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Federal Reserve Verdict On Qe:

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A nice one from ZH, it's the first time I read a mainstream academic paper that argues that the higher the monetary inflation, the bigger the damage to the economy.

http://www.zerohedge...op-unemployment

Choice quote in blue at the bottom of the article.

St. Louis Fed Stunner: Admits QE May Lead To Rise Rather Than Drop In Unemployment

from zero hedge - on a long enough timeline, the survival rate for everyone drops to zero by Tyler Durden

It's one thing for bloggers and even various non-mainstream economists to charge the Fed with pandering exclusively to Wall Street's interests, and accuse Ben Bernanke of hypocrisy when he says that the Fed's ultimate goal is the strengthening of the economy through a decrease in unemployment (recall that one of the original two mandates of the Fed is "maximum employment"... that is until it was supplanted by the third and only one: "Russell 2000 to 2000") and caring for "lower-income households." It is something far more serious when the one doing the accusing is... the Federal Reserve. In a seminal paper which we are convinced will make the rounds the next time the puppetmaster is undergoing his periodic grilling by Congressional and Senate critters, Yi Wen of the St. Louis Fed indicates that the entire experiment in increasing the adjusted monetary base by $2 trillion in 2 years is not only not benefiting the economy, but is in fact having an adverse impact on such key economic drivers as unemployment. To wit: "permanent increases in the monetary base foreshadow eventual increases in inflation that can increase, rather than reduce, unemployment over the long term." We wonder if Bernanke knew in advance that LSAP (aka QE2) had a statistically greater chance of resulting in greater unemployment, and thus more pain for the working class, and if the only offset, a doubling in the stock market when ever more capital is diverted from organic economic growth to pursuing speculative risk, was important enough for the Fed to effective replace its employment mandate with one of stock market manipulation?

Here is how the St. Louis Fed confirms that the Chairman is nothing but a puppet in the hands of Wall Street:

The impact of LSAP programs on economic activity depends on the programs' effects on longer-term interest rates and the responsiveness of aggregate demand to such changes. The St. Louis-based consulting and forecasting firm Macroeconomic Advisers recently estimated that the Federal Open Market Committee's current $600 billion LSAP program likely will reduce the 10-year Treasury yield by 20 basis points, increase the eight-quarter-ahead level of real gross domestic product by 0.4 percentage points, reduce the unemployment rate by 0.2 percentage points, and increase employment by 350,000 jobs. Although analyses conducted by other institutions (such as the Boston and San Francisco Feds) have suggested slightly higher figures, the overall effect of the LSAP programs on unemployment is modest.
A less-recognized risk in LSAP programs is that permanent increases in the monetary base foreshadow eventual increases in inflation that can increase, rather than reduce, unemployment over the long term. David Ranson of Wainwright Economics has analyzed the U.S. data over the period of 1950 through 2007. Ranson divided the 57-year period into two categories: years when the monetary base grew at an above-average rate (8.1 percent) and years when it grew at a below-average rate (3.5 percent).

And the stunners:

Ironically, economic growth was higher in the years of slow money growth (3.7 percent) than it was in the years of rapid growth (3.2 percent). The same was true for industrial production. Meanwhile, the consumer price index rose 5.1 percent in years of above-average monetary growth and just 2.6 per- cent in below-average years.

It is, in fact, as we have always expected: QE not only does not result in relative economic outperformence (the opposite), it simply leads to higher inflation, and subdued economic growth. And the Chairman of the Federal Reserve was not aware of this data?

And while this too is more than obvious, anyone could have foreseen the impact QE/LSAP would have on precious metals:

The gold price showed an even bigger differential, rising 12.5 percent in above-average years and just 0.6 percent in below-average years
.

Perhaps the above explains why we have been bullish on the precious metals complex since March 18, 2009 (official start of QE1). Alternatively it may just be our long-running bet that Bernanke will fail in his attempt at instituting central planning effectively, and the outcome will be the end of the monetary system in its current iteration.

And before skeptics accuse the St Louis Fed, which has sometimes been defined as hawkish (although we have yet to see James Bullard vote in the "against" column during an FOMC decision), this is a finding that has been replicated elsewhere on not just one occasion.

