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Farewell Qe, You Have Been A Magnificent Success


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The graph you posted on the Hit like a Ton of Brics thread shows following the recession that growth has been comfortably between 2 and 4%. What do you think it would be at without the stimulus? If we had had the Great Depression Mark 2 with banks going under, loss of savings and massive unemployment, I guess you think you'd shrug your shoulders and get on with it. Or perhaps you are so special you'd be magically immune.

You seem to assume we've avoided GD2.That's a little hasty.

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The way I see it is this. Financial crisis hits:

Option 1: Let the banks fail, mass unemployment, savings lost. Riots on the streets

Option 2: QE as done by the UK government

Option 3: QE for public works, managed shut down of the banks, prison time for bankers.

I'd prefer option 3, but failing that I'll take option 2 over option 1.

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Why is that a problem, unless you object to not being able to QE. Everyone on here who is against QE should be praising the Eurozone to the skies - after all, there's no QE there. But 5 years on who is doing better economically, the US or Club Med?

Maybe it's got something to do with the Eurozone being run for the benefit of Germany.I went off the top of my head-don't have time to write a complete essay addictive though this thread is turning out to be-.

Peripheral Southern European nations have been badly governed for decades.The chickens are coming home to roost.No amount of QE would save them.As,ultimately,it won't save us.

It doesn't matter much to me personally,but the facts and figures eminating from the BLS and the ONS regarding take home pay and total hours worked/employment ratio's pretty much back up those who say QE has been bad value.

Gotta go,but I will return:-)

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Maybe it's got something to do with the Eurozone being run for the benefit of Germany.I went off the top of my head-don't have time to write a complete essay addictive though this thread is turning out to be-.

Peripheral Southern European nations have been badly governed for decades.The chickens are coming home to roost.No amount of QE would save them.As,ultimately,it won't save us.

I agree that in the case of Club Med, they need to exit the Euro and default as a start. And I'd also agree that they are poorly run.

It doesn't matter much to me personally,but the facts and figures eminating from the BLS and the ONS regarding take home pay and total hours worked/employment ratio's pretty much back up those who say QE has been bad value.

In order to argue QE is bad value, you'd need to convincingly show those figures would be better without QE.

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The graph you posted on the Hit like a Ton of Brics thread shows following the recession that growth has been comfortably between 2 and 4%. What do you think it would be at without the stimulus? If we had had the Great Depression Mark 2 with banks going under, loss of savings and massive unemployment, I guess you think you'd shrug your shoulders and get on with it. Or perhaps you are so special you'd be magically immune.

I hesitate to respond to you, but that graph appears to show the nominal price of beef. For it to be meaningful, it would need to be real terms. The fact it was static for 20 years nominally is remarkable. And as you say, it is just two examples.

I just don't buy this inflation argument either. If inflation was where the hyper-inflationists claimed at about 10%pa then we would already have over a 100% increase in prices across the board since the inception of CPI in 2005. Can't really disagree with the official analysis that prices are in fact about 27% up with reference to the 127.0 CPI index.

Thinking about the movement in prices since then, new cars are slightly cheaper but fuel more expensive, most consumer goods have been pretty well flat, electrical goods down as always, ,council tax latterly flat, energy up, food up after a remarkably flat era of about 20 years as you mention, services also up slightly more than CPI. And houses which aren't even in CPI are far lower in provincial area by about 10- 20% in nominal terms. So cash has done rather well since 2005, massively so if you don't live in London. Don't know why provincial bears are always talking down their box seat by claiming non existent inflation.

I can manage on the same money as 2005, wouldn't be possible if the NOS was cooking the figures every year. You could get away with it in a year but the gap would become very noticeable over say a decade. Indeed those on index linked incomes like pensioners would be spanked, nah they have done the spanking.

Edited by crashmonitor
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I was very fearful of QE when it became clear that the Fed and the BoE were going to more than dabble at it.

In retrospect, and from a purely selfish perspective, I'm now experiencing a sense of foreboding over its possible withdrawal. Why? Simply because there has never been an easier time to make money in the markets.

In more normal times there's an adversarial feel about investing – you know that whenever you buy something that you believe is good value, conceptually there's someone on the other side of the trade who is selling because they think it's a poor proposition or because they have spotted a better opportunity elsewhere. Furthermore the seller may be smarter than you or may have better information.

