Quantitative Easing: It just sounds easy!

[Disco Pickle]

because calling it inflation makes it sound like what you do to a bubble before it bursts.

oh wait...

http://www.businessweek.com/news/2010-11-02/volcker-says-quantitative-easing-may-create-inflation.html

Nov. 2 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker, an adviser to President Barack Obama, signaled that some investors are concerned about the potential inflation risks of quantitative easing and record-low interest rates.

"It does worry people" that "we're going to create so much money that down the road we'll create inflation," Volcker, 83, said in response to a question about the global implications of quantitative easing at an event at the National University of Singapore today. "I don't think that's beyond the capacity of the central bank to deal with in the future. But they're going to have to deal with it."

His comments come as Fed policy makers prepare to meet today and tomorrow in Washington amid concern that economic growth is not strong enough to reduce a U.S. unemployment rate close to 10 percent. The Fed may announce a plan to purchase at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News.

U.S. policy makers, pursuing unprecedented stimulus, have cut the benchmark rate almost to zero and bought $1.7 trillion in securities without generating growth fast enough to bring down unemployment from near a 26-year high. Fed Chairman Ben S. Bernanke said on Aug. 27 that the central bank "will do all it can" to sustain the recovery, as investors anticipate further Fed asset purchases after its first round of debt-buying from December 2008 to March.

How Much?

Volcker, chairman of Obama's Economic Recovery Advisory Board, said the Fed's debt buying in itself isn't a concern as the U.S. jobless rate, 9.6 percent in September, has little chance of going down soon and the nation's economic problems can't all be cured in the short run.

"It doesn't alarm me that they're thinking about buying Treasuries," he said, referring to quantitative easing. "It's the volume which they choose to do and we don't know what that is," he said, adding that "if money is too easy for too long, we'll have more" asset bubbles.

As Fed chairman from 1979 to 1987, Volcker raised interest rates to as high as 20 percent to tame inflation, triggering a recession. "Dealing with inflation and inflation potentials is always a challenge," he said. "It's manageable but not easy."

The Federal Reserve's preferred price measure, which excludes food and fuel, was unchanged in September from the prior month and was up 1.2 percent from a year earlier, the smallest gain since September 2001.

Central Banks

As U.S. policy makers consider measures to boost the economy against the backdrop of mid-term congressional elections, other central banks are seeking to curb inflation. India today raised borrowing costs for the sixth time this year, while Australia also unexpectedly pushed up interest rates. Last month, China raised rates for the first time since 2007.

Since Bernanke's comments on Aug. 27 that the Fed was prepared to add stimulus if necessary, the Standard & Poor's 500 Index has gained around 13 percent, while the dollar has declined about 7 percent against a basket of six currencies.

The U.S. economy grew at a 2 percent annual rate in the third quarter as consumer spending climbed the most in almost four years, the Commerce Department said Oct. 29. Growth in the 2.5 percent to 2.8 percent range is consistent with keeping the jobless rate stable, according to policy makers' latest forecasts.

'Misconception'

Volcker also commented on the president's changes to the financial system, saying they can't happen overnight and Wall Street's attitudes haven't changed even as the idea that Obama is anti-business is a "misconception." Banks shouldn't engage in proprietary trading, he also said.

U.S. regulators are implementing the most sweeping overhaul of financial oversight since the Great Depression. Signed into law by Obama in July, the rules were prompted by a credit crisis that triggered the collapse of Lehman Brothers Holdings Inc. and pushed the U.S. economy into a recession.

The law includes limits to investments by commercial banks in private equity or hedge funds, known as the "Volcker Rule" because of Volcker's advocacy for the change. Under a measure that may not take full effect for as long as a dozen years, banks can invest in private-equity and hedge funds, though they will be limited to providing no more than 3 percent of the fund's capital. Banks also can't invest more than 3 percent of their Tier 1 capital.

[Requia ☣]

NPR's take on this is that the Fed is completely and utterly out of ideas and trying shit at random in a desperate bid to get the banking system going again.

[Disco Pickle]

NPR's take on this is that the Fed is completely and utterly out of ideas and trying shit at random in a desperate bid to get the banking system going again.

which was my first thought also when I saw the report yesterday about them doing it again to the tune of several billion.

funny thing is, the banking system is working, you just have to have crazy things like collateral to get a loan.

that's just CRAZY!

[Requia ☣]

That doesn't really help small businesses though, not a lot of people are going to start a business if failing means losing their house, and actually buying property in business zones so you have the building as collateral isn't always practical.

