sept. 21 statement saying the Fed “is prepared to provide additional accommodation if needed” was meant to accord “with the members’ sense that such accommodation may be appropriate before long,” the minutes said. The Standard and Poor’s 500 index is up 2.6 percent since Sept. 21 and rose 0.4 percent yesterday to 1,169.77.

 

 

The report provides more detail on the timing and components of potential easing actions without giving the amount of any additional asset purchases by the Fed. Since the meeting, weaker-than-forecast job growth in September and comments by policy makers, including New York Fed President William Dudley, have fueled speculation that the central bank will soon start a second wave of unconventional easing.

 

Projection for Purchases

 

Goldman Sachs Group Inc. economists are projecting that the Fed will announce $500 billion of purchases at the next meeting Nov. 2-3.

 

“They’re still ironing out the details,” said Chris Low, chief economist at FTN Financial in New York. At the same time, “if we don’t get an announcement in the next meeting I think we’d see quite a bit of disappointment in the bond market and the stock market,” Low said.

 

Bond traders expect the Fed’s actions to generate higher prices. Their inflation expectations for the next five years, measured by the breakeven rate between nominal and inflation- indexed bonds, rose to 1.47 percent from 1.2 percent on Sept. 20, the day before the Fed’s meeting. Gold prices hit a record $1,366 an ounce on Oct. 7.

 

Removing Punch Bowl

 

“The bottom line is, they are trying to reflate, and the market is concerned that historically they have always been late in removing the punch bowl,” said Richard Schlanger, a vice president at Pioneer Investments Inc. in Boston who helps oversee $18 billion. “We are going to be very judicious in our asset allocations here.”

 

Moderate growth and 9.6 percent unemployment are curbing price gains, prompting U.S. central bankers to warn for the second time in a decade that inflation is too low.

 

Inflation, measured by the personal consumption expenditures price index, minus food and energy, has been below the Fed’s goal for five consecutive months. The price measure rose 1.4 percent for the 12 months ending August. Prices excluding food and energy have gained at a 1 percent annual pace in the three months through August.

 

The European Central Bank and Bank of England are among central banks that target an inflation rate through monetary policy. The Fed, by contrast, has no formal inflation objective; instead, Fed officials state a long-run inflation rate they see as consistent with achieving the legislative mandates of stable prices and maximum employment.

 

Inflation Target

 

The FOMC could adopt a combination of inflation targeting and price-level targeting to get inflation expectations up, said Mark Gertler, a New York University economist and research co- author with Bernanke.

 

The Fed could restate its commitment to keep inflation rising annually at around 1.7 percent to 2 percent. At the same time, the FOMC could announce some tolerance for inflation above that goal to make up for recent undershooting of those rates, Gertler said.

 

That would help convince the public that the Fed wasn’t going to raise rates rapidly if inflation moved above 2 percent, he said. Such a strategy “tells the market that the farther we undershoot, the more aggressive we are going to be,” he said.

 

A nominal GDP target is “a pretty unlikely outcome,” Gertler said. “I don’t think it is on the table as a serious proposal.”

 

Attends Meeting

 

The Fed’s consideration of price-level targeting may draw on research co-written by Gauti Eggertsson, a New York Fed researcher, and Michael Woodford of Columbia University. Eggertsson attended the FOMC meeting last month, his second since joining the Fed in 2004.

 

Eggertsson and Woodford said in a 2003 paper that a publicly announced price-level target is better than targeting the rate of inflation as a way to increase expectations. Bernanke cited their work in a 2003 speech about monetary policy in Japan.

 

Woodford said in an interview it would be “desirable” for the Fed to commit to keep rates low to ensure prices rise along a path identified by the central bank.

 

If people expect higher inflation, “that’s a reason to spend more,” said Woodford, who as a professor worked with Bernanke in the Princeton University economics department.

 

Japan Policy

 

Japan, by contrast, tied its low-rate policy last decade to an inflation rate instead of the price level. Woodford declined to discuss his talks with Fed officials.

 

Dudley, who serves as FOMC vice chairman and is the only regional Fed president to vote at every meeting, said in an Oct. 1 speech that, for example, “if inflation in 2011 were 0.5 percentage point below the Fed’s inflation objective, the Fed might aim to offset this miss by an additional 0.5 percentage- point rise in the price level in future years.”