Other recent analyses, using different tools, have reached similar conclusions. In my current research, I have esti- mated models for the period 1948:Q1 to 2008:Q2 that sug- gest that a sustained increase of 1 percentage point in the growth rate of the monetary base has almost no impact on unemployment during the initial 20 quarters but can significantly increase the unemployment rate in the longer run (say, during the subsequent 20 quarters).
Extrapolated to the very long run, my analysis suggests that a sustained 1-percent-per-year faster growth of the monetary base might increase the unemployment rate by between 1.0 and 2.2 percentage points.
The reason is that expected long-term inflation is bad for growth and employment.
A recent article in the American Economic Review docu- mented a similar positive relationship between longer-term inflation and the unemployment rate (Berentsen, Menzio, and Wright, 2011). These authors use a search-and-matching model to explain why longer-term inflation can increase, rather than decrease, the unemployment rate. That is, inflation reduces the demand for money and, hence, hinders trade and the probability of matches in both the goods and labor markets.

The conclusion is obvious:

In summary, the near-term effects of LSAP programs on unemployment remain uncertain.
Further, caution must be exercised such that long-term inflation does not increase
. More and more economic research suggests that the long- run costs of inflation, measured in welfare terms, are likely higher than previously estimated (see Wen, 2010). Fortunately, at least one recent cross-country study (Anderson, Gascon, and Liu, 2010) suggests that this long-run lesson is well understood by policymakers.

Alas, unfortunately, the author is wrong. Policymakers, neither of the fiscal nor monetary variety have any care for what the long-term costs of inflation are for the general population. The only determinant is how far is the S&P has risen in any given electoral cycle. After all it is so much easier to manipulate the stock market than the economy. Which is why Bernanke is nothing more than an enabler of market manipulative political posturing... and Wall Street greed naturally: the one certain side effect of the R2K@2K is another year of record bonuses on Wall Street.

Edited by _w_

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Its good that the left hand is talking to the right.

Dallas Fed said QE is just money printing, Bernanke says its not.

Im glad we have such agreement between our mental superiors. Or should that be mental superiors.

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A nice one from ZH, it's the first time I read a mainstream academic paper that argues that the higher the monetary inflation, the bigger the damage to the economy.

http://www.zerohedge...op-unemployment

Choice quote in blue at the bottom of the article.

This article is nonsense. In a normal economic situation inflation is bad. However, this is not a normal situation. The US spent a decade borrowing and bidding up house prices to unsustainable levels. Prices have crashed but the debt remains. It has to be paid somehow, inflation is the obvious answer. QE will not create wealth, it will create inflation though.

The US needs inflation, this is the point of QE2,3,4 etc IMO. Nominal GDP growth needs to be pushing towards double digits to have a hope in hell of paying off the US private / public debt mountain.

Bernanke is not as stupid as he looks or seems. IMO he is perfectly aware that printing cash will not create jobs. What it will do is eat in to the debt mountain created by a decade of mal investment in the housing market.

At least the US is dealing with the real problem head on. House prices have been falling for 5 years and are still going down. Once they bottom and the working population finds it is spending a tiny fraction of disposable income on housing the US economy will start to recover. This is the best way to tackle the crisis IMO.

No wonder Gold, Oil, Stocks etc and other commodities are flying. The only escape from $20trn of debt is to reduce the value of it so what is left of the real economy will be able to pay it off.

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This article is nonsense. In a normal economic situation inflation is bad. However, this is not a normal situation. The US spent a decade borrowing and bidding up house prices to unsustainable levels. Prices have crashed but the debt remains. It has to be paid somehow, inflation is the obvious answer. QE will not create wealth, it will create inflation though.

The US needs inflation, this is the point of QE2,3,4 etc IMO. Nominal GDP growth needs to be pushing towards double digits to have a hope in hell of paying off the US private / public debt mountain.

Bernanke is not as stupid as he looks or seems. IMO he is perfectly aware that printing cash will not create jobs. What it will do is eat in to the debt mountain created by a decade of mal investment in the housing market.

At least the US is dealing with the real problem head on. House prices have been falling for 5 years and are still going down. Once they bottom and the working population finds it is spending a tiny fraction of disposable income on housing the US economy will start to recover. This is the best way to tackle the crisis IMO.

No wonder Gold, Oil, Stocks etc and other commodities are flying. The only escape from $20trn of debt is to reduce the value of it so what is left of the real economy will be able to pay it off.

The problem is index linked debt. Medicare, Mediaid, Social security are all debts which will simply get bigger under inflation. He can't fix this problem via inflation.

Only real wealth and economic growth can.

However they will try to fake wealth and growth for as long as possible.

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The US needs inflation, this is the point of QE2,3,4 etc IMO. Nominal GDP growth needs to be pushing towards double digits to have a hope in hell of paying off the US private / public debt mountain.

This post is nonsense.

