Arguments for Quantitative Easing?

For the sake of grasping the futility of spending time sifting through politicians’ arguments, I want to point out a prime example.

This is Ben Bernanke on Quantitative Easing:

“The best way to continue to deliver the strong economic fundamentals that underpin the value of the dollar, as well as to support the global recovery, is through policies that lead to a resumption of robust growth in a context of price stability in the United States,”

OK, so this of course means absolutely nothing to any mortal person. Nor is it supposed to. It’s yet another innocuous, dumb, and boring front to pure and simple theft.

On November 4th, after announcing QE2, Bernanke certainly wasted no time to declare victory:

“This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

OK, as you know I would argue that it is simply ridiculous so consider a coerced cheapening of interest rates when people are sick and tired of debt anyway, and a simultaneous increase in the cost of purchasing shares in companies’ profits a success by any means. Furthermore it is even more ridiculous to look at month to month movements to proclaim success or failure of any policy, while disregarding the long term effects that always inevitably ensue!

But let’s forget about that for a second. Let’s measure the immediately proclaimed success by Bernanke’s own standards. Surely if he says that all those measures moved into a desirable direction over the course of a month or so, it would most certainly be undesirable if they moved in the other direction by even more, right??

“Stock prices rose … “

What has happened since Nov 4th with stocks?

sp500-nov-2010

“… long-term interest rates fell …”

What has happened to long term rates since Nov 4th?

treasury-nov-2010

mortgage-nov-2010

“… Lower corporate bond rates will encourage investment …”

corporatebonds-nov-2010

OK, so now that all these figures have blown up right in Bernanke’s bearded face, he’s surely going to step up to the plate and admit failure immediately, right?

Just kidding … I’m just posting this as one example as to why you should not spend a second listening to bureaucrats’ arguments that are designed to defend their own policies.

Related Posts:

Quantitative Easing – “Easing” the Theft of Large “Quantities” Over Time

Quantitative Easing: The creation of fiat money (money whose use is enforced and competition with is prevented by the government‘s police power) in order to purchase assets from a group holding or creating those assets, allowing their sale at a premium price over individuals’ voluntary preference on the market, and granting access to newly created money and its spending before others get their hands on it, thus transferring wealth to those receiving it earlier/earliest (banks and government) from those receiving it later/latest (wage earners) who pay for it in the form of prices that are higher than they would have been, had QE not occurred.

In this particular case the asset being offered is of course government debt, that is, a piece of paper issued by a group with lots of guns, that promises the person buying it future income at interest, funded from money that will be taken from other people at the threat of imprisonment or asset seizure (which is where the guns can be helpful at times).

“Quantitative Easing” is in that sense a pretty descriptive term since it makes it “easier” for the government to pillage the public to the tune of large “quantities” over time.

In the current environment it shall be duly noted that QE2 may actually be not very different from QE1 in that all that happens is that bank reserves are created at the Fed in exchange for government debt previously held by banks which will boost Treasury holdings at the Fed to more profitable levels, while the banks will be sitting on more excess reserves without any additional lending activity resulting from it, simple because the entire economy is sick and tired of debt!

Forcing government debt onto people is not really a new policy but rather a project that has been ongoing in the US at least since the establishment of the Federal Reserve Bank, with occasional boosts such as this one. The objective being of course to make the issuance of debt as easy and cheap as possible for the bureaucrats in power by keeping the interest to be paid lower than the market rates for as long as possible, until the interest payments on the public debt inevitably start eating up all other potential expenses at a point when it will be way to late to do anything about it.

Some people might wonder why bureaucrats seem to not give a damn about deficits ( it’s shocking news I know ;) ), well here’s one of the reasons: when you subsidize something, you’ll get more of it … pretty much inevitable, especially if those who incur the debt will never be held liable or accountable when it comes to paying it back.

See below a comparison of QE in different countries, just to get an idea of where we’re headed:

qe

Currently the holdings of assets at the central bank in the US are at around 16% of GDP. This new round of QE will probably add another 4% ($600 billion) until the middle of next year.