 

“There’s some evidence that inflation expectations are playing a role both in limiting demand and keeping prices low,” FTN’s Low said.

 

“You look at housing now and one of the reasons people aren’t buying is they expect they can get a better price if they wait,” he said. “If that behavior spreads into other markets, it could be a real problem.”

[TPS]

Yes they have "printed" money, what part of that don't you understand? Money is being created "printed" and then used to buy treasury bonds and MBS. That is printing, you seem to be one of the few people on this planet who purport to understand economics that doesn't understand this.

So when you use the term print, you don't necessarily mean on pieces of paper--that is, you don't really mean the word "printed"? Clarify that please.

 

If you are agreeing with me that that the FED has credited banks' accounts at the FED in your definition of "print," then I guess we agree. But it's not clear what you mean.

 

What do you think happens when people Refi their home loans or buy new homes? Where is that money coming from? Do you think that the Fed buying MBS or 30 year treasuries had something to do with those low interest rates? Do those savings from lower interest rates get filted back into the economy? You are having a hard time understanding this concept.

First, I think you are confusing effects here. I've always said that the FED attempts to control the economy by changing interest rates, and it typically does so by setting and controlling the Fed Funds Rate. In these extreme times, they have tried to bring down longer term rates. They continue to intervene in markets to lower interest rates because the indirect mechanism of lower interest rates has had little effect--there's no loan demand.

 

I'm glad you are finally understanding the way monetary policy impacts the economy, which is through lower interest rates, which is what I've always stated. Money does not fall from trees and into the hands of businessess and households, it is "created and released" when banks make loans. Excess reserves sitting on account at the FED represent the ability of the banking system to make loans, and only when they do, will money be "relased into the economy."

I do agree and I told you over a year ago that we won't see a problem with inflation until more of that money gets released into the economy. When the unemployment rate gets back down to around 8% in a few years, oil will be over $125 a barrel. That's inflation my friend. Oil next year will be over $100 and that will be with unemployment over %9.5

Ahhh...here's the nugget. Where is that money now if it's not being released into the economy? Do you really believe there are stacks of notes laying around somewhere?

 

You will be wrong on your bet that there won't be inflation, we are already seeing it right now, specially in the developing world. You seem to believe that it is unjustified the rise of commodity prices, well keep telling yourself that. The only thing that will kill off this commodity run will be when the world starts raising interest rates AGGRESSIVELY to combat INFLATION. Or another round of systemic risk that causes mass liquidiations and margin calls on all asset bubbles, which of course would lead to more monetary easing and fiscal stimulus which woulr reflate those prices once again.

Go back and read everything I've ever stated on this subject. I've alwasy said inflation won't happen UNTIL the economy recovers and resources become scarce--the unemployment rate falls and capacity utilization rates increase.

Nice to see that you finally understand how monetary policy impacts the economy through interest rates.

 

If your argument is that the FED has printed money which causes inflation, then how can an increase in interest rates reverse that process?

As for Dudley, he never said print, he said easing. The only time the FED "prints" money, in a way, is if they directly lend to finance federal government spending.

 

Man, you are thick-headed when it comes to this topic.

I assume you were looking in the mirror...

[IDBillzFan]

Here, an article from today, a point that you seem incapable of grasping:

 

http://noir.bloomberg.com/apps/news?pid=20601087&sid=acZudC6SsBGU&pos=7

Forgive my lack of economic knowledge, but this sounds ridiculous to me:

 

Federal Reserve policy makers may want Americans to expect inflation to accelerate in the future so they spend more of their money now.

 

Seems to me many people and companies are sitting on their cash because they expect inflation to accelerate in the future. Does the fed actually believe that if they scare us into thinking inflation is right around the corner that we're going to run out and buy a bunch of stuff before their prices increase? I mean, yes, okay, someone may run out to get a car or house, but enough to kickstart the economy?

 

Really?

 

REALLY?

[Magox]

 

So when you use the term print, you don't necessarily mean on pieces of paper--that is, you don't really mean the word "printed"? Clarify that please.

 

If you are agreeing with me that that the FED has credited banks' accounts at the FED in your definition of "print," then I guess we agree. But it's not clear what you mean.