However for the past few years it hasn't seemed like this. Instead it's more like being a bunch of kids let loose in a financial sweet shop where you look at all the tempting goodies on offer and once you've chosen, the kind, bearded economics professor hands you your corporate bonds or equities with a beaming smile on his face, promising you that he will never allow you to lose money on your holdings and that he will do his level best to increase their value.

If they do finally stop QE I'm certainly going to miss it, and perversely I'll probably find myself looking forward to another financial crash.

And that's why money printing invariably ends in the destruction of the currency. Once it gets going, it's dead easy for those in the right position to enrich themselves by playing games with the freshly printed money rather than actually investing capital in productive endeavours.

It totally distorts the capitalist wealth creation mechanism and merely makes for a bigger problem down the line. Since the people who really dictate the direction of government policy do very well from it, it will continue until there is some sort of massive event that wrecks the market.

As for another financial crash, that's likely to stress the already distorted system so much that I doubt that anything is going to 'save' the situation.

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As the US Federal Reserve starts to drain dollar liquidity from the global system at long last, let us celebrate success. Quantitative easing has worked marvellously well. Monetary policy has been vindicated.

The US, UK and Japan are all recovering, moving closer to "escape velocity". The Swiss National Bank - that bastion of orthodoxy - has kept its economy on an even keel by quietly amassing a bond portfolio equal to 85pc of GDP.

The crippled eurozone alone has chosen to stagger on defiantly without monetary crutches. The result has been a double-dip recession of nine quarters, the longest since the Second World War. The austerity regime has been self-defeating even on its own crude terms. Debt ratios have ratcheted up even faster.

etc

As usual plenty of claims but little or nothing in terms of supporting details or facts for the UK. There might even be some details/facts to support the case? but they're never quoted. Why not - because they're pretty thin on the ground?

Mix up the US recovery with the UK and pretend they're the same :rolleyes:

Pretend that zero hour contracts plus benefits and tax credits are whole jobs :rolleyes:

Plenty of backslapping as usual and likely self justifying pay rises and bonuses all round - and there's elections coming into view.

QE has again allowed the UK to deny reality for a bit of time but the relative per capita performance helps to demonstrate the reality.

realgdp_zpsfdeaf74b.jpg

Edited by billybong
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One has to smile when the OP quotes GDP growth as the indicator of success...when obviously, if there is more money, there is growth in the measurement of the movement of that money.

If I give bankers an extra £10 to spend...they will put that to work...immediately....there is no covering asset, just £10 more money that needs to get to work...and work it does...driving up GDP and asset prices...specially the liquid markets for stocks and Bonds.

The idea behind QE was to A: keep asset prices up, and B: provide liquidity to stop a recurrence of the interbank credit crunch.

Now where does any of this fit into the real economy?

It doesnt.

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One has to smile when the OP quotes GDP growth as the indicator of success...when obviously, if there is more money, there is growth in the measurement of the movement of that money.

If I give bankers an extra £10 to spend...they will put that to work...immediately....there is no covering asset, just £10 more money that needs to get to work...and work it does...driving up GDP and asset prices...specially the liquid markets for stocks and Bonds.

The idea behind QE was to A: keep asset prices up, and B: provide liquidity to stop a recurrence of the interbank credit crunch.

Now where does any of this fit into the real economy?

It doesnt.

Quite. There's no consumer inflation because there's no consumer demand! Absent the asset price 'recovery' and the QE economies are stuck in the same deflationary slump they were in five years ago but even more out of balance than before.

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I can feel the love on this thread already :) .

http://www.telegraph...nt-success.html

Some quotes:

He is too sanguine for me, QE has its place but it should have been used to boost public works, UK infrastructure and also decentralise the UK and give the regions a chance instead of London-centric policy. But much of what he says is highly pertinent.

Agree.

It worked much better in US where they allowed the property bubble to completely burst and recapped their banks more quickly.

Big problem in UK was the failure of 'austerity' and the complete failure of fiscal policy to offset the QE with redistributive taxes. In fact, he did the opposite. Reducing taxes for those benifitting from the QE. i.e. asset holders.

The EZ is a lesson in how NOT to respond, with predictable dire and ongoing consequences for the poor PIIGS, and now even the core. Insanity.