(The obvious fact that people are sick and tired of debt and that the entire exercise will not in any way spur lending or borrowing activity in the long run (probably not even in the short run), except for within government, need not concern those in power since that is not their objective anyway.

Nor does it matter whether or not it creates inflation or whether we should fear a deflation, were QE to not occur. None of these questions address the root of the matter.

All this talk is so fundamentally deceptive and deranged that it is hard to watch it with a straight face. It sure makes for some pointless and “fun” discussions for pundits and politicians on the evening news, and it sure serves as a neat little distraction from discussing inconvenient truths, but please don’t for a second take that nonsense serious.)

And finally, when the Fed then acts surprised that that approach also hasn’t helped reduce unemployment or affect any other positive change in any way, it will make chief clown Paul Krugman (whose subtle analysis is of course “not enough, duuude”) happy and introduce QE3, QE4, and so on and so forth, making sure that there will be no meaningful recovery whatsoever.

This of course brings us back to what I wrote in comparison to Japan almost a year and a half ago:

From 1989 on, the Japanese government has launched one stimulus after another to no avail, leaving Japanese taxpayers with the largest public debt per capita of all industrialized nations.

A burden that the US government seems to be more than willing to have its taxpayers shoulder over the years to come unless someone picks up a history book and tries not to feverishly repeat mistakes others made in the past.

Thus the long term outlook for the US economy is the fate Japan took: A long lasting correction supercycle with one failing “stimulus” program after another, and with on and off periods where the economy slips out of and back into recessions from time to time.

In short: QE 2 is just another small piece in that puzzle called “more of the same”.

Related Posts:

EU Launches Frantic Bazooka – Euro Gives Up Early Gains

Europe Pulls Out Bazooka Part II in 3D

Since Euro countries are grappling with deficits, they are vowing to spend more money to fight the consequences of deficits, EU Crafts $962 Billion Show of Force to Halt Crisis:

European policy makers unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases to stop a sovereign-debt crisis that threatened to shatter confidence in the euro. Stocks surged around the world, the euro strengthened and commodities rallied.

Jolted by last week’s slide in the currency and soaring bond yields in Portugal and Spain, European Union finance chiefs met in a 14-hour session in Brussels overnight. The 16 euro nations agreed in a statement to offer as much as 750 billion euros ($962 billion), including International Monetary Fund backing, to countries facing instability and the European Central Bank said it will buy government and private debt.

The rescue package for Europe’s sovereign debtors comes little more than a year after the waning of the last crisis, caused by the U.S. mortgage-market collapse, which wreaked $1.8 trillion of global credit losses and writedowns. Under U.S. and Asian pressure to stabilize markets, Europe’s governments bet their show of force would prevent a sovereign-debt collapse and muffle speculation the 11-year-old euro might break apart.

“A very thick line has been drawn in the sand,” said Andrew Bosomworth, Munich-based head of portfolio management at Pacific Investment Management Co. and a former ECB official. “This is all in. What more could they have done?”

A 110 billion-euro bailout package for Greece approved last week by the EU and IMF failed to reassure investors, prompting yesterday’s renewed bid to bolster the euro.

How to Pay

“It might temporarily calm nerves but questions will come back later on how they will pay for this package when all of them need fiscal consolidation,” said Venkatraman Anantha- Nageswaran, who helps manage about $140 billion in assets as global chief investment officer at Bank Julius Baer & Co. in Singapore.

The MSCI World Index climbed 2.6 percent to 1,128 at 12:15 p.m. in Brussels. Standard & Poor’s 500 Index futures rallied 4.4 percent. The euro appreciated 2 percent to $1.30. Crude-oil futures gained 3.4 percent.

“The message has gotten through: the euro zone will defend its money,” French Finance Minister Christine Lagarde told reporters in Brussels early today after markets punished inaction last week.

ECB policy makers said they will counter “severe tensions” in “certain” markets by purchasing government and private debt, and the bank restarted a dollar-swap line with the Federal Reserve.