 

ummmm, of course I don't mean that they literally print it... I think that goes without saying.

 

First, I think you are confusing effects here. I've always said that the FED attempts to control the economy by changing interest rates, and it typically does so by setting and controlling the Fed Funds Rate. In these extreme times, they have tried to bring down longer term rates. They continue to intervene in markets to lower interest rates because the indirect mechanism of lower interest rates has had little effect--there's no loan demand.

 

I don't get confused on these matters. Not only does QE otherwise known as "money printing to buy assets" alters the possibility of lower interest rates, but that money does get filtered out to the economy. I've told you and other people that the problem isn't the supply of money it's the velocity in which it is unleashed. However, some of that money through MBS and Treasury purchases are getting filtered out into the economy, through home purchases, refi's and other loans. Remember, the Federal Reserve lends to the banks virtually for free, they also bought these assets from banks MBS, in which banks are now using those funds to do what? That's right, refi's and new home loans. SO yes, it is filtering out into the economy just not at the pace they would hope for. Same goes with Treasury bonds, those funds go to the government, which the government does what with those funds? ANd buy buying up their Treasuries what has that done to rates? Are those treasuries tied to other loans? Are people receiving loans backed up by the government? Are people not enjoying those low interest rates from the government? You seem to think that the money is put in a vault somewhere and is stagnating. You are confusing the assets they bought. They "printed" or created that money, and what did they do what that money they created?

 

The money went to banks and the government.

 

 

I'm glad you are finally understanding the way monetary policy impacts the economy, which is through lower interest rates, which is what I've always stated. Money does not fall from trees and into the hands of businessess and households, it is "created and released" when banks make loans. Excess reserves sitting on account at the FED represent the ability of the banking system to make loans, and only when they do, will money be "relased into the economy."

 

Actually, figuratively speaking, it does fall from trees into hands of businesses and households.... I explained to you how. Fed purchases assets from banks and government. Money then goes to consumers of home loans or student loans or other other loans with lower interest rates which then gets filtered into the economy. SO yes, they do fall into hands of businesses and households. Where you are getting mixed up is the velocity. We all agree that the velocity is painfully slow, but it is getting filtered very slowly into the economy.

 

Ahhh...here's the nugget. Where is that money now if it's not being released into the economy? Do you really believe there are stacks of notes laying around somewhere?

 

I've already addresses this issue.

 

 

Go back and read everything I've ever stated on this subject. I've alwasy said inflation won't happen UNTIL the economy recovers and resources become scarce--the unemployment rate falls and capacity utilization rates increase.

Nice to see that you finally understand how monetary policy impacts the economy through interest rates.

Inflation is already rising, just not according to the fed's gauges. They exclude food and energy. In the real world backaroo, we use energy and food. Yup, I know it sounds far-fetched but it's true, we eat. Yeah and we drink. Not only that, but we use gasoline to get to work at least most of us do anyway. Yup and guess what? When we buy something from a store, guess how it got transported there? You got it, fuel. When you build something, with what do you think it is built? Yeah, materials. Oh and when you where clothes, that does have an input cost. So, yes there is inflation. This is not a bubble, this is supported by strong demand in the developing countries along with a weak dollar (which you seem to be unable to grasp).

 

However, when we the U.S beging to start employing people in a meaningful way, then that will be the tri-fecta. The perfect storm if you will, inflation will go bananas. Inflation is already a recognized problem in the developing world

.

 

If your argument is that the FED has printed money which causes inflation, then how can an increase in interest rates reverse that process?

As for Dudley, he never said print, he said easing. The only time the FED "prints" money, in a way, is if they directly lend to finance federal government spending.

 

Duhhh, he's not going to say "print", that isn't in their jargon ya big dummy.

 

Everyone knows (except you) that QE is money printing to buy assets.

 

I assume you were looking in the mirror...

Back at ya

 

Here is what QE means:

 

 

The term quantitative easing (QE) describes a monetary policy used by central banks to increase the supply of money by increasing the excess reserves of the banking system. This policy is usually invoked when the normal methods to control the money supply have failed, i.e the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.