At least now it's clear that QE is good and gold-standards are very very very bad.

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Agree.

It worked much better in US where they allowed the property bubble to completely burst and recapped their banks more quickly.

Big problem in UK was the failure of 'austerity' and the complete failure of fiscal policy to offset the QE with redistributive taxes. In fact, he did the opposite. Reducing taxes for those benifitting from the QE. i.e. asset holders.

The EZ is a lesson in how NOT to respond, with predictable dire and ongoing consequences for the poor PIIGS, and now even the core. Insanity.

At least now it's clear that QE is good and gold-standards are very very very bad.

this post is totally schizophrenic...very clever observation about tax and total knobness about Austerity.

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I just don't buy this inflation argument either. If inflation was where the hyper-inflationists claimed at about 10%pa then we would already have over a 100% increase in prices across the board since the inception of CPI in 2005. Can't really disagree with the official analysis that prices are in fact about 27% up with reference to the 127.0 CPI index.

Thinking about the movement in prices since then, new cars are slightly cheaper but fuel more expensive, most consumer goods have been pretty well flat, electrical goods down as always, ,council tax latterly flat, energy up, food up after a remarkably flat era of about 20 years as you mention, services also up slightly more than CPI. And houses which aren't even in CPI are far lower in provincial area by about 10- 20% in nominal terms. So cash has done rather well since 2005, massively so if you don't live in London. Don't know why provincial bears are always talking down their box seat by claiming non existent inflation.

I can manage on the same money as 2005, wouldn't be possible if the NOS was cooking the figures every year. You could get away with it in a year but the gap would become very noticeable over say a decade. Indeed those on index linked incomes like pensioners would be spanked, nah they have done the spanking.

Well exactly. If you need proof QE doesn't cause general inflation look at Japan - massive stimulus, printing the same as the US with a population one third the size, 25% drop in the yen and what have they got? 1% inflation. I live in Japan - haven't even noticed. Outgoings look about the same since I arrived over 2 years ago.

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Agree.

It worked much better in US where they allowed the property bubble to completely burst and recapped their banks more quickly.

Big problem in UK was the failure of 'austerity' and the complete failure of fiscal policy to offset the QE with redistributive taxes. In fact, he did the opposite. Reducing taxes for those benifitting from the QE. i.e. asset holders.

The EZ is a lesson in how NOT to respond, with predictable dire and ongoing consequences for the poor PIIGS, and now even the core. Insanity.

At least now it's clear that QE is good and gold-standards are very very very bad.

The problem is the US didn't redistribute so much either and I suspect that the reducing debt and recovery will be deemed by the Republicans to be die to their hack and slash. They are making it hard for the US military to operate which is not good for global trade and stability.

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The problem is the US didn't redistribute so much either and I suspect that the reducing debt and recovery will be deemed by the Republicans to be die to their hack and slash. They are making it hard for the US military to operate which is not good for global trade and stability.

what reducing debt are you on about.

Their debt is UP....UP due to massive Government borrowing....1/3 of families on food stamps, thousands going for single McJobs...I can only think you are a subscriber to the Obama Daily Times.

As for the US military...well that says it all...you are a globalist moron....The US military should be in its ports, its home basis and kicking its heals defending the USA..

Edited by Bloo Loo
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I think there's an implicit assumption in all this that the worst is now over and we can pat governments and the central banks on the back for a job well done.

That's what they thought in 1936 in the US too. Today we think of the Great Depression as one long slump, but it wasn't viewed like that at the time. In TIME magazine for example the overall period was referred to as Depression I, Recovery I, Depression II and Recovery II (although it's arguable whether the latter ever really got going before the Second World War started).

You can also see this reflected in the writings of contemporaries, whom I much prefer to read as opposed to economic historians who aren't always able to appreciate the social and political constraints of the times.

Frederick Lewis Allen for example, editor of Harper's Magazine, who wrote 'Only Yesterday' in 1931. These extracts are from his follow-up book, 'Since Yesterday' (1940).

