QE is over

[Reformedfindlay]

The Federal Reserve has officially ended its quantitative easing after years of throwing cash. The Fed did however make it clear that it's still going to hold 4.5 trillion dollars worth of bonds for a "considerable amount of time."

What do you think about Quantitative easing?

Was it as effective as the FR wanted it to be?

I for one think QE worked out pretty well.

For those unsure of what QE is.

Basic definition = When the Federal Reserve (we're Americans here, so the FR is our central bank) begins buying bonds so as to release money into the money supply and spur demand. QE IS CONSIDERED UNORTHODOX.

 

[joG]

The Federal Reserve has officially ended its quantitative easing after years of throwing cash. The Fed did however make it clear that it's still going to hold 4.5 trillion dollars worth of bonds for a "considerable amount of time."

What do you think about Quantitative easing?

Was it as effective as the FR wanted it to be?

I for one think QE worked out pretty well.

For those unsure of what QE is.

Basic definition = When the Federal Reserve (we're Americans here, so the FR is our central bank) begins buying bonds so as to release money into the money supply and spur demand. QE IS CONSIDERED UNORTHODOX.

QE? It was a last ditch defense against a depression. So far it has worked, but it is unsure, what will happen, when the punch bowel is removed. It might have been poisoned.

 

[JP Hochbaum]

It helped the stock market and rising inequality, but little else. The banks are not reserve constrained so giving them more money doesn't make them lend out more.

"In a fiat money system, there is not a very good correlation between base money and M1 and credit because reserves don’t create loans. In practice, the lending operations of commercial banks have no interaction with reserve operations. Lenders simply take applications from customers who seek loans and assess creditworthiness and lend accordingly.

In approving a loan, banks instantly create a deposit, a zero net financial asset transaction – and this happens entirely independently of the reserve requirement. In Australia, Canada, Sweden and New Zealand there are no bank reserve requirements."

https://www.creditwritedowns.com/2011/05/banks-are-never-reserve-constrained.html

 

[lifeisshort]

Be interesting to see how Wall Street reacts to this over the next few months. I see a correction coming. Stocks were the only game in town for a long while now and are artificially high. They are not representative of the true value of companies.

 

[Reformedfindlay]

Be interesting to see how Wall Street reacts to this over the next few months. I see a correction coming. Stocks were the only game in town for a long while now and are artificially high. They are not representative of the true value of companies.

Were they ever?

People will always speculate, that's for sure.

 

[lifeisshort]

Were they ever?

People will always speculate, that's for sure.

The problem has been that with interest rates sow low the only place to put money with any real hope of growing it was the market. This has led to inflated stock prices and as soon as there is another place to park money those stock prices will plummet

 

[Reformedfindlay]

The problem has been that with interest rates sow low the only place to put money with any real hope of growing it was the market. This has led to inflated stock prices and as soon as there is another place to park money those stock prices will plummet

True, and that is why many call QE a last ditch. Now the Fed isn't going to give up it's bonds in quick succession so as to make the market plummet like you suggest. That is why it is going to keep a lot of money and only slowly begin selling off bonds and taking money away from the market.

I do believe that we will undoubtedly see the stocks fall a couple years from now, but I don't think they will PLUMMET necessarily.

 

[joG]

It helped the stock market and rising inequality, but little else. The banks are not reserve constrained so giving them more money doesn't make them lend out more.
....

That has some truth to it, but casts a poor light in which one misses some very interesting and important detail. Do not forget that we were skidding into a full fledged depression, when die various countermeasures were undertaken over the period since 2000, when the the Greenspan/Clinton irrational exuberance of the dot.com bubble hit reality. Ever since the FED has been trying to keep the economy from spinning out of control.

This has worked mainly by stabilizing the finance sector, which was in danger of implosion. Had that happened there would have been huge positions of dead assets on the books of banks, insurance companies, corporations and private individuals, whose debt would have remained. We would have seen waves after wave of bankruptcies and a radical halt to most economic activity. Think 1930. It would have been rather similar.

So, when we say, that QE was responsible for a slight rise in inequality, it is like anger at the surgeon that cut off the small toe, prevented gangrene and and saved the foot and the boy.

 

[lifeisshort]

True, and that is why many call QE a last ditch. Now the Fed isn't going to give up it's bonds in quick succession so as to make the market plummet like you suggest. That is why it is going to keep a lot of money and only slowly begin selling off bonds and taking money away from the market.

I do believe that we will undoubtedly see the stocks fall a couple years from now, but I don't think they will PLUMMET necessarily.

I am hedging my bets and keeping lots of cash right now but as of yet I am still in the market.

 

[Reformedfindlay]

I am hedging my bets and keeping lots of cash right now but as of yet I am still in the market.

In general I'm always wary of the stock market. It has been, is, and always will be, absolute pure speculation.

I might get into it when I get older, my dad taught me a lot about the nature of investing and what one should do (and he comes from the GE audit staff and did risk management and all other sorts of crap) so I feel confident.

 

[lifeisshort]

In general I'm always wary of the stock market. It has been, is, and always will be, absolute pure speculation.

I might get into it when I get older, my dad taught me a lot about the nature of investing and what one should do (and he comes from the GE audit staff and did risk management and all other sorts of crap) so I feel confident.

Day trading has turned the market into a horse race and it makes it hard to pick a stock and stick with it long term these days.

 

[JP Hochbaum]

That has some truth to it, but casts a poor light in which one misses some very interesting and important detail. Do not forget that we were skidding into a full fledged depression, when die various countermeasures were undertaken over the period since 2000, when the the Greenspan/Clinton irrational exuberance of the dot.com bubble hit reality. Ever since the FED has been trying to keep the economy from spinning out of control.

This has worked mainly by stabilizing the finance sector, which was in danger of implosion. Had that happened there would have been huge positions of dead assets on the books of banks, insurance companies, corporations and private individuals, whose debt would have remained. We would have seen waves after wave of bankruptcies and a radical halt to most economic activity. Think 1930. It would have been rather similar.

So, when we say, that QE was responsible for a slight rise in inequality, it is like anger at the surgeon that cut off the small toe, prevented gangrene and and saved the foot and the boy.

The Wall St bailout was more to credit for saving a depression from occuring, QE was really a minor effect.

It actually hurts the lower classes because it makes assets more expensive to purchase, hence why it increases inequality:

https://www.google.com/url?sa=t&rct...=mDGpp7tixvXGhtOIF-j_Bg&bvm=bv.78597519,d.aWw

 

[joG]

The Wall St bailout was more to credit for saving a depression from occuring, QE was really a minor effect.

It actually hurts the lower classes because it makes assets more expensive to purchase, hence why it increases inequality:

https://www.google.com/url?sa=t&rct...=mDGpp7tixvXGhtOIF-j_Bg&bvm=bv.78597519,d.aWw

Oh, there is no doubt that it caused some to gain while others lost. But I do not think I would belittle the effect on asset prices especially at the long end of the curve and their corresponding impact on balance sheets and companies survival. It will be interesting to follow the research that is now beginning, but we really do not know, what the higher level incidence ie impacts on later periods is of QE. But just imagine yourself as treasurer of a bank that had large amounts of its capital in assets that halved in value or worse. You would be forced to either get new capital, downsize your loans portfolio or declare bankruptcy. Getting share capital for banks or insurers was rather difficult and when possible very expensive. So you would probably have canceled loans to businesses and reduce the number of refinancings. As a pure capital adequacy issue this would be nearly independent of the credit worthiness of the borrower. QE prevented this from happening especially by propping up mortgage asset prices. This is really very straight forward. Personally, I think that we will find as research comes in that QE had quite a large and beneficial impact. We will also be better able to determine the negative better.

 

[DA60]

I strongly believe QE will return, though what they will call it I don't know.

It might be direct stock purchases (as the Japanese central bank already does) or it might be QE4...but I strongly believe the Fed is no where near done meddling in the U.S. economy outside of interest rate manipulation.

Plus, remember, the Fed is still doing about $15 billion of monthly re-investments...so QE is technically not over yet.

 

[Reformedfindlay]

I strongly believe QE will return, though what they will call it I don't know.

It might be direct stock purchases (as the Japanese central bank already does) or it might be QE4...but I strongly believe the Fed is no where near done meddling in the U.S. economy outside of interest rate manipulation.

