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Farewell Qe, You Have Been A Magnificent Success


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I love the smell of recovery in the morning ...

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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.

Chances of QE actually being unwound - as in all that debt being sterilised - absolutely nil.

You've gotta love headlines that imply that reducing the amount of money printing (balance sheet stuffing) to buy debt to a 'mere' seventy five billion dollars per month somehow adds up to the ending of the whole sordid business.

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

Hence it has been a magnificent success (at doing what it was designed to do, not what it was sold to the public as doing).

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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.

Inflation in everyday living needs, without wage inflation will feel just like deflation. The reason for the squeezed middle argument. That and that alone will make servicing personal debt much harder. Help to buy will bite many a squeezed middle in the ****, regardless if rates normalise or not. If the cost of food/heating/fuel/housing keep going up much faster than wages. Big banks know this, which is why they have tightened their "CHEAP" loan criteria, payday lenders are exploiting it with crazy APR's for those excluded from the QE cheap money.

Sure QE has helped the UK shine like a hollowed out pumpkin on Halloween, but that same pumpkin will wilt and die much quicker than one left on the vine.

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Ok I guess you don't. But I feel it is disingenuous to argue that QE is bad in a vacuum without consideration of the fall out from the likely alternatives.

Seriously Fafa.You're an intelligent person.How can I reasonably give you unemployment/growth/money supply predictions on what might have been.It was preposterous to ask.

I will however say that it's highly likely that if we'd let the defaults occur,housing would be cheaper,the bankers would have taken a kicking and govts would be hurriedly bringing spending to sustainable levels.It's hard to extrapolate much beyond that.What I can say for definite is that there would be a semblance of integrity in our financial system ie that the dumb money gets it's comeuppance for excessive risk taking and the smart money it's reward for being careful.As it is,we've created a huge moral hazard by actively rewarding the dumb money with promises to pay from future generations.

One day I genuinely hope our young people will wake up and tell us to f*** off when we present them with the bill for my generations profligacy.

As I said earlier in the thread,the fat lady is not even warming up yet.QE has created the illusion of stability whilst doubling up on future instability. As probability theory tells us you can only double down on red/black so many times before the bet is uneconomical.

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Seriously Fafa.You're an intelligent person.How can I reasonably give you unemployment/growth/money supply predictions on what might have been.It was preposterous to ask.

No I dont think so - it is an integral part of any decision making to make a reasonable grasp of the alternatives. Just saying XYZ is bad is meaningless if there was no alternative

I will however say that it's highly likely that if we'd let the defaults occur,housing would be cheaper,the bankers would have taken a kicking and govts would be hurriedly bringing spending to sustainable levels.It's hard to extrapolate much beyond that.What I can say for definite is that there would be a semblance of integrity in our financial system ie that the dumb money gets it's comeuppance for excessive risk taking and the smart money it's reward for being careful.As it is,we've created a huge moral hazard by actively rewarding the dumb money with promises to pay from future generations.

Smart money? You mean the savers? They would have been wiped out as their smart savings are what is being defaulted on.

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From the OP's link

What matters for an economy is public, corporate and household debt taken together. This combined figure has fallen from 280pc to nearer 260pc of GDP in the US since the post-Lehman peak as households slash debt.

The eurozone is a mirror image. Combined debt has kept on rising, overtaking US levels on the way up. Household debt ratios have hardly fallen at all. If the central thrust of EMU policy is to cut debt burdens, it has failed.

It would have been helpful if he'd supplied the breakdown of the figures (and he doesn't disclose any of the percentage of GDP figures for the eurozone) but it looks like overall people in the eurozone are more confident about their economy than the people in the money printers.

Edited by billybong
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No I dont think so - it is an integral part of any decision making to make a reasonable grasp of the alternatives. Just saying XYZ is bad is meaningless if there was no alternative

Smart money? You mean the savers? They would have been wiped out as their smart savings are what is being defaulted on.

I've given a reasonable precy of the alternative and everyone knows it would involve some pain.How much pain depends on what's revealed when we finally are able to obtain an honest appraisal of the horrors that lie in bank balance sheets.For that to occur we need to see some real volume in various real estate markets instead of the current extend and pretend meme.

I'm just saying that they should have defaulted on bank equity holders and bond holders not bailed them out.If depositors get hit,at least they'll get some equity ahead of the aforementioned.I also think that the peripheral nations should default.I think they eventually will in one form or another.

As for smart money-the clever people I know are shifting around various liquid asset classes,including cash.To me dumb money is money that's leveraged into illiquid asset classes with smart money being the money that's not leveraged into illiquid asset classes--but that's just my personal definiton now I've had a think about it.

Edited by Sancho Panza
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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.

You've hardly established a precedent for reasoned projections here.

It'll be ironic in the extreme if we're still on this thread in 5 years and the transfer of wealth to the top 1% is over and then we still get the mass unemployment,savings lost and riots on the streets.

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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.

Plenty of other options.

How about let banks fail but guarantee savings up to £50,000. No reason for any riots.

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