[Apologies for the very long quotes, but they're worth reading IMO]:

At last business conditions in the United States were definitely improving. The Federal Reserve Board's Adjusted Index of Industrial Production (which as you may recall had sunk as low as 58 and 59 in the crises of 1932 and early 1933, had leaped to 100 during the New Deal Honeymoon, had then slipped back to 72 by November, 1933, and had obstinately hung in the seventies and eighties throughout 1934) had now begun to show a pretty definite upward trend. By the beginning of 1935 it had risen as far as 90. By the end of 1935 it had reached 101. And after a brief relapse into the nineties, it swept on during 1936 to 104 in June, 108 in July and August, 109 in September, 110 in October, 114 in November, and 121 in December--within striking distance of the record figure of 125 which had been set in 1929.

A very pretty picture indeed--yet one could not appraise it rightly without noting several disquieting facts. One was that the production figure would have to rise much higher than 125 to absorb the bulk of the unemployed. Labor saving machinery, speed-up methods of work, and executive efficiency had now made it possible to produce more goods with less workers. Perhaps there was significance also in the fact that as a result of the drop in the birth rate and the closing down of immigration, a larger proportion of the people of the country than ever before were of working age. Another disquieting fact was that the improvement was being secured at a price--the price of a rising Federal debt.

[...]

Throughout these early years of the New Deal the levels of prices and wages and the structure of corporate and private debt were being artificially supported by government spending--or, to put it another way, by the failure of the government to levy high enough taxes to take care of the spending. If it had been possible for the law of supply and demand to work unhindered, prices and wages--and the volume of corporate and private debt--would theoretically have fallen to a "natural" level and activity could have been resumed again. But it was not possible for the law of supply and demand to work unhindered. In a complex twentieth-century economy, deflation was too painful to be endured. Hoover had set up the RFC because the banks couldn't take it; Roosevelt had set up the Federal relief system because human beings couldn't take it. Some of Roosevelt's advisers, embracing the theory of John Maynard Keynes (and also making a virtue of necessity), had been arguing for some time that when the government, by over-spending, poured new money into the economic bloodstream, business would be stimulated and a new adjustment would be reached at a higher level, thus rendering the anguish of deflation unnecessary. The new money would "prime the pump" of business; presently all sorts of new businesses would be undertaken, there would be a boom, the unemployed would be absorbed in industry, and all would be well. Roosevelt hoped that this would happen, and so far the process seemed to be beginning. Business was picking up. But where, oh, where, were the new enterprises?

During the preceding year there had been a considerable volume of capital flotations, but chiefly these flotations had been undertaken merely to refund old issues of securities at lower interest rates: interest rates having gone down, corporations had been seizing the happy opportunity to substitute 3 3/4 per cent bonds for 5 per cent bonds. Few of the flotations had represented the investment of money in the expansion of old businesses or in the inauguration of new ones. Uninvested money was piling up in the banks instead of being spent in building and equipping new factories. In short, the pump was not working right.

Of course it was not working right, argued most business men. The trouble was that investors were frightened. Naturally they were distrustful of the New Deal's reformist zeal and of the very spending policy which was supposed to entice their money into the capital markets. Surely the pump would work really well before long, replied the New Dealers; and how could they cut expenses without destroying buying power and perhaps starving their fellow-citizens? Eagerly they continued to prime the pump. Year after year, in his Budget messages, the President who had berated Hoover in 1932 for failing to balance the Budget expressed the hope that next year, or the year after, the balance would at last be achieved; but like the man who swears that this little drink is positively his last one, presently he began to sound as if he did not convince even himself.

There were other somewhat unsettling facts about this recovery, too. The Lynds noticed, for example, that in "Middletown" it was harder now for a man to start a small business than it had been even a decade before. "The Middletown tradition is all in favor of an enterprising man with an idea and a shoestring of capital," they noted. "But it is this type of small enterprise that has gone under in Middletown in the Depression." Personal savings had been eaten up, bankers were cautious, the trend in manufacturing was toward such large and expensively equipped shops that the small manufacturer was at a disadvantage, and the going concerns in many lines of business were inclined, with or without the aid of their trade associations, to make things hot for a newcomer. It was the big corporations, by and large, which were making the profits; small ones were lucky indeed to break even. Here was a barrier to new investment (which will be noted more fully in the last chapter of this book): the odds were against making money in fledgling enterprises.