‘Overwhelming Force’

“This truly is overwhelming force, and should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion,” Marco Annunziata, chief economist at UniCredit Group in London, said in an e-mailed note. “This is Shock and Awe, Part II and in 3-D.”

Merkel’s Meeting

As Merkel’s cabinet held a late-night meeting in Berlin on the euro rescue, her party unexpectedly lost control of Germany’s most populous state in a regional election, potentially costing her a majority in the upper house of the federal parliament.

Goaded by Germany, the ministers made a fresh commitment to closer monitoring of government finances and more rigorous enforcement of the deficit-limitation rules.

The vow to push budget shortfalls below the euro’s 3 percent limit echoes promises that have been regularly broken ever since governments in 1999 set a three-year deadline for achieving balanced budgets. The euro region’s overall deficit is forecast at 6.6 percent of gross domestic product in 2010 and 6.1 percent in 2011.

Can you imagine? Governments that have regularly broken commitments to cut deficits? Unthinkable!

One thing’s for sure, as I said over 1 year ago:

The 3% ceiling won’t matter anymore from hereon. Consider the European stability treaty dead. One member state after another will violate the requirements. The fact that a bailout of some Euro states by others is discussed, just shows how torn this European Union really is, how severe its imbalances are. With discrepancies like these, it is completely unfeasible to maintain a currency union. The Euro will keep taking its beating for it.

The Euro

What are foreign exchange markets saying? Here’s the Euro today:

euro

It rallied up as high as $1.31 on the announcement and has given up almost all those gains within a few hours already. This is volatility galore on the FX market!

This may be a result of frantic intervention on the part of the US, as the Federal Reserve opens credit line to Europe:

The Federal Reserve late Sunday opened a program to ship U.S. dollars to Europe in a move to head off a broader financial crisis on the continent.

Other central banks, including the Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan also are involved in the dollar swap effort.

The move comes after the European Union and International Monetary Fund pledged a nearly $1 trillion defense package for the embattled euro, hoping to calm jittery markets and halt attacks on the eurozone’s weakest members. The ECB also jumped into the bond market Sunday night, saying it is ready to buy eurozone bonds to shore up liquidity in “dysfunctional” markets.

The Fed’s action reopens a program put in place during the 2008 global financial crisis under which dollars are shipped overseas through the foreign central banks. In turn, these central banks can lend the dollars out to banks in their home countries that are in need of dollar funding to prevent the European crisis from spreading further.

The Fed said action is being taken “in response to the reemergence of strains in U.S. dollar short-term funding markets in Europe,” and to prevent the spread of that strain to other markets and financial centers.

A so-called “swap” line with the Bank of Canada provides up to $30 billion. Figures weren’t provided for the other central banks. The arrangements are authorized through January 2011.

The debt crisis first erupted in Greece. Fears that it could spread to Spain, Portugal and other eurozone countries. The crisis has pushed up demand for the U.S. dollar and has sharply weakened the value of the euro, the currency used by 16 European countries. Eurozone ministers and the IMF this weekend approved a $140 billion rescue package of loans to Greece for the next three years to keep it from imploding.

The Fed had wound down these crisis-era programs with other central banks in February, along with other emergency programs to get lending flowing more freely again and return stability to financial markets. At that time, financial strains in the United States were easing, and the Fed began to take steps to move policy closer to normal.

It also had begun to lay out a plan to reel in the unprecedented stimulus money pumped out during the crisis. The Fed’s balance sheet ballooned to $2.3 trillion, more than double where it stood before the crisis struck. The program reopened on Sunday will expand the Fed’s balance sheet, economists say. However, the program poses little credit risk to the Fed because the arrangements are with other central banks, they added.

It is doubtful whether these currency swaps have ever accomplished anything but a very very short term relief.

We hear European bureaucrats rail against evil speculators who are daring to question the stability of the system. This is all repetitive nonsense which we can shrug off with a smile. I have said before that a truly meaningful reform of capital markets would require that governments remove themselves from the equation, rather than becoming the only factor in that equation:

what needs to happen is to bring down what has brought about the financial crisis in the first place.

