Does quantitative easing really work?

Does quantitative easing really work

Works in the short term, where people don't know about the excess money being printed, until people discover it, then there will be hyper inflation in prices (depending on the degree of excess currency released) and then social chaos can take place: e.g. German Weimar republic that printed excessive $$$ to fund war, economy and especially corrupt politicians till they were discovered by both locals and foreign individuals alike (ditto Zimbabwe and somewhat Greece in last decade): sparks hyperinflation as foreigners refuse payment for goods in your country's worthless currency (but demand another more trustworthy currency that u don't have) resulting in inability to pay for imported any goods and thus food shortages and exponential price rises when paying in worthless native currency.

German Weimar republic photos showing a time when by WEIGHT, firewood costed MORE than dollar bills so people used dollar bills as cooking and heating fuel:



In short, QE is like pick pocketing; it only works when your victim is totally IGNORANT about the crime being committed against him. However, once he (refers to ANYBODY in possession or in receipt of a hyperinflated (worthless) currency) finds out how badly he has been(/is being) robbed, then all hell breaks loose as he strikes back against the robber.

 

Think its because their rate of Quantitative easing isn't as bad (excessive) as German Weimar republic or Zimbabwe and also because they own a huge amount of wepons production secrets and weapons.

Also, China willingly buys USA gahmen treasuries meaning that many people in the world actually think the USD has value, cos they think that China cannot be wrong...

Also, many countries, including Singapore also print not insignificant amounts of $$$, thus as central bankers balance their currency against other countries, it seems that nobodys currency is depreciating when it is just the case of all sinking together... which is why people buy gold, properties, world famous paintings, some say bit coin to preserve their wealth over time, simply because gahmen cannot easily replicate these things unlike fiat currency which last I heard, costs just 3cents each piece for gahmen to bulk print.

Inflation in USA is definitely present, in fact, their central bank (FED) has said that about 2% inflation p.a. is their target. In reality, it is MORE than 2%. Firstly because the improved productivity has been omitted and products today are inferior (more insecticide, preservative, additives laden foods, lousy quality food that is machine mass processed, cheaper ingredients from unknown sources etc) as well as (Secondarily) since inflation is pegged to costs of basket of goods consumed by median quotile of population by wealth (which is falling [read worsening wealth divide]), there is implicit (invisible) down rating of inflation rates : an inherent structural under-estimation in contemporary inflation calculation methods.

On a side note, inflation in prices can be obscured by deflation in value. Some might say that by weight, inflation in price of 5 apples has occurred if their weight has been halved (half sized apples) but price unchanged, others might say that there is zero inflation because the price per apple remains unchanged (despite the apples becoming smaller now)... this is just a simple example but as I understand, much of the road/bridge infrastructure in USA is poorly maintained and possibly unsafe : this disamenity is discounted inflation figures reported despite citizens now having new hidden private costs consequent of this disamenity (psychological stress for instance from fear of mishap from using unsafe transport infrastructure)... these costs are presently excluded from contemporary national inflation figures reporting: thus the inherent significant under eatimation/reporting of gahmen inflation numbers which remains an INTERNATIONAL problem.

 

The above demonstrates a very naive understanding of market-economies.

Recessions are primarily a manifestation of lack-of-Demand. Which occurs for a variety of reasons that make Consumers draw-back from spending money.

So the question to be asked is what provoked the sudden "lack-of-Demand" that seized the American economy in 2008/2009? The Great Recession was sparked by the SubPrime Mess (massive bankster fraud) and not any Consumer lack-of-demand "per se". (Typically a normal lack-of-Demand does not require a major financial earthquake to occur, as was the case of the SubPrime Mess.)

The Sub-Prime Mess was the direct consequence of the FRB management that did not sufficiently understand the impact of deadweight subprime bank-mortgages. That particular economic phenomenon is better explained here.

My point in this remark is that the person who asked the above question does not understand that facing a "lack-of-Demand" a government must address the reasons for weak consumer demand of products/services. Which for an economy such as the US is very heavily dependent upon credit-borrowing.

When credit-fees skyrocket, Consumer Demand suffers. So, the FRB tries to address that problem because it has the tools to do so. Cost-of-credit financing is one of those tools. and the FRB determines the rates at which commercial banks can effective "borrow money" from the FRB and re-inject that money into the economy by means of Consumer-Demand credit-borrowing.

The other tool that works is in the hands of the PotUS, which is why - upon entering office - Obama had a Democrat Congress pass his ARRA spending-bill upon assuming office in 2009. Which did stop-dead an exploding Unemployment Rate (at 10%!) as Demand was reignited by putting people back-to-work by expanding government spending.

The long slog back to "creating Net New Employment" however took another five long years* - and it was not before 2014 that America actually was creating jobs once again. As can be seen from this Bureau of Labor Statistics graphic of its Employment-to-population Ratio:

So, frankly, printing-money is a key tool to reignite Demand because it makes banks willing to lend to a Demand-economy that runs on Credit-Financing. (Most people do not buy a new house without mortgaging! And builders do not hire workers until a new-house is sold but not yet built!)

Is that simple concept too hard to understand ... ?

*Because a Replicant Congress refused further government spending in the hopes of maintaining high-employment that would cause Obama to loose his reelection bid in 2012. Didn't work, did it!