Even inside going businesses, as the Lynds also pointed out, the ladder of opportunity was not so readily climbed as it once had been. The skilled laborer was finding that the higher-paid and more important positions were going to a different class of specially trained men. "In other words," said the Lynds, "Andrew Carnegie's advice to enterprising young men to begin at the bottom no longer appears to be sound advice. Men of his type are advising young men today to get a toehold in one of the managerial or technical departments halfway up the ladder."

Was this a sign of a gradual crystallization of class structure in American society? Certainly it was hard for reliefers to get themselves out of the relief class. It was hard for dispossessed farmers to get back on the land. If it was also harder than it had been for the man without a higher education or influential friends to get a job in the upper ranks of business, how would fare the American dream of a classless democracy in which anyone could go to the top?

But how welcome was even this modest and dubiously founded recovery of 1936!

Now from a later chapter, covering 1937-38:

When it came, it came fast--and apparently out of a clear sky.

Toward the end of August, 1937, the stock market sold off and business showed signs of slackening. After Labor Day the retreat became sharper. Stocks went down fast and far. On the morning of October 19 the market seemed near demoralization, with support for some stocks apparently quite lacking and selling orders pouring in from all over the country; the tape lagged twenty-five minutes behind the trading, and when at last the gong rang for the closing, the total of transactions had come to 7,290,000 shares--the biggest total since the collapse of the New Deal Honeymoon bull market in the summer of 1933. All through the autumn of 1937 the decline continued. Only the fact that speculation previous to August had been moderate and well-margined, with the SEC watching carefully to prevent manipulation, kept the annihilation of values from having disastrous consequences outside the exchanges. Meanwhile business operations contracted steadily and rapidly. Not until the end of March, 1938, did the stock market touch bottom; not until May did business do so. Never even during the collapse of 1929-32 had the industrial index shrunk at such a terrific rate.

[...]

Then see what happened to our familiar measure of the state of business in general, the Federal Reserve Board's adjusted Index of Industrial Production. (Do you recall its previous ups and downs? Its high of 125 in 1929, its low of 58 in 1932 and of 59 in the bank-panic month of 1933, its rush up to 100 during the New Deal Honeymoon, its decline to 72 as the Honeymoon ended, and its wobbling rise thereafter?) At the end of 1936 the index had touched 121, which looked distinctly promising. As late as August, 1937, it stood at 117. Then it ran downhill, month after month, until by May, 1938, it had sunk to 76. In nine months it had lost just about two-thirds of the ground gained during all the New Deal years of painful ascent!

What had happened? During the latter part of 1936 and the early part of 1937 there had taken place sharp increases in the prices of goods--some of them following increases in wages during the CIO's offensive, some of them affected by armament orders from Europe, many of them accentuated by a general impression, among business men, that "inflation" might be coming and that one had better buy before it was too late. The price of copper--which you will recall especially disturbed the President--had jumped in five months from 10 cents a pound to 16. Business concerns had been accumulating big inventories. When the time came to sell these goods at retail to the public, the purchasing power to absorb them just was not there.

For new investment still lagged; and what was more, the government spending campaign, which had kept pumping new money into the economic system, had been virtually halted. During the summer of 1937, Henry Morgenthau, the Secretary of the Treasury, had persuaded the President to make a real attempt to balance the budget; and although it did not yet seem to be quite in balance, nevertheless when one took into account the Social Security taxes which were being levied (and were not counted on the credit side of the budget, being set apart in a separate account), the government was for a time actually taking in from the public more than it paid out.

Result: the goods which were piled up on the shelves moved slowly. Business men became alarmed and cut production. Two million men were thrown out of work in the space of a few months--and became all the less able to buy what was for sale. The alarm increased, for men well remembered what a depression was like and were resolved to cherish no false hopes this time. The vicious spiral of deflation moved with all the more rapidity. Thus out of that apparently clear sky--no great speculative boom in stocks or real estate, no tightness in credit, no overexpansion of capacity for making capital goods (in fact, not nearly enough expansion)--came the Recession of 1937-38.

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I hesitate to respond to you, but that graph appears to show the nominal price of beef. For it to be meaningful, it would need to be real terms.

I love this kind of Keynesian insanity: 'Inflation isn't inflation unless the price is going up "in real terms".'

The rail and bus companies do this too. Boris Johnson recently raised fares in London by 3.1% but argued that it wasn't really an increase because he was just matching RPI.