The US needs _WAGE_ inflation to wipe out debts, because they refuse to allow default. Price inflation without wage inflation makes you poor, and that's exactly what QE is creating.

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This article is nonsense. In a normal economic situation inflation is bad. However, this is not a normal situation. The US spent a decade borrowing and bidding up house prices to unsustainable levels. Prices have crashed but the debt remains. It has to be paid somehow, inflation is the obvious answer. QE will not create wealth, it will create inflation though.

The US needs inflation, this is the point of QE2,3,4 etc IMO. Nominal GDP growth needs to be pushing towards double digits to have a hope in hell of paying off the US private / public debt mountain.

Bernanke is not as stupid as he looks or seems. IMO he is perfectly aware that printing cash will not create jobs. What it will do is eat in to the debt mountain created by a decade of mal investment in the housing market.

At least the US is dealing with the real problem head on. House prices have been falling for 5 years and are still going down. Once they bottom and the working population finds it is spending a tiny fraction of disposable income on housing the US economy will start to recover. This is the best way to tackle the crisis IMO.

No wonder Gold, Oil, Stocks etc and other commodities are flying. The only escape from $20trn of debt is to reduce the value of it so what is left of the real economy will be able to pay it off.

How does it eat into the debt?

QE ain't debt free, it's swapping normal debt for soveriegn state debt.

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America will have somewhat of a bounce back in due course, they simply have to start rebuilding their antiquated infrastructure, either that or the head of their empire will simply perish in a very ugly civil war.

A generation of make work will bandaid over their social problems.

Will be interesting to see how they corral a bunch of willing and low paid workers to carry out the work, especially when they have such a huge population of inmates to perform all the menial tasks at gunpoint.

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Will be interesting to see how they corral a bunch of willing and low paid workers to carry out the work, especially when they have such a huge population of inmates to perform all the menial tasks at gunpoint.

Simply turn the entire country into one gigantic gun pointing prision. Steadily making the TSA more and more powerful and adding more and more names to the no travel terrorist list so eventually NOBODY can leave. Then internal passports and difficult internal travel (fuel price) and there you have it...

Hang on a second....

Edited by ken_ichikawa

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Simply turn the entire country into one gigantic gun pointing prision. Steadily making the TSA more and more powerful and adding more and more names to the no travel terrorist list so eventually NOBODY can leave. Then internal passports and difficult internal travel (fuel price) and there you have it...

Hang on a second....

Won't fix an economic problem though!

That's the problem of the western elite - forcing people means they aren't productive, freeing them means you can't steal as much.

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Won't fix an economic problem though!

That's the problem of the western elite - forcing people means they aren't productive, freeing them means you can't steal as much.

Who says TPTB want to fix anything, they just want an economic climate where they can steal as much as possible.

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Who says TPTB want to fix anything, they just want an economic climate where they can steal as much as possible.

Well yeah - but they can't have one.

if you keep stealing, people stop producing.

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This post is nonsense.

The US needs _WAGE_ inflation to wipe out debts, because they refuse to allow default. Price inflation without wage inflation makes you poor, and that's exactly what QE is creating.

http://www.minyanville.com/businessmarkets/articles/voodoo-economics-quantitative-easing-qe2-monetary/4/21/2011/id/34074

What do you think will happen as prices rise? The primary effect of a shock rise in commodity prices is price inflation the secondary effect is wage inflation as pressure is put on employers, which will lead to further price inflation and an upward inflation spiral. This will happen very slowly as unemployment in the US is pretty high, it will happen eventually though.

This is what Sentance and other Hawkish MPC members are trying to prevent. (http://www.skynewstranscripts.co.uk/transcript.asp?id=966)

Secondly, we got into the very difficult problems in the 1970s by allowing inflation to creep up so if you allow it to creep up to a higher level, that then is the platform for a further rise in inflation and we don’t want to go down that track again.

we are also now seeing wage increases beginning to pick up, albeit from a low base, so these are all things that will possibly feed in to higher inflation over the medium term …

QE only creates inflation and makes everyone poorer, no wealth is created and future wealth creation is probably stunted by higher inflation. Wages will rise in time though, real purchasing power will not change.

In a debt crisis as long as the debt maturity is long enough (UK & US?) the benefit of QE is pretty clear. The value of debt stays the same, wages, prices rise so the debt is easier to pay.

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Dallas Fed is talking about the long term, Ben is talking about the short term...

Short term is the same as long term I think.

If you take action to extend the life of wasteful economic activities by a single day there will be a cost to the economy and a negative impact on the capital of the country.

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  • 284 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% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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