QE3?

[superfrank]

Does the Bank of England Worry About The Cantillon Effect?
http://www.zerohedge.com/news/guest-pos ... lon-effect

Q. "Here are a few questions for Britain’s monetary overlords at the BoE:

Are you concerned about the long-term social and economic implications of a monetary policy that enriches the rich over and above everyone else.

Public Answer: We are deeply concerned and as soon as the recovery is stable we will end this policy.
Private Thought: ROFLMAO!

Are you familiar with the concept of the Cantillon Effect whereby the creation and allocation of new money transfers purchasing power to whoever it is allocated to? Did you consider this effect prior to embarking on a program of quantitative easing to the financial sector?

Public Answer: We are not familiar with this effect nor its raminfications but will study it.
Private Thought: The Cantillon Effect is the foundational paradigm for our money allocation you ninny!

Given the financial sector’s awful track record in terms of blowing up the economy, fabricating LIBOR data for its own enrichment, and neglecting cash-starved small businesses, is the financial sector an appropriate allocator of new money?

Public Answer: It was a crisis, we had to act, the financial sector could not be lost.
Private Thought: We are the financial sector, and the financial sector is us - Siamese Twins joined at the hip, or did you miss the "Bank" part of "Bank of England?"

Now that the empirical record shows the policy of helicopter-dropping cash directly to the financial sector disproportionately favours the rich, have you considered changing course and adopting a different monetary policy that doesn’t favour any particular group?

Public Answer: The cash is vital to restore employment and retain a standard of living for the middle class.
Private Thought: Change course? Not favour the rich? Are you mad!?!? Full steam ahead to Xanadu!

[superfrank]

Fed’s Bernanke: QE has and can work more
http://www.marketwatch.com/story/bernan ... -101031933
Fed chairman expresses “grave concern” about the labor market

so to justify more printing he's gonna use unemployment this time...
asset prices falling > QE1
asset prices rising; no growth > QE2
asset prices rising; growth; unemployment too high > QE3
...
the rich aren't rich enough, the poor aren't poor enough, the young aren't shafted enough and the unborn don't matter > QE4, 5, 6

[Iron]

Mario Draghi defies Germany with launch of 'fully effective backstop' for euro - http://www.telegraph.co.uk/finance/fina ... -euro.html

'Mario Draghi has defied German opposition and launched an “unlimited” bond buying programme by the European Central Bank (ECB) that he said would provide a “fully effective backstop” to the stricken eurozone economies.'

Jeff

[superfrank]

so we've now got the FED, BoE and ECB monetising govt debt with bond buying.

the FED will probably announce QE3 next to weaken the dollar, then more from the BoE to weaken the £, more from the ECB... rinse, repeat.

QE won't stop - the printing press is the easy way out in the short term, and the short term is all they care about.

[to75ne]

how long is the "short term"?
ever since this feck up began the "short term" is always cited
it seems to me to be a very long short term
when does this short term actually become the long term?

[superfrank]

exactly. it's wishful thinking that everything will be ok as long as the wolf is kept from the door for the next 6 months.

but all those short term months (and additional debt) add up making it even more difficult to recover in the long term because of the future burden of that debt and unreformed economies (because they believe that a return to reckless credit and consumer spending is somehow viable).

[Iron]

An important point (from http://www.bbc.co.uk/news/uk-19507180):

'But this is not the same as Quantitative Easing: the ECB does not print money to do it, or rather it does but then it takes an equivalent amount of money out of the eurozone economy from other sources. This is so that it does not effectively become a stimulus package paid for by devaluing the currency and the creditworthiness of Germany, Finland etc. The term is "sterilisation".'

So who is underwriting what may be effectively the biggest loan in history?

Jeff

[superfrank]

Jeff,

I don't know what Mason means by that, but the money is not coming from "other sources" initially - as with LTRO, it's funny money.

The theory, as with QE in the US and UK, is that the bonds will ultimately be sold back to the market - but imo that will never happen. e.g. if the BoE tried to sell the UK govt bonds it has "bought" back to the market the yield would have to reflect the true credit (default) risk of the UK (without QE) which would mean the yield doubling/trebling.

[Iron]

Interesting thoughts on QE from Marc Faber at 24:30 at http://www.youtube.com/watch?feature=pl ... WI2OPcabtk

Jeff

[Euler]

Buffett’s Favorite Valuation Metric Surges Over the 100% Level

http://pragcap.com/buffetts-favorite-va ... -100-level

[Euler]

Folly of the Fed: Why Janet Yellen May Be a Dangerous Choice

http://www.pbs.org/newshour/businessdes ... t-yel.html

Janet Yellen, President Barack Obama's nominee to replace Ben Bernanke as the chair of the Fed, was on the hot seat Thursday in front of the Senate Banking Committee for her confirmation hearing. British economist Andrew Smithers questions the monetary policy she's supported as vice chair of the Fed and defended at her confirmation hearing. You can watch the hearing here.

[Euler]

THE TAPER: Recalibrating Liquidity

http://www.richardduncaneconomics.com/t ... liquidity/

[superfrank]

THE TAPER: Recalibrating Liquidity

http://www.richardduncaneconomics.com/t ... liquidity/

sound article.

the problem is that they're trying to eliminate the business/economic cycle by manipulating market liquidity, and they won't be able to stop now they've had "success" in pumping asset prices.

what happens in future when there's a downturn? yep, more printing, more promises of zero rates forever. meanwhile govts will still be adding to massive national debts while their economies remain unbalanced.

it's hard to see a good ending to any of this.

[superfrank]

interesting to see what's happening in the markets post taper... printing $65Bn a month is seemingly not enough to keep the debt bubble inflated.

i'm expecting a halt to/reverse of tapering before too long if we don't get another big rally. we'll know when it's coming because markets will start rising on bad news and falling on good news once again.

imho printing and zirp and tarp etc. have only bought more time - nothing has been fixed.

[Euler]

The great bond conundrum

http://www.economist.com/blogs/buttonwo ... nd-markets