[Disco Pickle]

That doesn't really help small businesses though, not a lot of people are going to start a business if failing means losing their house, and actually buying property in business zones so you have the building as collateral isn't always practical.

understandable, but banks aren't the only sources of investment cash for startups.   If a business idea has teeth and the sort of people willing to give it their all through the first few years despite possibly not turning an immediate profit then there should be people willing to invest in the idea.

granted, finding those people willing to invest can be difficult in the current climate.

[Precious Moments Zalgo]

We're in a currency race to the bottom with Japan and the EU, so the Fed needs to devalue the dollar, and fast.  Meanwhile, the federal government is running massive deficits and needs to borrow money at the lowest interest rates it can get.

Solution: The Fed creates hundreds of billions of dollars in new money out of thin air, and floods the US Treasuries market with it.  So the government gets the money it needs to pay its bills while its cost of borrowing is artificially suppressed, and all this new money is suppressing worldwide demand for US dollars driving the value down.  It's win-win, and as a side bonus, the stock market is soaring (in nominal terms, anyway), because a lot of this new money is making its way there.

What could possibly go wrong?

[Disco Pickle]

We're in a currency race to the bottom with Japan and the EU, so the Fed needs to devalue the dollar, and fast.  Meanwhile, the federal government is running massive deficits and needs to borrow money at the lowest interest rates it can get.

Solution: The Fed creates hundreds of billions of dollars in new money out of thin air, and floods the US Treasuries market with it.  So the government gets the money it needs to pay its bills while its cost of borrowing is artificially suppressed, and all this new money is suppressing worldwide demand for US dollars driving the value down.  It's win-win, and as a side bonus, the stock market is soaring (in nominal terms, anyway), because a lot of this new money is making its way there.

What could possibly go wrong?

[Doktor Howl]

NPR's take on this is that the Fed is completely and utterly out of ideas and trying shit at random in a desperate bid to get the banking system going again.

I have a solution.

Shoot the CEOs and boards, and try again.

[Reginald Ret]

NPR's take on this is that the Fed is completely and utterly out of ideas and trying shit at random in a desperate bid to get the banking system going again.

I have a solution.

Shoot the CEOs and boards, and try again.

I highly doubt this will work, but if they are trying shit at random this should get a shot.

[Doktor Howl]

NPR's take on this is that the Fed is completely and utterly out of ideas and trying shit at random in a desperate bid to get the banking system going again.

I have a solution.

Shoot the CEOs and boards, and try again.

I highly doubt this will work, but if they are trying shit at random this should get a shot.

Depends on your definition of "work" and "solution".

[Elder Iptuous]

also, Americans have lately begun the worrying trend of saving some of their money...
that's the kind of shit that causes a consumer based economy to buckle!
by firing up the printing presses, we can give these penny pinchers a lashing, and put them back on the proper path of the spendthrift right quick.

incidentally, i was going to make a sandwich out of some of my gold and silver today for lunch, but since it's up $33 and $1 on the day, that'd be a pricy hoagie....  i think i'll just hold on to it for a while.   

[Jenne]

That doesn't really help small businesses though, not a lot of people are going to start a business if failing means losing their house, and actually buying property in business zones so you have the building as collateral isn't always practical.

understandable, but banks aren't the only sources of investment cash for startups.   If a business idea has teeth and the sort of people willing to give it their all through the first few years despite possibly not turning an immediate profit then there should be people willing to invest in the idea.

granted, finding those people willing to invest can be difficult in the current climate.

Risky, very risky, getting your money from private investors.  THAT, and you have to mind your p's and q's STRICTLY so as not to get fined if you fuck up.  Or, like my dad, thrown in prison.  And the rates of return on loans from investors tend to be much higher than bank loans.

Small businesses are rarely started by people in the know-how about micro (and macro, by the way) economics.  They are usually folks who have a great idea and want to expand it.  Not everyone knows what it takes to get what they need to make that idea profitable.  It's a total gamble and sometimes a waste of money and time + effort.  But it makes the economy grow, and it's good for cultural collateral, so the negatives tend to be outweighed by the positives, in aggregate.

[Krez]

This is why I have been reading about binary economics. I just wish it would become part of the national debate. it may or may not work. All I have read has been positive or simply dismissing it as something outside of the current system. I it won't work I would at least like to know why it wouldn't work.

[E.O.T.]

NPR's take on this is that the Fed is completely and utterly out of ideas and trying shit at random in a desperate bid to get the banking system going again.

I have a solution.

Shoot the CEOs and boards, and try again.

THIS

          - but you can't just do that dok. that's the real problem (lol w/ cigar)