Is QE2 failing?

Discussion in 'Politics' started by faceking, Dec 15, 2010.

  1. faceking

    faceking Well-Known Member

    Joined:
    Nov 14, 2004
    Messages:
    7,492
    Albums:
    1
    Likes Received:
    77
    Gender:
    Male
    Location:
    Mavs, NOR * CAL
    The current "easing" project isn't fairing well at all. It's not all about interest rates, but they are going OPPOSITE of what this was intended to do.

    Teh bond market is freakishly looking like the dot/bomb of 2000, the real estate crash of 08/09, and the "stimulus" of 09.

    Stay tuned...as it's been a few months and things are NOT going well :(
     
  2. Drifterwood

    Gold Member

    Joined:
    Jun 14, 2007
    Messages:
    15,725
    Likes Received:
    386
    Location:
    Fingringhoe (GB)
    Don't panic Brits. He's not talking about Her Maj.
     
  3. D_Davy_Downspout

    D_Davy_Downspout Account Disabled

    Joined:
    Dec 5, 2004
    Messages:
    1,144
    Likes Received:
    0
    You know you probably shouldn't post these things if you have no idea what the purpose of quantitative easing is.

    Also your second paragraph doesn't make any sense at all to anyone who knows about any of those events.
     
  4. Snozzle

    Verified Gold Member

    Joined:
    Jun 16, 2006
    Messages:
    1,436
    Albums:
    2
    Likes Received:
    33
    Gender:
    Male
    Location:
    South Pacific
    Verified:
    Photo
    Brenda? That was my second thought. My first was the ship.
     
  5. Drifterwood

    Gold Member

    Joined:
    Jun 14, 2007
    Messages:
    15,725
    Likes Received:
    386
    Location:
    Fingringhoe (GB)
    The ship's already retired, mate. The old girl on the other hand, she still catches a fair wind in her sails.
     
  6. dandelion

    Verified Gold Member

    Joined:
    Sep 25, 2009
    Messages:
    7,890
    Albums:
    2
    Likes Received:
    599
    Gender:
    Male
    Location:
    UK
    Verified:
    Photo
    must be a bit much when you launch a ships with your name on it and it gets retired.

    As to the other one, welcome to the euro debt jackpot interest rate wobble world.
     
  7. Jason

    Gold Member

    Joined:
    Aug 26, 2004
    Messages:
    9,929
    Likes Received:
    640
    Gender:
    Male
    Location:
    London (GB)
    QE is pretty much a disaster measure that countries use when more moderate economic levers have failed to produce the desired result. The best case scenario is that it avoids a catastrophe. Almost always it causes inflation 1-2years down the line. And if it doesn't avert disaster it can actually make the catastrophe worse.

    The question "is QE2 failing?" seems to suggest that there is a possibility of success. But in the case of QE success should be defined as an absence of a complete catastrophe. As the US economy is so far free from such catastrohe I suggest QE is doing as well as can be expected.
     
  8. midlifebear

    Gold Member

    Joined:
    Dec 21, 2007
    Messages:
    5,908
    Likes Received:
    11
    Gender:
    Male
    Location:
    Nevada, Buenos Aires, and Barçelona
    A bit off subject, but not by much. I hadn't heard the QEII had been mothballed. If so, did they quietly hide the remains of Hyacinth Bucket in steerage, too? If the UK needs to make a few quid they could always drag her rusty bottom to Long Beach and park her along side the Queen Mary which for years was used as cheap classroom space for UC Long Beach engineering students.

    As for the "old girl", I hear she still passes a fair wind now and then, too. There are several great YouTube vids of the family standing about trying to hold in their snickers at public functions as she dryly steams forward. And good for her. :smile:
     
  9. lucky8

    Gold Member

    Joined:
    Oct 30, 2006
    Messages:
    3,716
    Likes Received:
    17
    Gender:
    Male
    When the Fed announced they were buying all those bonds everyone said fuck that and sold...so ya, it appears to not be doing much at all...which means the Fed will likely buy more and more and more and more...and more

    I like how he lied in his interview and said they weren't increasing the money supply. Such a blatant and ridiculous lie. Buying and selling bonds is a staple of currency manipulation

    Our country is fucked without subprime lending...get used to it because we'll never see the pre 2008 America again
     
    #9 lucky8, Dec 15, 2010
    Last edited: Dec 15, 2010
  10. D_Davy_Downspout

    D_Davy_Downspout Account Disabled

    Joined:
    Dec 5, 2004
    Messages:
    1,144
    Likes Received:
    0
    This is wrong on several levels. QE is not a disaster measure, it's just a moderate measure intended to increase inflation. Saying that it causes inflation is redundant, as that's the intended affect.