 

A central bank implements QE by first crediting its own account with money it creates ex nihilo ("out of nothing").[1] It then purchases financial assets, including government bonds, agency debt, mortgage-backed securities and corporate bonds, from banks and other financial institutions in a process referred to as open market operations. The purchases, by way of account deposits, give banks the excess reserves required for them to create new money, and thus hopefully induce a stimulation of the economy, by the process of deposit multiplication from increased lending in the fractional reserve banking system.

 

Risks include the policy being more effective than intended, spurring hyperinflation, or the risk of not being effective enough, if banks opt simply to sit on the additional cash in order to increase their capital reserves in a climate of increasing defaults in their present loan portfolio.[1]

 

"Quantitative" refers to the fact that a specific quantity of money is being created; "easing" refers to reducing the pressure on banks.[2] However, another explanation is that the name comes from the Japanese-language expression for "stimulatory monetary policy", which uses the term "easing".[3] Quantitative easing is sometimes colloquially described as "printing money" although in reality the money is simply created by electronically adding a number to an account. Examples of economies where this policy has been used include Japan during the early 2000s, and the United States, the United Kingdom and the Eurozone during the global financial crisis of 2008–the present, since the programme is suitable for economies where the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.

 

 

Here's another description:

 

I saw this interview last week on CNBC, Steve Liesman does a good job describing QE. He was accompanied by St louis Fed president Jim Bullard. I didn't need to see this description or link any of these to understand QE, but you obviously needed it, so here you go.

 

http://www.cnbc.com/id/15840232?play=1&video=1610302482

 

"Fed's pay for assets by printing money"

 

 

electronically credits the account of the "seller".

 

Which means that money is created out of thin air and goes to whom? The "seller"

 

Who is the "seller"? Banks and the government and any other institution that makes loans backed by the government.

 

Sorry my friend, this is what we call

 

Game Set Match

Edited October 13, 2010 by Magox

[Magox]

Forgive my lack of economic knowledge, but this sounds ridiculous to me:

 

 

 

Seems to me many people and companies are sitting on their cash because they expect inflation to accelerate in the future. Does the fed actually believe that if they scare us into thinking inflation is right around the corner that we're going to run out and buy a bunch of stuff before their prices increase? I mean, yes, okay, someone may run out to get a car or house, but enough to kickstart the economy?

 

Really?

 

REALLY?

 

It's the old philosophy of the self-fulfilling prophecy. It's a matter of psychology, where if people expect prices to continue to drop, let's say like in homes then people sit on the sidelines and the prices drop. Same goes to the up-side, when we went through the housing boom, here in Miami people were in line ready to buy a condo, and in some new developments after every fifth person the price rose $5000. So in some days you could buy a condo for $400,000, and later on in that very same day, that very same unit would go for $420,000 so people were rushing to buy that condo.

 

However, this "self-fulfilling prophecy" doesn't always apply. Like gasoline or food for instance, you are not going to rush to the gasoline station or grocery store because you expect prices to go higher. Same with that car or home you are looking to purchase.

 

What I am trying to say is that different times produce different dynamics which leads to different results.

 

We are fighting an environment of deflationary housing/renting circumstances along with deflationary wages in many cases.

 

But, we are experiencing inflationary pressures in commodities which is by far the best indicator of inflation (which TPS doesn't seem to understand).

 

So the Fed right now is telling you "We will produce more inflation and we will devalue the dollar".

 

meanwhile many peoples wages are stagnant and in many cases non-existent, while there every day costs of food, clothing, heating/cooling and gas are going up. Also, if you have money in a savings account, you are getting crushed, because you are earning next to nothing.

 

I've adjusted my portfolio for what the Fed is telling you what they are going to do. It is hard to fight the fed, I definitely wouldn't go against the grain, that's for sure.

[Magox]

Super debate last night.

 

Between Krugman and Niall Ferguson, a debate of deficit spending vs. austerity.

 

It was great, because you couldn't possibly have two polar opposite views of how to tackle this issue.

 

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=atKfRmN8UK7k

 

Krugman, 57, a Princeton University professor, is urging the Obama administration to undertake a second round of fiscal stimulus, while Harvard University historian Ferguson, 46, warns such a course may trigger a “debt spiral” in the world’s biggest economy.

 

“The risk is that at some point your fiscal policy loses credibility in the eyes of investors,” Ferguson said at the World Knowledge Forum in Seoul. “Then, very quickly, you will find yourself in a debt spiral of rising rates, widening deficits, crumbling credibility and yet more rising rates.”