Who has created all the excess fiat money that flowed into the system to blow up price bubbles? The Federal Reserve Bank – so just close it down already!

Who has created all the excess credit that blew up the bubble? The fractional reserve banks – so just end the system of fractional reserve banking already!

Who has granted oligopoly status to the rating agencies who one after another failed to assess credit risk appropriately? The SEC – so end the credit rating cartel already!

In fact who has taken away oversight from the stock exchange companies  to try and oversee all stock exchanges in the country, missing one giant fraud after another? Which organization was close to Making Bernie Madoff their chairman?? The SEC – so get rid of it already!

Even after some of the worst excesses of subprime lending, who proudly remains the sole subprime lender in the country? The government owned banks! – So close them down already!

Who has been propping up financial markets in secret over decades with taxpayer money, creating malinvestments and false incentives left and right? The mighty President’s Working Group on Financial Markets! – So get rid of it already!!

What is it that made the common man put so much money into the stock market? It comes to a large degree from the incentive through tax savings for retirement accounts. If the taxes weren’t there in the first place, surely people would think twice about transferring their hard earned and saved money over to Wall St.

On top of that a policy manipulating and suppressing interest rates makes it completely unattractive to put money into savings accounts, and encourages people to be foolish. – So again, stop meddling with the credit markets, get rid of the central bank and with it would go all fractional reserve lending.

Why do you think it is so hard for honest small businesses to obtain funding in a flexible and straightforward manner? Why does it feel to most people like they are secluded from the majority of the action while Wall St. thrives? It is because every single government policy aiming at financial regulation has been designed to herd money into the stock market and lock it up in there for the kids to play with.

Which institution, out of all, is the least capable to be responsible about its finances, stay out of debt, live within its means? … it is of course the government itself.

Folks, wake up to reality, leave fantasy island. Come to your senses and work toward closing down that institution which is the root cause of all your problems: Close down the government and all the things I pointed out above  and many more evils would automatically go with it.

So long as people don’t make these simple connections, they need not be surprised about the same problems popping up again and again, with the same short sighted responses protracting the problems again and again, choking our productive capacity until the system comes to a painful halt.

Related Posts:

Audit the Fed Ain’t Happening – Libertarians, Stop Hurting Your Head About It!

Earlier I received an email from AuditTheFed.com:

Dear Supporter of Transparency,

According to our sources on the Hill, Senator Bernie Sanders has unfortunately given in to pressure from the White House and Chris Dodd and stripped out the Paul-Grayson language from his Fed transparency amendment.

What Sanders is now proposing is essentially the Watt amendment the Audit the Fed Coalition opposed last year in the House.

Talking Points Memo reports that, “In order to allay some of the White House’s and the Fed’s concerns, Sanders has agreed to limit the scope of what the Government Accountability Office would be allowed to audit–but his plan will still require thorough review of all the Fed’s emergency lending, beginning December 1, 2007.”

Call Senator Sanders’ office at (202) 224-5141 and tell him how you feel about this last-minute compromise.

Click here for contact information for your senators and urge them to oppose this compromise. Tell them it’s time to support a standalone vote on S. 604, Audit the Fed.

A vote could come even late tonight or early tomorrow. Let your senators know where you stand right away.

The American people deserve a full, thorough audit.

Sincerely,

The Audit the Fed Coalition

The Wall Street Journal writes Plan for Congressional Audits of Fed Dies in Senate:

Last-minute maneuvering in the Senate allowed the Federal Reserve to sidestep legislation that would have exposed its interest-rate decision-making to congressional auditors.

Pressure from the Obama administration led Senate lawmakers to alter a provision pushed by Sen. Bernie Sanders (I., Vt.) that was gaining momentum despite opposition from the Treasury and the Fed. It would have largely repealed a 32-year-old law that shields Fed monetary policy from congressional auditors.

The compromise, endorsed by Senate Banking Committee Chairman Christopher Dodd (D., Conn.) and the Treasury, would require the Fed to disclose more details about its lending during the financial crisis. It would also require a one-time audit of those loans and a one-time review of Fed governance. A formal vote was pushed back until next week.

