Inflation, QE, Stocks & Assflation

Nima discusses an article by Cullen Roche on about the Federal Reserve, Quantitiative Easing (QE), interest rates, consumer price inflation, and asset price inflation (assflation).


Let’s Talk About QE and Assflation (

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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?


“… long-term interest rates fell …”

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



“… Lower corporate bond rates will encourage investment …”


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.

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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:


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”.

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