Is QE2 failing?

[D_Davy_Downspout]

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.

Not really, no. There's nothing particularly special about recent economics that disproves Keynesianism in any way.

Keynes has to do with countercyclical spending. "Magneto trouble" as I mentioned before. That has nothing to do with stupid politics, which has led us deep into debt.

For example, cutting taxes during a time of relative prosperity, like Bush did, is retarded, and did nothing but add to the debt, and make it less tenable to add to the debt when it was needed, when the recession began.

The lesson is that politicians have ignored Keynes to their detriment, in the blind love of the deregulation ideologues.

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.

There's been widespread international agreement that this is a stupid course of action as well, but you're cherry-picking. What exactly do you think the alternative is? Default? The UK? LOL.

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.

Haha, the problem is you don't have a knowledge of economic history.

And implying the USA is in a bad debt position is completely laughable. There's literally nobody in the world in a better debt position than the USA. We're AAA rated, can borrow money at low rates, and have no shortage of customers willing to buy our debt.

 

[Jason]

There's literally nobody in the world in a better debt position than the USA. We're AAA rated, can borrow money at low rates, and have no shortage of customers willing to buy our debt.

The countries that don't have debts is the answer that comes to mind.

The UK is in the position you describe for the USA, but unlike the USA is not on downgrade warning. The UK's position is stable, and while the level of UK debt is cause for concern it is not bothering the markets too much right now. So far the markets are happy with US debt but a debt crisis is a bit like a skid in that countries get little or no warning.

 

[Drifterwood]

Jason, why do you always ignore the exchange rate?

 

[Jason]

Jason, why do you always ignore the exchange rate?

Because it is not a good indicator of the strength of an economy. There are way too many other factors which get in the way.

Right now the eurozone has severe problems (not much media coverage on the problems of the last few days - Portugal downgraded, claim that Greece has EU agreement for default in 2013, run on Allied Irish Bank). But these are not reflected in the currency, largely because it is constructed in a way which means the economies of the eurozone could go pear-shaped and the euro float strong over the whole mess. The US economy has stresses and strains, but it is also the global reserve currency, which distorts the currency's value. Sterling might have been expected to fall to reflect the weaknesses in the UK economy but hasn't done anything dramatic, partly because the dollar and euro have weakened over the same period. Just as predicting currency fluctuations is a bit like playing roulette, so using currency movements as an indicator of anything is problematic.

 

[D_Davy_Downspout]

The countries that don't have debts is the answer that comes to mind.

Yes, such international powerhouses as Lichtenstein. How much money do you think they could get on short notice?

Yeah.

The UK is in the position you describe for the USA, but unlike the USA is not on downgrade warning. The UK's position is stable, and while the level of UK debt is cause for concern it is not bothering the markets too much right now. So far the markets are happy with US debt but a debt crisis is a bit like a skid in that countries get little or no warning.

This isn't true. Not doing anything isn't the same as no warning.

 

[faceking]

>However Keynes places limits on this spending.

Hogwash.

/B Hussien O

 

[D_Davy_Downspout]

>However Keynes places limits on this spending.

Hogwash.

/B Hussien O

LOL, are you trying to say that Obama is an out of control Keynsian?

When you said you were going to school me, I didn't realize it was going to be a special needs school.

 

[dandelion]

A bit premature to question whether QE2 is failing when it was only announced yesterday, but where the US leads the Uk follows. Bank of England announces £75 bn second round of quantum easing.

Today the chancellor of the exchequer was being questioned closely on his previous statements that quantum easing was only done by those who are desperate.

Coincidentally straight after the announcement british banks get marked down on their credit ratings again. Is this measure more about improving bank solvency than boosting the economy? Oh, plus writing off anothr £75 bn of government debt, of course.

Last time round the bank of england refused to extent QE to buying up company debt. This time round the treasury has already taken its own measures to do this.

 

[Jason]

QE is a desperate measure. But there are times when it is necessary. As the euro crisis comes to the boil the UK has given itself a £75bn war chest, which should help with market confidence. We need that confidence is soon as today when further bank weaknesses are exposed.