Thursday’s Senate showdown came after senators on the left and right joined forces to support Mr. Sanders’ provision.

“At a time when our entire financial system almost collapsed, we cannot let the Fed operate in secrecy any longer,” Mr. Sanders said. “The American people have a right to know.”

But Fed Chairman Ben Bernanke, while insisting on a commitment to “openness” at the Fed, said in a letter to Congress the Sanders measure would “seriously threaten monetary policy independence, increase inflation fears and market interest rates, and damage economic stability and job creation.”
More

* Letter: Bernanke Outlines His Opposition
* Letter: Volcker Outlines His Opposition

Journal Community

Deputy Treasury Secretary Neal Wolin, in a statement, endorsed the revisions to the Sanders provision, saying they would provide a comprehensive audit of the Federal Reserve Board’s operations in response to the financial crisis, “while preserving the existing protections of the Federal Reserve’s independence with respect to monetary policy.”

A House bill sponsored by Rep. Ron Paul (R., Texas) that passed in December contains a proposal similar to the original Sanders measure. If the Senate bill passes, it will need to be reconciled in a conference committee. That keeps the pressure on the Fed alive for the coming months.

The original Sanders measure stated that it shouldn’t be “construed as interference in or dictation of monetary policy.” But the Fed and administration warned that would allow auditors to interview Fed policy makers and staffers about monetary policy, thereby allowing congressional critics to pressure the Fed and undermine its independence.

Like most other capitalist democracies, U.S. politicians have given the central bank considerable latitude to control interest rates on the theory that elected politicians are prone to keep rates too low to get more growth during their terms at the cost of more inflation later. Although sponsors of legislation insisted that wasn’t their intent, the Fed and its allies said otherwise.

“It’s a chilling kind of circumstance,” former Fed Chairman Paul Volcker, an Obama adviser, said in an interview. “The more you have no clear boundaries about what’s appropriate and what’s inappropriate, you castrate the decision-making process. That’s true for any organization, but it’s particularly true when you get into the sensitivities of monetary policy that can generate speculative waves in financial markets and speculation in people’s minds,” said Mr. Volcker, who also urged lawmakers to eliminate the audit provision.
Who’s Who in the Senate Financial Overhaul

Learn more about key players in the Senate’s discussion.

View Interactive

Anil Kashyap, an economist at the University of Chicago’s Booth School of Business, stressed that independent central banks need to be insulated from politics and make decisions several months ahead of expected trends.

“There are times when you have to start raising interest rates before the economy’s recovering. If you’re going to get audited while you do that, you know you’re going to be slower—meaning we’re going to tolerate higher inflation.”

Before the last-minute compromise, the Fed’s foes appeared to be winning, and got a major boost when Senate Majority Leader Harry Reid (D., Nev.) said he would side with Mr. Sanders.

Mr. Bernanke, meanwhile, returned to Washington Thursday afternoon after a morning speech in Chicago to continue pressing for changes to the Sanders bill. In the past few days, Mr. Bernanke has spoken to at least a half-dozen senators to argue the Fed’s case that the bill would deeply damage the Fed’s credibility and ability to make tough decisions about interest rates.

At least half a dozen Obama administration officials joined the blitz, including Treasury Secretary Timothy Geithner—a former Fed official—and Rahm Emanuel, the White House chief of staff. Administration aides credited Mr. Dodd with pushing back against the original amendment and developing an acceptable alternative.

New York Fed President William Dudley also advocated to scale back the scope of the auditing. He was among those arguing that ongoing reviews of the Fed’s regular lending to financial institutions would stigmatize the program and cripple the Fed’s role as the nation’s lender of last resort.

The Senate beat back another amendment with populist tinges, defeating 61-33 a provision that would have put strict caps on the size of the nation’s banks. Offered by a bloc of liberal Democrats, it would have capped at 10% the limit on the nation’s total insured deposits any single bank holding company could carry. It would have also set a 6% leverage limit for banks and capped their non-deposit liabilities at 2% of U.S. gross domestic product.