If the number on the price tag is getting bigger, that's inflation. Inflation isn't just some neutral process that affects us all equally, it has huge effects on the distribution of income.

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Agree.

It worked much better in US where they allowed the property bubble to completely burst and recapped their banks more quickly.

Big problem in UK was the failure of 'austerity' and the complete failure of fiscal policy to offset the QE with redistributive taxes. In fact, he did the opposite. Reducing taxes for those benifitting from the QE. i.e. asset holders.

The EZ is a lesson in how NOT to respond, with predictable dire and ongoing consequences for the poor PIIGS, and now even the core. Insanity.

At least now it's clear that QE is good and gold-standards are very very very bad.

We needed a bailout for businesses and households, we got instead a rolling subsidy and profiteering opportunity for banskters and rent-seekers.

QE is good? Damn right. Look at the US house price inflation!

00210065-0000-0000-0000-000000000000_00000065-06d1-0000-0000-000000000000_20131113211127_october-2013-us-housing-median-sale-price-19-markets-from-redfin.png

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I agree that in the case of Club Med, they need to exit the Euro and default as a start. And I'd also agree that they are poorly run.

In order to argue QE is bad value, you'd need to convincingly show those figures would be better without QE.

Given QE was a deliberate policy direction, the burden is surely on proponents of QE to show that this is a better way forward than the default position of not enacting an asset purchase scheme?

Could you accept that it might be a bit early to decide whether QE has been a success? Given the most difficult bit is likely still to come(withdrawal of the asset purchases), you appear to be making judgements based on a one-sided view of the stimulus/withdrawal process.

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At least now it's clear that QE is good and gold-standards are very very very bad.

Here's a short EUVox article considering the 1930s and the UK's relative success outside of the gold strait jacket:

http://www.voxeu.org/article/eurozone-if-only-it-were-1930s

As for QE, it can only be declared a success the day they withdraw it. No prospect so far of even the US getting out of the Japanese trap because they can't drum up sufficient demand.

Here's Larry Summers mulling it over in a short article - his last paragraph is clever so I think you should ask TMT to explain it for you (LOLZ & HUGZZ!):

http://larrysummers.com/commentary/financial-times-columns/why-stagnation-might-prove-to-be-the-new-normal/

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In order to argue QE is bad value, you'd need to convincingly show those figures would be better without QE.

No I don't.

There's no consumer inflation because there's no consumer demand! Absent the asset price 'recovery' and the QE economies are stuck in the same deflationary slump they were in five years ago but even more out of balance than before.

Quite.For QE to be a meaningful success,it has to stop and be unwound without the QE economies dropping right back into the velocity crushing depression we supposedly left.The completion of the taper is half the job and I'd suspend judgement till that $4.36 trillion of paper is back with the people/institutions they bought it from.

Agree.

It worked much better in US where they allowed the property bubble to completely burst and recapped their banks more quickly.

Big problem in UK was the failure of 'austerity' and the complete failure of fiscal policy to offset the QE with redistributive taxes. In fact, he did the opposite. Reducing taxes for those benifitting from the QE. i.e. asset holders.

The EZ is a lesson in how NOT to respond, with predictable dire and ongoing consequences for the poor PIIGS, and now even the core. Insanity.

The US property bubble didn't completely burst,did it?

Have to agree that QE might have been more meaningful if run alongside a sensible fiscal policy but let's be realistic.People would have paid down debt with it most likely.

The only thing that's really worked in the US is the redistribution of wealth from poor to the rich.

Edited by Sancho Panza
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Well exactly. If you need proof QE doesn't cause general inflation look at Japan - massive stimulus, printing the same as the US with a population one third the size, 25% drop in the yen and what have they got? 1% inflation. I live in Japan - haven't even noticed. Outgoings look about the same since I arrived over 2 years ago.

If only price inflation were the only thing that mattered.Japan is even further away from solving it's multitudinous problems-demographics,debt,pension liabilities-than it was ten years ago.If they're the poster boy for QE,please release me.

As for QE, it can only be declared a success the day they withdraw it. No prospect so far of even the US getting out of the Japanese trap because they can't drum up sufficient demand.

Indeedy,Mrs Watanabe is already chock full of dribbling JGB paper.

Edited by Sancho Panza
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