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World Economy May Need Permanent Qe

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http://www.telegraph.co.uk/finance/economics/11165982/World-economy-so-damaged-it-may-need-permanent-QE.html

Combined tightening by the United States and China has done its worst. Global liquidity is evaporating.

What looked liked a gentle tap on the brakes by the two monetary superpowers has proved too much for a fragile world economy, still locked in "secular stagnation". The latest investor survey by Bank of America shows that fund managers no longer believe the European Central Bank will step into the breach with quantitative easing of its own, at least on a worthwhile scale.

Markets are suddenly prey to the disturbing thought that the five-and-a-half year expansion since the Lehman crisis may already be over, before Europe has regained its prior level of output. That is the chief reason why the price of Brent crude has crashed by 25pc since June. It is why yields on 10-year US Treasuries have fallen to 1.96pc, and why German Bunds are pricing in perma-slump at historic lows of 0.81pc this week.

We will find out soon whether or not this a replay of 1937 when the authorities drained stimulus too early, and set off the second leg of the Great Depression.

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Usually enjoy AEP's Euro rants, but he's gone completely Giddy Kipper on that one.

Full-on contra-indicator

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QE has failed abjectly. What use would more of it be? Minsky taught us (via Keynes) that there are two price indices - asset prices and current prices - operating interdependently over different timescales and markets. The latter must always validate the former or we get a recession (or worse). To effect a sustainable recovery the two need to be brought back into balance. QE does the opposite, it keeps them operating far from equilibrium. Inflating asset prices and maintaining zombie businesses on the one hand, depressing current prices via rent extraction and labour market inflexibility on the other. As the Japanese have discovered to their enduring cost, if nothing is allowed to fail there's no incentive for change.

Edited by zugzwang

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QE has failed abjectly. What use would more of it be? Minsky taught us (via Keynes) that there are two price indices - asset prices and current prices - operating interdependently over different timescales and markets. The latter must always validate the former or we get a recession (or worse). To effect a sustainable recovery the two need to be brought back into balance. QE does the opposite, it keeps them operating far from equilibrium. Inflating asset prices and maintaining zombie businesses on the one hand, depressing current prices via rent extraction and labour market inflexibility on the other. As the Japanese have discovered to their enduring cost, if nothing is allowed to fail there's no incentive for change.

Spot on. Not as if there wasn't ample evidence that the strategy employed would fail, we are governed by idiots.

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Thank goodness it won't apply to the UK as it's already reached escape velocity.

escape_velocity.png

Star Trek TNG - Booby Trap.

[Picard pilots the Enterprise, power being drained by energy draining assimilators in an asteroid belt.]

Data: You have used the asteroid's gravitational pull as a slingshot - excellent.

In our economy, we create the energy sapping assimilators via QE/zirp/malinvestment without breakup.

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There is no doubt that the current global economy is basically a Ponzi Scheme. Stop the influx of new suckers (this time replaced with QE) and the whole house of card collapses.

Protect yourselves.

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.....the outstanding debt cannot ever be repaid, as soon as some of it gets killed the more that is required to replace it....bad debt will be forever have to be purchased......the world now revolves around debt that is spent but never repaid only replaced with more of of the same of lower value.

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Or re-distribution.

But they can't countenance that, can they.

Quite. Don't think there's necessarily anything wrong with QE, it depends how the benefits/disadvantages are distributed. Which turns to fiscal rather than monetary choices. The problem is doing QE, which has amounted to very regressive fical policy, and maintaining very low rates at the same time. It's basically a government rather than a central bank policy. And it says a lot about our governments. Personally I blame the media.

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Quite. Don't think there's necessarily anything wrong with QE, it depends how the benefits/disadvantages are distributed. Which turns to fiscal rather than monetary choices. The problem is doing QE, which has amounted to very regressive fical policy, and maintaining very low rates at the same time. It's basically a government rather than a central bank policy. And it says a lot about our governments. Personally I blame the media.

QE is simply money dilution ( inflation) and keeps those with worthless assets they cant cash out of, in business to carry on regardless to prudent purchasing in the future..

therefore, we have rising asset prices (inflation) and for the poor, their wages are worth less, not due to low order goods inflation, but because busted businesses kept afloat are still able to compete with well run businesses, reducing wages in the process.