 

 

“We actually never did significant fiscal expansion,” Krugman said at today’s forum, appearing beside Ferguson. “What does a trillion dollars of borrowing do to the U.S. long-run fiscal position? The stimulus right now makes almost no difference.”

 

The administration’s two-year $814 billion stimulus program ends Dec. 31, and Krugman said two months ago another $800 billion is necessary. While the National Bureau of Economic Research said in September that the worst U.S. recession since the Great Depression ended in June 2009, the unemployment rate held at 9.6 percent last month.

 

Investor Confidence

 

Ferguson said the U.S. risks losing investors’ confidence as more spending exacerbates its weak fiscal position, adding the U.S. debt situation is worse than that of Greece. Krugman dismissed the comments, saying there is no evidence in the markets that bondholders will flee.

 

“The markets are fine until they are not fine,” Ferguson countered

.

 

The counter from Ferguson is a point that I have made for years, which is everything is fine until they are not fine. Krugman always points to our treasury rates which are extremely low and he uses that as proof that the bond vigilantes are not concerned with our debt. That is a ridiculous argument to make, one could say the very same thing with the housing or tech bubble, stocks and home prices were rising until they popped. Or you could look at Greek and Spanish bonds, if you would of looked at their bond rates just 15 months ago, according to Krugman's logic, they would have been just fine because rates were still low not showing any signs of pressure.

 

In regards to QE:

 

As for the need for further quantitative easing, Krugman maintains that flooding the economy with liquidity has helped to tide the global economy over the worst, and more would be needed to "really produce a full recovery."

 

but concedes:

 

"China is behaving badly… The U.S. is loosening monetary policy with the side consequence of a weaker dollar, (while) China is actually pursuing policy tightening to offset the inflationary impacts of an artificially weak renminbi so… China is really the bad guy in this," the Princeton University professor told CNBC Thursday.

 

Niall Ferguson's take:

 

Europe's sovereign debt crisis isn't over and will continue to spread, first to Japan and then to the U.S., warned renowned Harvard University professor, Niall Ferguson.

 

"There are more of those (sovereign debt crises) to come and, ultimately, it is going to come to Japan and the United States. And those crises of sovereign debt will be the big story," he told CNBC Wednesday.

 

The explosion of public debt will inevitably lead to either inflation or default, Ferguson added.

 

"It just depends on whether you borrow in your own currency in which case is probably going to be inflation; or someone else's, in which case is probably a default."

 

The British historian says further quantitative easing from the U.S. Federal Reserve will not help the economy, as the extra liquidity is unlikely to stay within the country.

 

"All that liquidity ends up not where it is supposed to be, which is magically creating jobs for American workers in Michigan. It doesn't do that at all. It ends up pumping up commodity prices on the other side of the world, with lots of unforeseen consequences," Ferguson cautioned.

 

U.S. shouldn't be blaming China for its yuan policy, said Ferguson, as America seems to also be benefiting from Beijing's weak currency.

"As the dollar weakens and the (yuan) remains more or less pegged to the dollar — it's what I call 'ChinAmerica' in action — China plus America are pursuing a policy that is actually beneficial to both… but leaves other countries… in really quite a tight spot," he said.

 

"The way that American policy is set up with Chinese policy, so to speak, following it in the rear, points towards a major upward pressure on other currencies and that extends right around the world," flagged Ferguson, noting that South Korea and Brazil were already experiencing the pain of a stronger currency.

 

As I wrote in my newsletter, QE policies export inflation to the developing countries, as most of these countries accept a massive amount of dollars for the goods they sell to the U.S. Look at our trade deficit numbers that came out this morning, we are seriously upside down, another huge trade deficit number. Do rational non-idealogical thinking people really believe that is mainly attributed to the bogeymen that are created from the likes of Krugman that the reason for this is because of Yuan currency policy? No, it's because of our consumption patterns, not just here in the U.S in which we consume to much, but also because of CHina's lack of consumption. The only difference between the two is that China is actively working on building it's domestic consumption.