 

Agreed, even fools can come to their senses and stop buying USD treasury bonds ('treasuries/ UST') sooner or later ... These bonds can also be traded between parties and on exchanges/ vz international banks which provide such 'exchange/ middleman' service... actually the yield in UST would already be creeping up as holders get spooked/ saturated and thus start unloading on UST on exchanges worldwide resulting in lower prices on UST equating to an increased yield (e.g. Par value = 100USD, interest(/coupon) 5%, maturity in 2yrs, offered at 90USD means 10% p.a. yield over 2 yrs if bond is redeemed at par value of USD100). Of course, this is extreme example because US FED borrowing rate is far less than 10% but in a way, FED knows that excessive QE will quite reflexively cause yield to increase in open market trade... I.e. FED has no choice but to pay higher coupon on future treasury bond issuance ... however, FED now says that higher coupon (interest ) rate is because of inflation : FED is just in propaganda overdrive to mislead people into thinking that they have good credit score and are in control of their accounts / debts by pre-emptively announcing increase in interest rates; but truth be told, FED is pressured by increasing trend in yield on UST traded open market, with fund managers who will NOT accept any new UST whose coupon is lower than the contemporaneous yield on UST open market: thus US FED has painted itself into a corner and its hands are now TIED... unless FED can genuinely improve its reputation / credit score amongst international investors; FED propaganda and brainwashing efforts aside, the FED will just have to borrow at increasing coupon / interest rates like any other less advanced economies like Lebanon, Ukraine, S Africa, Venezuela etc where gahmen bond coupon (interest) rates remain in double digits e.g. 12% or so in line with the risk of default + historic speed at which the $$$ printing presses in these respective countries roll.

 

QE does not involve "borriwing" from the central bank.

 

Depends on what you mean by "work". Does it devalue the currency and steal through inflation from the peasants? If that is how you want it to "work" then yes it does.

 

It also works at distorting the price system and throws the economy into disarray, causing booms and busts.

 

But the finance banks make lots of $$$$$$,
and the incompetent owners who drove them into insolvency get to keep their banks while they profit greatly.

 

not really, its good why to prevent deflation and depression during an emergency

 

Granny don't think so...

...she still waitin' fer...

...her 2nd stimulus check.

 

That just aint gonna happin.

The US is still THE major world-economy, not those you suggest above that are not even on the "long-term hold" list. It is this factor, and this factor alone, for which people buy-and-hold US government debt.

Frankly, there is no other real alternative except the EU, which is why the world is holding mountains of euro-debt as well ...

 

this also happened long before the Fed. Solution is too make inflation/deflation illegal regardless of the monetary system we might have.

 

So you offer libsocialism rather than capitalism as the solution?

 

Don't know who this post was meant for, but I'll answer it anyway.

I believe in a Social Democracy, which is defined (here in Europe) as:

Any questions with that definition? Let's see 'em ...

 

I don't have any questions with the definition. It's quite clear.

So, taking people's property and violating their liberty. Got it.

 

QUANTITATIVE EASING WORKS

In short, the above is total bullshat.

Quantitative Easing is simply allowing to expand the Supply of Money. Whyzzat?

Because in a recession people become fearful of borrowing since they have no understanding, given the circumstances, whether they could pay for the credit should they lose their job. (Which leads to the confiscation of whatever was bought.)

Which derives from a common human sentiment - we simply cannot foretell the future.

So what must a nation do? Above all, not admit that "it will all right itself in the end". If nothing is done, then the cure takes longer for effect*, and even more economic damage is done.

QE thus allows banks to reduce the cost of credit such that people will be induced to borrow, and by borrowing will further Demand. Which (first of all) convinces producers that the economy is not in "free-fall". But most all, it helps convince consumers psychologically that "now" is the time to make that purchase that they were delaying.

The final consequence is that, given sufficient time, consumer sentiment (which is the key psychological factor that underlies the propensity-to-spend) is strengthened, activated and promoted. People actually overcome their fears and start the shop-till-you-drop buying again.

Actually, the opposite can therefore happen - which is like a damn-burst of consumption. People rush out to - for instance - build more houses. And if the Demand happens far too strongly, the consequence will be a stark rises in prices, which diminishes the propensity-to-spend.

So, QE must be engaged with caution and only a moderate diminishing of interest-rates. Just enough do promote more consumer spending but not one helluva lot ...

*Which is precisely what happened when Obama (and a Dem Congress) passed the ARRA-bill ($875B of stimulus-spending) in 2009 that stopped-dead an exploding Unemployment Rate at 10%. Come 2010, when unemployment was tracking down, Obama asked for more stimulus-spending to accelerate the process. The Replicants in control of the HofR refused. The consequence was that it took from 2010 to 2014 for the US to show an up-tick in the Employment-to-population Ratio. (And if you don't believe that contention, then just see the Bureau of Labor Statistics E-to-p Ratio history-infographic here.)

 

That's all your good for - one-liner sarcasm. The road to hell is paved with them.

Moving right along ...

 

Actually socialism is when the government owns the major industries not when it controls the money supply to maintain capitalism .

 

Private property is the basis of the US Constitution and its role as the source of civilization on earth.

 

obviously stimulus spending creates a bubble like the housing bubble and then you have a recession. Only private sector spending is sustainable spending that does not produce bubbles and recessions. An Obama stimulus to replace the housing stimulus is pure insanity. If Obama had his way like FDR had his way we would’ve had a 16 year depression and World War II top it off. Thank God For Republicans

 

It honestly never occurred to a standard liberal like Lafayette to learn the arguments in favor of private property.

 

"Also, China willingly buys USA gahmen treasuries meaning that many people in the world actually think the USD has value, cos they think that China cannot be wrong..."

Somewhat true.

Due to our trade deficit with China, they accumulate mass quantities of US dollars. US debt instruments is the only market large enough to easily absorb them.

China also buys US properties, but that market is more clumsy to deal in.

 

and your point is?

 

That's not capitalism. That's socialism

 

what is that???