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I mean, I am not very smart..........but this current economy is totally baffling, at least for me. Stock market basically going up and up and up for over 5 years straight, housing prices zoooooming past the last bubble in some areas, record corporate profits, low unemployment, rents skyrocketing, luxury condos/penthouses at an all-time high..............and inflation has been very muted.
I suspect that much of this is due to crazy manipulation and policies of the Fedgov. But who knows, there are MANY different opinions on what is going on.....take your pick????????????????????
It's the same thing that's been happening since Greenspan entered the FED. Cheap money pumping up asset prices. Really nothing different from what led to 2008.
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Originally Posted by markg91359
My answer is that few people realize what a dramatic shock the recession of 2008 really was. The economy dove into the worst tailspin it had been in since the Great Depression. A Depression was only averted by: 1. Quantitative Easing; 2. TARP; and 3. the Fiscal Stimulus passed by Congress.
At the time, there were a lot of whiners who said it would be the ruination of the country. Wrong. Its what kept the entire banking and credit system from collapsing.
Kept it from collapsing, but none of the structural problems were addressed. QE keeps things going by supplying cheap money. Same thing the FED did pre-tech bubble. Same thing it did pre-2008.
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Originally Posted by texdav
Because not enough money is chasing product even with low interest rates. Alot of money on the side lines plus those that can are paying down debt. Even in the stock markets retail investor has never really returned to markets. Many corporations are not spending ;they are buying their own stocks which drives the price higher. GDP is growing slowly and flat lining some months. The markets are volatile and will be hanging on FEDs every word.
Where consumers aren't taking on debt, the government is.
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Originally Posted by Opin_Yunated
No, it didn't cause inflation.
How do so many people not understand what causes inflation?!?!?
Inflation has nothing to do with QE. QE is a bank bailout. Inflation is caused by global energy prices. The Fed reacts to energy prices to keep the core inflation rate close to its annual goal of 2%.
All depends how people measure inflation.
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Originally Posted by stockwiz
What the global economy could use is some inflation... inflation can be a good thing.. it dilutes the value of debt and makes it easier to pay off. The average joe is in debt. Most governments are in debt. People who own a home have debt... inflation makes the house easier to pay off.
That's true. Problem in America for decades has been wages keeping up.
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Originally Posted by Hoonose
Most all the $4T has been swapped with banks for fixed income debt paper and/or sitting as excess cash reserves in those banks. This money has not significantly entered into the general circulation through any conventional lending process. If it had been 'loaned out', that would mean our economy would have been by now running at a higher level with all that more business activity. And most likely more inflation. But it hasn't as QE is not an efficient economy moving engine, as it is like pushing on a string.
It isn't just sitting in vaults, it's gone into asset prices. Derivatives didn't take long to go back above where they were leading to 2008.
Nothings changed. All smoke and mirrors. Bernanke was a student of Greenspan, who failed this country.
America has to make drastic changes which will cause pain in the short term to return to a long term less painful path. The FED is one of the most powerful financial tools the US has in it's arsenal, but overall for the past couple decades it's been a failure in it's long term approach to things.
Interesting to note that the FED is getting back our money in the form of interest payments on the debt they are holding. At some point they will also be able to sell the bonds. All that money is then rebated to the Treasury (taxpayers).
Interesting graphs regarding the M0 and M2 money supply. And a good explanation why hyperinflation has occurred in places like Weimar Germany and Zimbabwe and not the US.
I get that the libertarians took their best shot back in 2009 forecasting all kinds of "sky is falling" scenarios. But, given that their economic predictions have proven to be woefully inadequate, it appears that history has deprived them of any and all economic credibility. Not that that will stop them from decrying the FED and ignoring the impact FED policy has had on stabilizing the economy.
If the dollar didn't hold the position of reserve currency, it would be much different.
The US had very high inflation in 2008, 2010, and 2011 when we were the only ones doing QE. Other central banks were raising interest rates to combat the inflation caused by the falling dollar. The US benefits from having the majority of commodity transactions taking place using the US Dollar. During the latest QE in 2012-2014, Japan started its own QE program and other central banks were reducing interest rates, many below zero. These actions had the effect of pushing up the value of the US dollar, thereby hurting commodity prices, especially in the second half of 2014.