 

Where we on the other hand are trying to do the same exact thing. QE lowers interest rates for people who save money in money market and savings accounts. DOes that give incentive to save or spend. The Fed has told you that they want to boost inflation, they want you to buy products now before inflation gets here. They've said this, so would a rational thinking person question why we have huge trade deficits. Don't they know that trade deficits inhibits growth? Yet Krugman and many other politicians want to create a bogeyman and blame CHina for our trade woes. It's ridiculous and doesn't make sense.

 

Even some of the most dovish members of the Federal Reserve believe that $1 Trillion of QE in their belief increases growth by .2%

 

Is it really worth it? You punish developing countries and lower to middle income earners with heightened inflation. Meanwhile the dollar is getting crushed.

 

I guess Krugman will have it sort of his way, of course he believes we should of spent twice as much money and that we should do twice as much QE. All I can tell you is that if he had it his way, the unemployment rate would most likely be a little lower than it is today, Oil would already be well over $100 a barrel, food would be considerably higher and the seeds of stagflation would already be here, actually those seeds have already been planted, his seeds would of been steroids.

 

The problem now is what will happen if a year from now these policies don't work? What will happen if oil is over a $100 with the unemployment rate still around 9.5%? Could Bernanke change course? Afterall, he was made famous for his printing presses, japanese deflation paper. This is what he believes, and two more new voting members are joining the FED which the president chose, Peter Diamond and Janet Yellen and they are more dovish then he is.

 

The risks as Ferguson points out is that they may lose credibility and the Fed losing credibility is a very bad thing.

[TPS]

Sorry my friend, this is what we call

 

Game Set Match

Do you just cut and paste or do you read things first?

Here's the key part you pasted:

Quantitative easing is sometimes colloquially described as "printing money" although in reality the money is simply created by electronically adding a number to an account

Exactly what I have been saying--you dolt!

You'll note your quote also states what I have been saying--QE increases EXCESS RESERVES IN THE BANKING SYSTEM. What you don't understand is that those reserves are held electronically on account at the FED. They only get into circulation when banks make loans--which it seems you are finally starting to get.

 

You should also look up the definition of the money supply, which, for M1, is currency held by the public (in circulation) + checkable deposits (and a few other small components). Reserves held by banks are part of what's known as the "monetary base." Excess reserves, part of the monetary base, represent potential loanable funds, not money in circulation. That's what I've been saying all along, which YOU CAN'T seem to COMPREHEND.

 

If you actually read and comprehend what I wrote, you would've seen that I said, "if the FED directly finances government spending by buying T-Bonds/Bills then it IS printing money." Excess reserves of banks represent potential money creation, and YES, there is close to $1 trillion sitting on account--ELECTRONICALLY- at the Fed, stagnating until banks lend.

 

Your statement that "energy and food aren't included in the measure of inflation" leads me to believe you really don't know what you're talking about. The CPI DOES include E&F. What many analysts CHOOSE to focus on is a sub-set of the CPI called "core CPI," which excludes E&F. They focus on this measure because E&F are so volatile changes in their prices can create significant movements from month-to-month.

 

You might want to check out the BLS web site and actually look at the CPI before you blather on about it.

BLS

[Magox]

Do you just cut and paste or do you read things first?

Here's the key part you pasted:

Exactly what I have been saying--you dolt!

You'll note your quote also states what I have been saying--QE increases EXCESS RESERVES IN THE BANKING SYSTEM. What you don't understand is that those reserves are held electronically on account at the FED. They only get into circulation when banks make loans--which it seems you are finally starting to get.

 

I guess you didn't read:

 

"ummmm, of course I don't mean that they literally print it... I think that goes without saying." Learn to read dipshit

 

And yes, in many cases a BANK ACCOUNT!

 

I told you over a year ago that this money gets filtered out into the economy, you seem to believe it gets stored in a lock box. How many times have I said that the problem isn't the supply of money but the velocity in which it is released? You still don't get it....

 

 

 

You should also look up the definition of the money supply, which, for M1, is currency held by the public (in circulation) + checkable deposits (and a few other small components). Reserves held by banks are part of what's known as the "monetary base." Excess reserves, part of the monetary base, represent potential loanable funds, not money in circulation. That's what I've been saying all along, which YOU CAN'T seem to COMPREHEND.