    Realistically, the Fed did it because they have to be seen doing something, and more direct solutions are not politically viable. I mean, hell, we're in a country where they actually tried to cut unemployment in a near-depression.

    QE had a chance at being successful if we were not in a liquidity trap. But all signs point to that being the case, so like I said, it was basically a handout to corporations and a shuffling of chairs to make the fed look like they earn their pay.
     
  11. Drifterwood

    Gold Member

    Joined:
    Jun 14, 2007
    Messages:
    15,725
    Likes Received:
    386
    Location:
    Fingringhoe (GB)
    She's laying in Scotland. But then, haven't we all.
     
  12. faceking

    faceking Well-Known Member

    Joined:
    Nov 14, 2004
    Messages:
    7,492
    Albums:
    1
    Likes Received:
    77
    Gender:
    Male
    Location:
    Mavs, NOR * CAL

    Nice... I probably have a better background in these parts than you, and if not 99.9999999% of the folk here.

    So easy... you are making claims without countering anything. I didn't want to get into full details. But we can if you want, and I would gladly school you.
     
  13. Jason

    Gold Member

    Joined:
    Aug 26, 2004
    Messages:
    9,929
    Likes Received:
    640
    Gender:
    Male
    Location:
    London (GB)
    QE is a monetary policy of last resort. It is politely called "unconventional" and may alternatively be called reckless or a policy of desperation. The intention is to avoid unsold bonds (ie national bankruptcy), to stimulate an economy when conventional methods have failed and to reduce the exchange rate in order to boost exports and discourage imports.

    The policy has several major drawbacks. It is unpredictable. It is almost always inflationary. It can cause very high inflation, and in a worse case scenario it may cause this without stimulating an economy. It takes money from savers, pensioners and those on low incomes. It may cause markets and ratings agencies to downgrade. Internationally it may be seen as predatory, part of a race to the bottom. There is no certainty that QE will work - it didn't work for Japan.

    The UK under Brown used QE as a response to the UK banking crisis, basically to prevent national bankruptcy. The inflation is now feeding through into the UK economy, along with the consequent redistribution of wealth away from savers, pensioners, the poor. So far however the UK seems to have got away with it. The change of government prevented a ratings downgrade and international attention is mostly on the euro and dollar. The weakness of these two has camoflaged the weakness of sterling.

    That the USA is using a policy as extreme as QE demonstrates the extent of its financial problems. Notwithstanding the problems it may be the best policy in the circumstances. However the UK experience is that reduced spending and increased taxation should have happened alongside QE not around a year later. The USA shouldn't be following this mistake.
     
  14. midlifebear

    Gold Member

    Joined:
    Dec 21, 2007
    Messages:
    5,908
    Likes Received:
    11
    Gender:
    Male
    Location:
    Nevada, Buenos Aires, and Barçelona
    Thanks, Jason. Clear, succinct, and informative.
     
  15. D_Davy_Downspout

    D_Davy_Downspout Account Disabled

    Joined:
    Dec 5, 2004
    Messages:
    1,144
    Likes Received:
    0
    The intention is to pump money into the economy so that businesses will create jobs, which isn't going to happen.

    You must not be reading my posts. I explained this. They're only doing it because it's the most they can do. The fed can't really stimulate the economy on the scale we need, it can only nudge it in certain directions or cut it off at the knees.

    Again, you seem to be missing the point of QE. It is intended to create inflation. That's not the side effect, it's the entire purpose. And it won't work, as you pointed out, because we're in a liquidity trap.

    Ah yes, cut spending during a recession.

    Am I supposed to be taking you seriously? There's people like me reading this stuff that know you have no idea what you're talking about.
     
  16. D_Davy_Downspout

    D_Davy_Downspout Account Disabled

    Joined:
    Dec 5, 2004
    Messages:
    1,144
    Likes Received:
    0
    Please, school me. I can't wait.
     
  17. bananaclubcock

    Joined:
    Feb 4, 2010
    Messages:
    197
    Albums:
    2
    Likes Received:
    14
    Gender:
    Male
    Location:
    Eastern U.S.

    I am not sure why you would make that claim. You were one of the mis-informed ones who posted on my mortgage clusterfuck thread saying there was nothing to see. As if property law, due process, fraudulent conveyance, bankruptcy (for profit!), and whole host of other legal and financial concepts suddenly don't matter.

