Qe In The Us Works

[easy2012]

http://www.pewsocialtrends.org/2013/04/23/a-rise-in-wealth-for-the-wealthydeclines-for-the-lower-93/

And so it works to create the wealth effect..

From 2009 to 2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.

And now US1 million probably doesn't even get one into the top 10% of the household.

[Executive Sadman]

Yep. Mish covered this a while back. It seems commonly thought the rich get richer wether the economy is growing or not. Reality seems to be they only get richer when it is. Simple really. Debt=wealth. Debt doesnt grow, then neither does wealth.

[scepticus]

Yep. Mish covered this a while back. It seems commonly thought the rich get richer wether the economy is growing or not. Reality seems to be they only get richer when it is. Simple really. Debt=wealth. Debt doesnt grow, then neither does wealth.

Does QE create new debt though? I don't think so.

[Harry Sacks]

Does QE create new debt though? I don't think so.

It creates the illusion of demand for existing debt allowing new debt to be created.

[scepticus]

It creates the illusion of demand for existing debt allowing new debt to be created.

but has that actual new debt materialised?

I don't think it has.

[zugzwang]

but has that actual new debt materialised?

I don't think it has.

It has, but barely enough to offset the continued private sector deleveraging, which is why the US recovery still has no traction.

Household debt, for instance, has fallen back to where it was a decade ago.

[scepticus]

It has, but barely enough to offset the continued private sector deleveraging, which is why the US recovery still has no traction.

Right, so the QE can't the primary factor affecting wealth distribution, if the theory is that new debt drives wealth gains for the 1%.

[200p]

I missed the Times Rich list which was out the 21st, it would be interesting to see the movers.

[interestrateripoff]

One of the triggers for the great depression was the increasing wealth of the rich. Seems they are seeking to repeat the same policy mistake.

[Harry Sacks]

but has that actual new debt materialised?

I don't think it has.

Clearly. Debt is not growing fast enough, that's the fundamental problem.

[Bloo Loo]

but has that actual new debt materialised?

I don't think it has.

every Dollar in existence is a promise to pay, whether it be a real dollar or a credit dollar.

The Fed now has $38bn on newly created promises every month.

They are of course, backed by nothing....so worthless dollars are now mingled with valued dollars....so more promises are out there, but no wealth to back them up.

The debt value is therefore illusory....the spending power is not.

[tomandlu]

Does QE create new debt though? I don't think so.

My understanding/assumption (and please feel free to correct me) is:

• QE is leant to the public sector, where it is inflationary in the wider economy

• This reduces the value of cash, but both stabilises and acts as an imputus on the value of hard assets

• The rich are the best placed to acquire these assets and thus are largely insulated from the inflationary effects of QE

I have no idea if the first bullet point implies new debt or not. That aside, the above is not sustainable - excessive wealth imbalance is fundamentally destructive unless you want to live in a feudal dark-age.

[Bloo Loo]

My understanding/assumption (and please feel free to correct me) is:

• QE is leant to the public sector, where it is inflationary in the wider economy
• This reduces the value of cash, but both stabilises and acts as an imputus on the value of hard assets
• The rich are the best placed to acquire these assets and thus are largely insulated from the inflationary effects of QE

I have no idea if the first bullet point implies new debt or not. That aside, the above is not sustainable - excessive wealth imbalance is fundamentally destructive unless you want to live in a feudal dark-age.

QE isnt lent to anybody...its a name given to a process to increase the supply of money.

Instead of monetising an asset for interest, the CB BUYS the asset for cash it never had, and expects none back...therefore no interest to be received...it is therefore worthless paper as it has no coupon.

The asset they took in though DOES have coupon in theory...although they are buying up the shite noone could get rid of, so again, this is a support for the balance sheet of banks....suddenly they have cash, whereas before, they had a festering turd and lawsuit in the vault.

Think of the FED as an antivirus program,..it is scanning the banking community for iffy assets that are destroying the economy, and cleansing the bank of this iffy stuff, and putting it into a "virus vault" where it cant do any more harm...some day, they will simply empty the vault, quietly during a weekend when there was a bomb attack somewhere.

Edited April 24, 2013 by Bloo Loo

[tomandlu]

QE isnt lent to anybody...its a name given to a process to increase the supply of money.

I'll try and remember (since when did a conjuring trick become sound economics?) - that aside (and the main point), is it inflationary? (and if so, do my other bullet points still stand?)

[DabHand]

QE isnt lent to anybody...its a name given to a process to increase the supply of money.

Instead of monetising an asset for interest, the CB BUYS the asset for cash it never had, and expects none back...therefore no interest to be received...it is therefore worthless paper as it has no coupon.

The asset they took in though DOES have coupon in theory...although they are buying up the shite noone could get rid of, so again, this is a support for the balance sheet of banks....suddenly they have cash, whereas before, they had a festering turd and lawsuit in the vault.

Think of the FED as an antivirus program,..it is scanning the banking community for iffy assets that are destroying the economy, and cleansing the bank of this iffy stuff, and putting it into a "virus vault" where it cant do any more harm...some day, they will simply empty the vault, quietly during a weekend when there was a bomb attack somewhere.

Yes, this is how it seems to me. Cash for crap. False valuations allowing money to be printed and substituted for leveraged up bank credit abominations.

Here's a mental exercise:

Bank A lends Bank B a million in BANK CREDIT and derivatives

Bank B lends Bank C a million in BANK CREDIT and derivatives

Bank C lends Bank A a million in BANK CREDIT and derivatives

One of them, doesnt matter which has a hiccup and now all three are in trouble as their value is based on assets that have vapourised under the old counter party risk rearing its ugly head.

Banking system is in trouble! Under threats of armageddon, the govt exchanges BANK CREDIT for real money or near money GOVT instruments/backstops. Now banking system has exchanged its nothings for real somethings...