 

 

If you actually read and comprehend what I wrote, you would've seen that I said, "if the FED directly finances government spending by buying T-Bonds/Bills then it IS printing money." Excess reserves of banks represent potential money creation, and YES, there is close to $1 trillion sitting on account--ELECTRONICALLY- at the Fed, stagnating until banks lend.

Not all of it you dumbass... Again, you fail to understand velocity vs. supply. I've told you countless times that supply isn't the issue it's velocity. You are too thickheaded to understand this concept. WHich is why you have been consistently wrong.

 

 

Your statement that "energy and food aren't included in the measure of inflation" leads me to believe you really don't know what you're talking about. The CPI DOES include E&F. What many analysts CHOOSE to focus on is a sub-set of the CPI called "core CPI," which excludes E&F. They focus on this measure because E&F are so volatile changes in their prices can create significant movements from month-to-month.

 

You might want to check out the BLS web site and actually look at the CPI before you blather on about it.

BLS

 

 

Please, you are in no position to be stating "you really don't know what you're talking about"....

 

Core Inflation is what Federal Reserve Members look at more than anything. You seem to believe there is no inflation and that money is locked away in some vault. Ok...

 

Just admit it, you're wrong. Money is getting "printed", figuratively speaking which is what I've told you on more than a few occassions and that some of that money IS getting circulated into the economy.

 

You've stated that it's not, and you stated that it isn't getting circulated into the economy. That is utter bull ****. It is, how can you not see that? I know, you're thick-headed....

 

It's supply vs. velocity, and when I spoke with you over a year ago on this topic, I told you that the velocity of this money would be slow and that rampant inflation wouldn't occur until that money gets unleashed in a meaningful way, unless the value of the dollar get's hammered. Did I not say that?

Edited October 14, 2010 by Magox

[TPS]

Yes, I saw that you finally stated "print doesn't mean actually print." Although I'm not sure why you felt the need to state that after my quote about excess reserves...??

 

Also, I am not saying there is NO money being created. I am saying that a big chunk of the QE is sitting in the excess reserve account. Look at the FED data. If you need a link I'll provide it.

 

And, what I have said all along, is that until banks start lending to businesses, consumers and governments, that money will not get circulated--which means velocity of circulation. What do you think velocity means? At least you realize it's not a constant.

 

As for inflation, what have I said all along? We will not see inflation until demand, spending by all sectors of the economy, picks up and unemployment falls. My position all along is about describing the process of how reserve creation by the FED (aka QE) actually translates to money in circulation for spending purposeses (which relates to velocity). IT's that simple.

 

You've described a process of how low interest rates and refinancing can stimulate more spending, and I completely agree with that process--for those who can refinance, it reduces expenses and increases available income without increasing one's income. What I've tried to explain is that when the FED swaps reserves for assets with the banking system, money has not been put into circulation yet. When the banking system uses those reserves to lend for spending, that's when it becomes "printed money" (and influences velocity). It's that simple.

 

It works differently if the FED directly buys treasuries from the government, as I've said. It also works differently if the FED buys an asset from an investor. The impact will depend on what that investor chooses to "reinvest in." But that's another story.

 

We disagree about what's driving commodity prices. I think they are being driven more by speculators, you don't. Time will tell on this.

[Magox]

You argued that the money isn't circulating into the economy, AT ALL!!

 

I said that indeed it is circulating into the economy, through "printed money" created by the FED, just that the velocity in which it is being released isn't what they would hope for it to be.

 

You were wrong when you said that it doesn't just come from trees (figuratively speaking) and lands into the hands of businesses and people. It does and is! But once again, just not at the velocity that they had hoped for. And I don't need to see the M2 Data, BECAUSE I'VE BEEN TELLING YOU OVER AND OVER AND OVER that most of that money isn't being released. What part of slow velocity do you not understand? That's what slow velocity means, it means money isn't being released quickly, which means much of the money is parked somewhere. Jesus

 

And WE ARE seeing inflation, what the hell are you talking about? Just because the CORE readings of the FED say there isn't inflation doesn't mean that there isn't inflation.

 

One day the commodity run will burst, I have no doubt about that. But that day won't come until the world is already embarked in a sustained period of increasing rates. Which will be a symptom of what? Inflation.

