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Qe2: Policymakers Struggle In A World Of Strategic Uncertainty

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Paul Mason of Newnight has just blogged about whether QE2 will do more good or bad to the economy. Well worth a read as there is a comment about how it will not solve the problems in the housing market.

In any case the outcome is clear: QE1 stabilised the situation but was not enough to re-start self-sustaining economic growth.

Bernanke stated the case against QE2 last month: that it might have only a marginal effect on growth but boost inflation. Alan Greenspan this week has joined in, warning that extra money might not be enough without micro-measures to force the banks to lend it instead of sitting on it.

But its supporters argue the new flush of money could be used to finally end the US housing crisis by refinancing many of the distressed loans that are still dragging American families into penury (and making the banks unsafe).

Another view comes from Toby Nangle, director of fixed income and currency at Barings Asset Management. In a letter to investors this week he argues that there is no danger of QE2 causing wage inflation and no possibility that the new money will sort out the housing market.

"QE1 proved itself as be an effective tool to restore inter-bank and corporate liquidity. However, QE2 is being flaunted as an effective tool to restore household solvency. I believe that it will instead be counter-productive." (Risk on, risk off, Letter to clients 5 October 2010)

Instead what it could do is boost commodity price inflation and squeeze company profits, or both, producing stagflation. Nangle writes:

"This will leave companies in developed markets with the choice of passing on these higher input prices or taking a hit to margins. Cost-push inflation without accompanying wage inflation would reduce disposable incomes and thus increase the real cost of debt to households and commodity- importing governments. Neither cost-push inflation nor a margin squeeze is good either for the relative standard of living in the West, or developed market equities more generally."


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$100 Oil Could Sink The Fed’s QE2

FWIW i dont think it will stop them doing it, as western currency seems to get pounded whether they print or deflate. I guess it may make them wait for a bank to go bust or something so they have an excuse.

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  • 418 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
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      • Even
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      • up 5%

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