    That being said, I agree QE2 isn't the appropriate tool to re-start economic growth or even inflation. But having witnessed the predictability of your world view, I think you would be even less impressed by the policy prescriptions I'd suggest to get the economy back to growth.
     
  18. Jason

    Gold Member

    Joined:
    Aug 26, 2004
    Messages:
    9,929
    Likes Received:
    640
    Gender:
    Male
    Location:
    London (GB)
    QE may on occasions be intended to stop deflation or to kick an economy out of a 0% inflation situation (economies need around 2% inflation to function well). But it is not in any real sense intended to create inflation. Unfortunately it has the potential as a side-effect to create high or even runaway inflation. A fundamantal monetary concept is that an increase in the money supply (QE) leads to an increase in price levels (inflation), but the process is complex and unpredictable because other factors muddy the process.

    Keynesian economics suggests that spending should be maintained in a recession in order to minimise the misery and get the economy back on its feet. As the private sector will not be spending the government must spend. However Keynes places limits on this spending. Governments should spend the funds they have built up during good years. They may also engage in some modest borrowing in ordr to boost the economy, but only if it is prudent to do so. Governments including the UK and the USA do not have a nest egg to fall back on and borrowing is no longer prudent. There are times when cutting spending and increasing taxes in the middle of a recession is the best of bad options. The UK, USA and most EU economies are in this position.

    The alternative is to borrow yet more. But governments are forced sellers of their debt - if they need to borrow X they absolutely have to raise that money in a very tight window. The markets get to a tipping point where they move against a nation. We've seen that this year in the case of Greece and Ireland. Once this happens nations are in effect broke. The EU is in major doubt about whether economies such as Spain and Italy could be bailed out - they are too big. Today I doubt the UK could be bailed out (by the IMF) as again it is too big. The USA is way too big to be bailed out by anyone. It absolutely must not go broke. But the markets are warning of just this. The ratings agencies threaten downgrade then pull back because they know the impact would be too terrible.

    For the good both of the USA and the world the USA must cut spending and increase taxes, even in an economic downturn. This is not a political point but an economic one.
     
  19. D_Davy_Downspout

    D_Davy_Downspout Account Disabled

    Joined:
    Dec 5, 2004
    Messages:
    1,144
    Likes Received:
    0
    What you say is generally true, unless you're in a liquidity trap. Guess what?

    You're putting a lot of words in Keynes mouth. The basics idea of Keynesian macroeconomic policy is counter-cyclical spending. Fixing "magneto trouble" as he called it. Ideally, yes, you'd want to be fiscally prudent in good times so you can afford the bad, but we haven't been in the US. However, Keynes was certainly fine with deficit spending if needed, and it certainly is needed. Just not in the form of QE or tax cuts, as they're a poor expenditure of stimulus.

    Look at our bond rates(US). It's certainly a prudent time to borrow money. That is just a silly thing to say, and counter factual.

    No that's silly and you haven't supported this idea at all. If you have a problem of demand, cutting demand is not the answer. Stop repeating the silly shit that you've been hearing Very Serious People say, and just think about it.

    There are plenty of ways to deal with the current mess. Look at Iceland. Fiscal austerity is not the only answer.

    If you think that the US is going to go broke, or need a bailout, you really have no idea of what you're talking about. That's not how sovereign debt works. And the market has indicated that it thinks the US is nowhere close to a default.

    What economic basis? It's entirely a political point. The idea that deficits are a thing you should be worried about during a recession is really laughable and backward.

    It's like you have no knowledge of economic history. And you certainly shouldn't be making an appeal to Keynes in one part of your post, and then arguing for austerity in the other, and still be expecting to be taken seriously.
     
  20. Jason

    Gold Member

    Joined:
    Aug 26, 2004
    Messages:
    9,929
    Likes Received:
    640
    Gender:
    Male
    Location:
    London (GB)
    The lesson of the Great Depression was in effect the idea later advanced by Keynes, that in a downturn when private spending is weak the government should spend to boost demand. But through the twentieth century this policy has become progressively less effective as the debts created have become bigger and bigger. The lesson is that there are limits to the Keynesian approach.

    In the UK we have a government cutting spending and raising taxes during a downturn - exactly the opposite of the Keynesian logic. There has been widespread international agreement that this is the right course of action, and the markets have loved it, precisely because the UK has reached the limits of the deficit that it can support. Whatever the problems - and there will be problems - they are better than the alternative.

    It is hard to find examples in economic history where nations have debts of the sort of levels that the UK (and most in the EU) now have. The position of the USA is different in that the debts are not as great, but servicing them depends on market confidence, which is volatile. Not a good position for any nation.
     
Draft saved Draft deleted