 

You fail to see the relationship of the dollar and commodities and inflation. You don't believe that it is justified to see higher commodity prices as a result off a falling dollar. You chalk it up to speculation. The dollar is the most abundant currency out there, without question. WHich means that most commodities are priced in dollars, which means when you devalue the dollar, it increases the value of those very same commodities. It's not that difficult to understand. WHich is why I have been right with my projections. This trend WILL CONTINUE. SUre, there will be corrections along the way, and some of them will vicious. Right now, commodities are getting overextended and the value of the dollar short-term is getting oversold, so there is a minibubble that is getting created as we speak. The problem with bubbles is that they can extend for a long time. However, long term, it is not a bubble, because there is a very strong PHYSICAL demand for all commodities in emerging market nations, and there is a currency devaluation strategy occuring in DEVELOPED nations that will continue for the foreseeable future.

 

The fundamentals are supportive. SOmetimes prices don't justify fundamentals and at some point they get overbought. Thats why there are those thingies called corrections and one will occur and it will be a tremendous opportunity to scoop them right back up, specially when you start hearing some of the equity guys proclaiming the end of the commodity run.

[TPS]

You argued that the money isn't circulating into the economy, AT ALL!!

 

I said that indeed it is circulating into the economy, through "printed money" created by the FED, just that the velocity in which it is being released isn't what they would hope for it to be.

 

You were wrong when you said that it doesn't just come from trees (figuratively speaking) and lands into the hands of businesses and people. It does and is! But once again, just not at the velocity that they had hoped for. And I don't need to see the M2 Data, BECAUSE I'VE BEEN TELLING YOU OVER AND OVER AND OVER that most of that money isn't being released. What part of slow velocity do you not understand? That's what slow velocity means, it means money isn't being released quickly, which means much of the money is parked somewhere. Jesus

 

And WE ARE seeing inflation, what the hell are you talking about? Just because the CORE readings of the FED say there isn't inflation doesn't mean that there isn't inflation.

 

One day the commodity run will burst, I have no doubt about that. But that day won't come until the world is already embarked in a sustained period of increasing rates. Which will be a symptom of what? Inflation.

 

You fail to see the relationship of the dollar and commodities and inflation. You don't believe that it is justified to see higher commodity prices as a result off a falling dollar. You chalk it up to speculation. The dollar is the most abundant currency out there, without question. WHich means that most commodities are priced in dollars, which means when you devalue the dollar, it increases the value of those very same commodities. It's not that difficult to understand. WHich is why I have been right with my projections. This trend WILL CONTINUE. SUre, there will be corrections along the way, and some of them will vicious. Right now, commodities are getting overextended and the value of the dollar short-term is getting oversold, so there is a minibubble that is getting created as we speak. The problem with bubbles is that they can extend for a long time. However, long term, it is not a bubble, because there is a very strong PHYSICAL demand for all commodities in emerging market nations, and there is a currency devaluation strategy occuring in DEVELOPED nations that will continue for the foreseeable future.

 

The fundamentals are supportive. SOmetimes prices don't justify fundamentals and at some point they get overbought. Thats why there are those thingies called corrections and one will occur and it will be a tremendous opportunity to scoop them right back up, specially when you start hearing some of the equity guys proclaiming the end of the commodity run.

Find a quote where I said money isn't circulating at all. That's just plain stupid. I guess you fail to see that my statements that the majority of the $1 trillion that went to banks in QEI is sitting as excess reserves is the same thing as saying there is no velocity of circulation for that money.

 

Inflation is within the bounds of the FED's current target. I understand that commodities are used as a hedge against inflation and many investors are betting that QE will have that impact. Their actions are causing commodity prices to rise, that's the point I've made. It's that simple.

[Magox]

Find a quote where I said money isn't circulating at all. That's just plain stupid. I guess you fail to see that my statements that the majority of the $1 trillion that went to banks in QEI is sitting as excess reserves is the same thing as saying there is no velocity of circulation for that money.

 

Inflation is within the bounds of the FED's current target. I understand that commodities are used as a hedge against inflation and many investors are betting that QE will have that impact. Their actions are causing commodity prices to rise, that's the point I've made. It's that simple.

So there is no justifiable reason for the inverse dollar/commodity relationship? Or that there is no justifiable reason with increased supplies of dollars leading to dollar devaluation?