I think it is about time to realize how ridiculously funny this whole farce is. First off: The gang that is the Congress is not going to push through measures that will seriously jeopardize its beautiful money printing machine.  It’s simply inconceivable for to happen in any meaningful way. I once thought they could, too, I have come to realize that they won’t.

The temptation of political action is enormous. I, too, fell for it for a long time. The alternatives are hard to accept and just as counter-intuitive as many libertarian solutions seem to unenlightened people in the realm of economics.

We are all perfectly aware of the mechanism of credit expansion and how the Fed is at the root of financial crises that will occur again and again. But do you seriously think president Obama or any other one of these narcissistic, self aggrandizing officials will ever give a flying rats ass?? Haha, it’s unthinkable!

An article such as the one above is just another display of the blatant and shameless lies and falsehoods that politicians and clueless academics will deliberately spread with no reservations whatsoever. We’ve heard this nonsense again and again and it’s just about time we stop pretending that this is a debate. It’s not. It’s a bunch of clowns frantically taking mental craps into the minds of a deluded populace to justify a ponzi scheme that will collapse sooner or later of its own accord. It’s funny at best. But it’s not deserving of a shred of our precious time that we could spend educating those around us about the truth and living our principles in our own lives!

By pretending that it is an intellectual debate we sanction a fundamentally corrupt process. This is not what we should be doing. We shouldn’t justify the systematic looting, theft and defrauding of the majority of the people, in short government, via attempts to participate in it. It hasn’t worked for centuries and trying it over and over again is really the mother of all abusive relationships.

The Audit The Fed efforts are a particularly tragic example. Here we are, fighting day in day out, donating enormous amounts of money, effort, etc. … for what?  In order to get the government to deign to have it’s counterfeiting institution to produce a few more pieces of paper to report Congress? Do you seriously think this is going to strip this gang off its powers even one tiny bit?? Even if it did, all it would do introduce 1000s of new “regulations” that will grant more powers.

Millions of innocent and poor people have died over he past years in unconstitutional wars, millions have been thrown in to prison cells for owning or selling some piece of vegetation, our and our kids’ futures have been mortgaged off to foreign nations, corrupt union thugs, and bureaucrats, around 40% of our income per year is taken from us at the point of a gun to support the gaping black hole that is the playground of bureaucratism, and we are fighting tooth and nail about a few pieces of paper? And on top of that, paper that will be submitted to Congress??

I think we reasonable people should not degrade ourselves like that. It costs too much time, effort, and nerves. The purpose of life is happiness. We should live our values, educate our friends and family, get the bad people out of our lives, make sure we raise loved, educated, reasonable children, and over time we will change the whole world in a way that is much more fundamental than adding to the demand for the business of paper production. :)

Related Posts:

Fed Independence in Action – Bernanke Met With 26 Lawmakers Prior to Vote

To those hopelessly lost, twisted, and clueless souls who seriously believe that 1. Fed independence (=secrecy) is a good thing and 2. the Fed is actually in any way, shape, or form independent from the government: Maybe the fact that Bernanke Met With 24 Senators After Renomination as Fed Chief will interest you:

Federal Reserve Chairman Ben S. Bernanke had conversations with 18 of the 23 legislators on the Senate Banking Committee prior to their 16-7 vote this month to recommend that the full Senate confirm him to a second term.

The Fed chief had contact with 24 senators between August 4 and Nov. 30, almost all at congressional office buildings, after his Aug. 25 nomination to another four-year term as chairman by President Barack Obama. The meetings and phone calls were listed in a daybook provided by the Fed yesterday in response to Freedom of Information Act requests by Bloomberg News.

Bernanke also met with House lawmakers, including Majority Leader Steny Hoyer of Maryland and John Larson of Connecticut, chairman of the House Democratic Caucus. He lunched with Republican members of the House Ways and Means Committee on Sept. 16, and spoke the same day at a Rhode Island Business Leaders Day event sponsored by Senator Jack Reed, a Democrat on the banking committee.

Aaah yes, that smacks of independence indeed …

Related Posts: