19 thoughts on “Quantitative Easing”

  1. I’ve been listening to NPR prattle about the imminent danger of deflation for almost three years, but aside from housing and a temporary (and now past) dip in gasoline prices, there has been no evidence of it. I regard the gas price dip as the good old days.

    BTW, buying Treasuries on the open market makes much more sense (in the context of a bonehead move) than buying them from the Treasury. What we’re doing is taking part of the supply of bonds off the market, which allows us to issue more later. I suppose the hope will be that future bond sales can be made at today’s discount rate. The rest of the world, though, sees what’s going on very clearly. The one thing that will go down will be the discounted price of any new Treasuries…

  2. I really really wish they hadn’t done this. I understand the logic: they’re bound and determined to make people buy houses, and they quite correctly feel that if inflation is hotting up at 10% people with the cash to buy houses are going to be forced to do it, rather than see their savings eaten away.

    It’s a dreadfully cynical and short-term move, because the underlying fact is that house prices are simply too damn high. All this is going to do is put off the day of reckoning, yet again — indeed, I think the motto of this Administration with respect to economics can easily be summarized Put Off The Day Of Reckoning — and lead to a much worse crack-up later.

    Welcome back, stagflation. And say hello to chronic unemployment reaching European levels, 15% or more, and far worse for young people. And you know the really nice thing, for them? This can’t be undone by any new Republican majority in 2012. The newly-printed money will already be out there, like a deadly flu virus making the rounds. The only thing more sensible people can do in 2012 is pull a Reagan/Volcker electroshock therapy: sufficiently brutal interest rates to hoover up all the excess dollar bills — with the same awful side-effects of severe economic shocks. And then, of course, the D’s can say we told you so, those bastards don’t care about you, vote us back in and we’ll return to bread ‘n’ circuses and free lunches forever. Ugly stuff.

    But all those Democratic donor homeowners in very expensive and recently-crashed real-estate markets — Washington D.C., Los Angeles, San Francisco, Chicago, Boston — will have their equity restored! Got to keep our eye on the big goal, here. What matter if 200 million bitter clingers have their lives and savings ravaged, if our New Aristocracy can be made comfortable?

  3. Post-script: and I disagree with Rand’s final characterization, that the Democrats don’t “get it.” They get it, all right. Democrats (including those in government) are big borrowers, financiers, redistributors, regulators whose salaries depend on the need of the public to have them meddle. Borrowers love inflation. Why not? I’d love to borrow money from you at 4% if inflation turns out to be 10%! Their opponents are the savers and entrepreneurs who will be ruined by inflation, which I suspect is just fine with them.

    Part of the eternal difficulty conservatives and libertarians have with confronting the Stalinists is they just can’t believe anyone would be so cynical and self-serving. So we attribute to folly and delusion what actually proceeds from malice aforethought.

  4. Stupid talking hamsters. The bond market still believes that inflation will be quite low even after quantitative easing. Given that people that are buying bonds are betting their own money, I trust them more than the gold salesmen or the hamsters.

    And deflation is not your friend when unemployment is high: it makes it harder for real wages to adjust.

  5. The bond market still believes that inflation will be quite low even after quantitative easing.

    Actually we don’t know that, since one of the effects of this quantitative easing, while it is occurring, is a substantial lowering of yields. The real test will be when QE stops. You may be right, but currently the Fed is buying almost 1% of all bonds globally over the next eight months (in addition to another 3-4% which it has already acquired) and if the chipmunks are correct, those purchases are focused on a narrow part of the bond market. Other countries may be making similar large scale bets as well (particularly China and Japan).

    From a market information point of view, big bets distort the odds. You can’t really tell what the consensus of the rest of the market is until the bet goes away and the market has a chance to settle a bit.

  6. I’m thinking we need text-to-speech furry-looking- what-the-hell-are-theys to replace ‘the ber-nank’.

    They seem to have all sides covered as opposed to just covering themselves (like the ‘ber-nank’) or covering the Progressives Asses (with nonsensical rhetoric).
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    .

    Personally, I’m investing in commodities at the local level. Some of my friends and neighbors are calling it “hoarding food”. If I eat it ALL later it WAS hoarding. If I sell some to ex-friends and pissed off neighbors at a profit (because they can’t find reasonably priced butter and flour in the Piggly Wiggly) it was a commodities investment.
    .
    Either way, I plan on eating all of the next two years. My fear is that everybody won’t be doing that.
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    (I’m stocking up on ammunition too, but that I won’t sell…I gotta protect my investment / hoard)

  7. It’s far from comforting to know that our government is following the same economic policies that made Zimbabwe the international economic powerhouse it is today.

  8. BTW is there such a thing as Qualitative Easing?

    Well, there’s bankruptcy, particularly of the milder Chapter 11 variety. Usually some of the pressures on the firm go away. More important is that the worst pressures are usually the ones to go first (my guess that’s what you’d want in a qualitative easing scheme, nullify the bad quality first). The worst liabilities get trimmed, the worst assets get shed, the worst contracts get dropped.

    Banks aren’t dumb. They’re probably handing off the worst possible debt that they can get the Fed to accept. There’s probably some sort of qualitative aspect to QE in that worst allowable bonds are probably being unloaded on the Fed.

    That segues to one of my many concerns with this QE practice, namely, what’s the impact on future budgets from this Fed activity? The Fed is buying debt of dubious (through probably relatively high compared to the overall bond market) quality. Some of it is going to have to be written off. That will create a future negative on the federal government’s balance sheet. In addition, inflation probably will nail some of the value of these assets.

    I imagine the banks will try to figure out how to legally get junk or defaulting bonds tied to a reliable bond so that the overall bond is barely within the risk tolerance that the Fed has. Say a security that is 99% AAA or treasury bond and 1% junk. Something like that.

  9. Does anybody know of a bank that records your balances in gold? This would allow an incremental return to the gold standard. Your bank balance would not be recorded in dollars, but in so much mass of gold. Your debit card would work the same as it does now, but would reduce your gold balance by whatever the daily price of gold is. Your money deposited would also determine the amount of gold added to your deposit by that daily price setting. The bank could not have a different price for spending and depositing.

    Is anyone doing that?

  10. Der Schtumpy Says:

    Or post WWI Germany Larry.

    Oh, I’m well aware of what happened in the Weimar Republic. That happened about 80 years ago before there were things like the World Bank and IMF. Zimbabwe is happening today but it seems we’re so arrogant as to think it can’t happen to us. Are we willing to bet the future on that assumption?

  11. @larry j: “Zimbabwe is happening today but it seems we’re so arrogant as to think it can’t happen to us. Are we willing to bet the future on that assumption?”

    No, and I think most of the readers here voted against “business as usual.”

  12. I think Kevin Williamson had a good idea a week or two back on NRO about privitizing the monetary system. Let several systems of currency exist and compete on the open market. Too bad any attempt to do so (with gold or any alternate private currency) would be considered counterfeiting. Those laws need to change.

    Anything less than this is a half-measure. Forget about auditing the Fed. Forget about obsessing over returning to a gold standard or other such silliness.

  13. Competition is sort of my point. Banks that record your deposits as gold or silver or goats (yeah, there is a bank that does that) would allow a form of competition and we could still use the dollar for daily transactions (although how that works with goats I can’t say.)

    This avoids the all or nothing in going to a gold standard.

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