The fed is nowhere near as desparate as Japan who right now is dealing with deflation.

 

[DA60]

The fed is nowhere near as desparate as Japan who right now is dealing with deflation.

Yes, the Fed is not nearly as desperate as Japan.

But Japan is not dealing with deflation, quite the opposite actually.

Japan Inflation Rate | 1958-2014 | Data | Chart | Calendar | Forecast

 

[Kushinator]

It helped the stock market and rising inequality, but little else. The banks are not reserve constrained so giving them more money doesn't make them lend out more.

Companies are sensitive to the cost of borrowing. Are you claiming that interest rates have little baring on investment?

 

[Kushinator]

But Japan is not dealing with deflation, quite the opposite actually.

First and foremost, central banks are concerned with core inflation.

Secondly, if you expand your horizon, you will uncover a great deal of actual deflation, going back to the 1990's.

Post Tsunami Japan is battling energy volatility as they took roughly 1/3 of their energy production capacity offline in 2012.

 

[JP Hochbaum]

Companies are sensitive to the cost of borrowing. Are you claiming that interest rates have little baring on investment?

Definitely now

 

[PoS]

It helped the stock market and rising inequality, but little else. The banks are not reserve constrained so giving them more money doesn't make them lend out more.

"In a fiat money system, there is not a very good correlation between base money and M1 and credit because reserves don’t create loans. In practice, the lending operations of commercial banks have no interaction with reserve operations. Lenders simply take applications from customers who seek loans and assess creditworthiness and lend accordingly.

In approving a loan, banks instantly create a deposit, a zero net financial asset transaction – and this happens entirely independently of the reserve requirement. In Australia, Canada, Sweden and New Zealand there are no bank reserve requirements."

https://www.creditwritedowns.com/2011/05/banks-are-never-reserve-constrained.html

I agree, QE did help the stock market from crashing further but I think it only delayed the inevitable.

 

[ptif219]

Now to see if Obama policies hurt the economy since QE was falsely propping up the economy

 

[imagep]

So if in a year or two the economy is still growing, will you be man enough to admit that "the Obama policies" aren't hurting the economy?

 

[Bigfoot 88]

Free Banking » Fed needs to stop asset acquisitions for a generation or so

The following facts are clear: As of mid-2014, the Fed had expanded its balance sheet by $3.483 trillion since August 2007 (375 percent), with nearly all of the increase occurring since the onset of the crisis in September 2008. However, nominal GDP expanded by only $2.850 trillion over the same period (19.3 percent). In other words, only 81.8 cents of new GDP were created for every dollar of Fed-Treasury money printing, an exercise of remarkable inefficiency considering that, for the eleven years before the crisis, 1997-2007, about $13.88 of new GDP were created for every new dollar of money printing. Money printing is an inefficient way of creating GDP, after the crisis, but it has proved to be an efficient way of creating asset price bubbles.

Finally, if one wished to reduce the Fed's role in the economy to the level that prevailed before the crisis, about 6.5 percent of GDP (the range was 5.9 to 6.9 percent over the preceding eleven years), the current size of the Fed's balance sheet would support economic expansion to nominal GDP of $67.9 trillion, about four times the current size of GDP. Historically, it took 15 years for GDP to quadruple, 1969-1984, and that period included the high-inflation 1970s. In a period of lower inflation, after 1984, it took 28 years for GDP to quadruple again in 2012. That is why I proposed, at the beginning of this note, that we simply suspend the monetary policy operations of the Fed for a generation or so until the rest of the economy catches up to all the monetary base that recent Fed operations have created.

 

[ptif219]

So if in a year or two the economy is still growing, will you be man enough to admit that "the Obama policies" aren't hurting the economy?

I doubt that will happen. Part of the reason the economy is doing good now is in-spite of Obama trying to stop it Big Oil has increased production and made us one of the biggest oil producers in the world. Obama gets no credit for that

 

[imagep]

I doubt that will happen. Part of the reason the economy is doing good now is in-spite of Obama trying to stop it Big Oil has increased production and made us one of the biggest oil producers in the world. Obama gets no credit for that

OK. I see how it is.