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http://uk.reuters.com/article/2014/10/16/uk-cenbanks-markets-policy-idUKKCN0I501520141016

Global central bankers, eager to see the economy stand on its own feet, faced the rude reality this week of market turmoil threatening already faltering growth and prolonging world reliance on easy money.

Stocks slumped again on Wednesday pushing S&P 500 losses to almost 8 percent since mid-September. The dollar fell and U.S. bond prices soared after weak Chinese inflation and U.S. producer price and retail sales data fanned fears the world economy could be even weaker than thought.

When stock markets turned south last week after rallying for much of this year, many policymakers initially played that down. In fact, the sell-off could be seen bringing some healthy volatility back to markets that officials worried had become too complacent to risks ranging from tensions surrounding the conflict in Ukraine to the Ebola outbreak.

But the deepening of the sell-off may have put major central banks on their heels, by raising the prospect of the market rout going too far too fast, threatening to hurt confidence and potentially triggering a pullback in spending.

"It reminds me of the massive flight to quality we saw during the (2008) banking crisis, when there were fears that the whole global economy would tip into depression," said Nick Stamenkovic, a strategist at Edinburgh-based RIA Capital Markets.

Economists familiar with central bank policymaking say there is no doubt that officials are worried by the markets' sharp turn for the worse. It is less clear how and when will they respond.

It seems that perhaps this theme is being pushed globally?

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hahahahahaha.... There is no plausible scenario left that leads to switching off QE other than fAilure of the printing press itself.. Ie total economic collapse.. And even then the presses will have to be manned till the last microsecond because 'more' is needed not less

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Ah, yes. Permanent money printing. Genius.

As others have said, there will be no end to the nonsense (low rates/printing), whatever they say. The end will come only in the final explosion.

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Ah, yes. Permanent money printing. Genius.

As others have said, there will be no end to the nonsense (low rates/printing), whatever they say. The end will come only in the final explosion.

Yup. Exactly as history has taught us.

I don't get why the supposed brainy sorts out there, of which AEP is one, are impervious to the lessons of the past. Debasing the currency has been tried throughout history. It always goes the same way.

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QE is ending soon, and the bankers got most of it.

Hold on for HPC.

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Yup. Exactly as history has taught us.

I don't get why the supposed brainy sorts out there, of which AEP is one, are impervious to the lessons of the past. Debasing the currency has been tried throughout history. It always goes the same way.

Yes but this time, this time I tell you it will be different! They didn't have our "experts" to manage the problem.

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QE is ending soon, and the bankers got most of it.

Hold on for HPC.

The Americans actually have a few genuine capitalists in positions of power, i cant see them reversing this. It isnt like Britain where literally everyone in a position of power follows the party line.

I do hope this is the start and we get the mother of all crashes.

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Spot on. Not as if there wasn't ample evidence that the strategy employed would fail, we are governed by idiots.

No, we are governed by corrupt crooks who act as middlemen for the well established, vested interest groups, selling the con to the public who have to pay for the whole thing. As long as people feel that there is a 'democracy', they will pay the required taxes (or go off to fight in wars for the rich) without too much trouble.

QE has succeeded admirably in transferring large amounts of wealth from the general population into the hands of the top fraction of a percent.

Given the signs of 'recovery' (actually signs of increasing amounts of credit floating around, pushing asset prices up) which are threatening to derail the QE gravy train, it is necessary to provide a scare so that the public can be conned into acquiescing to yet more money printing that will further impoverish them.

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Yup. Exactly as history has taught us.

I don't get why the supposed brainy sorts out there, of which AEP is one, are impervious to the lessons of the past. Debasing the currency has been tried throughout history. It always goes the same way.

QE is not debasing the currency it is replacing the currency, the only issue is that we need to tease out the failing debt based currency prior to replacing it with equity based currency - this will give a stop start economy for decades......

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There's been very little QE support this month for the latest round of US treasury settlements and there'll be none whatsoever next month. Still a ton of debt to get away though...

Not an obviously bullish set up for stocks.

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The Americans actually have a few genuine capitalists in positions of power, i cant see them reversing this. It isnt like Britain where literally everyone in a position of power follows the party line.

I do hope this is the start and we get the mother of all crashes.

No you don't. Really you don't.

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