The main benefit of QE in the last two years is that nearly 100 billion dollars of interest paid on treasury purchases is remitted back to the federal government. Since interest payments are part of the nearly 2 trillion dollar discretionary budget, the government has the ability to increase its spending about 5% without new borrowing.
M2 isn't growing much because the money hasn't had reason to leave the stock market and go into deposit accounts. That will change when the Fed raises interest rates.
The main benefit of QE in the last two years is that nearly 100 billion dollars of interest paid on treasury purchases is remitted back to the federal government. Since interest payments are part of the nearly 2 trillion dollar discretionary budget, the government has the ability to increase its spending about 5% without new borrowing.
Under that logic why don't we have the FED buy all the federal debt and we'll be free to borrow all the money we want interest free.
Under that logic why don't we have the FED buy all the federal debt and we'll be free to borrow all the money we want interest free.
That interest money should have gone to the private sector, so that's a big negative, and another reason QE has not be so effective or inflationary.
I think a better idea would be Trillion Dollar Platinum Proof Coins. Stamped via the Executive/Treasury and deposited at the Fed, effectively cancelling as many $T's of debt as we the people desire.
Back the last time we were talking the discussion was that the banks couldn't loan out their excess reserves. Of the $2.8 trillion approximately the FED took on its books as QE about 15% was loaned out. That left $2.5 trillion in the FED as excess reserves. In order to loan out the excess reserves they have to turn into regular reserves. That means they are loaned against, or are limiting the generation of new debt.
That means that about $4 trillion of new debt resulted from QE approximately.
That is a wad of change.
I don't know where you get it that banks cannot 'loan out' excess reserves. They are not so limited with loans. They either benefited more by NOT loaning the funds, or because they had few useful borrowers. And I think more door #2.
How much would the banks have lent out without QE?
How do so many people not understand what causes inflation?!?!?
Inflation has nothing to do with QE. QE is a bank bailout. Inflation is caused by global energy prices. The Fed reacts to energy prices to keep the core inflation rate close to its annual goal of 2%.
Well gawd fricking dangnabbit you and I agree once again
I'm off to the adult beverage store to buy a bottle of scotch. I'd drive, to blow more CO2 into the air, but the car is disabled
I don't know where you get it that banks cannot 'loan out' excess reserves. They are not so limited with loans. They either benefited more by NOT loaning the funds, or because they had few useful borrowers. And I think more door #2.
How much would the banks have lent out without QE?
If my read is correct then they would have loaned out $4 trillion less.
That is unless they could've found someone else to buy the debt.
Interesting to note that the FED is getting back our money in the form of interest payments on the debt they are holding. At some point they will also be able to sell the bonds. All that money is then rebated to the Treasury (taxpayers).
Interesting graphs regarding the M0 and M2 money supply. And a good explanation why hyperinflation has occurred in places like Weimar Germany and Zimbabwe and not the US.
I get that the libertarians took their best shot back in 2009 forecasting all kinds of "sky is falling" scenarios. But, given that their economic predictions have proven to be woefully inadequate, it appears that history has deprived them of any and all economic credibility. Not that that will stop them from decrying the FED and ignoring the impact FED policy has had on stabilizing the economy.
Because most of the money from QE went overseas immediately and had little impact on the US economy. When QE slowed down you saw panic and minor implosions in the BRICS and other developing economies.
The only real bubble might be the tech sector but its too early to say really; IMO. Some of the fundamentals do not go along with normal bubble. But the reason no inflation is that people are not chasing product. From main street to corporation a huge mount of cash is being withheld on sidelines. Some companies have been using it to buy back their stocks rather than invest. Energy price are just following supplies and not for that long a period when there was also no real inflation. The surprise is that drop in energy price has not really translated into spending it to large degree. I think we are seeing a consumer trend that may last for decades.
But the reason no inflation is that people are not chasing product.
Wages and employment are low, personal debt is high, and it's much tougher to get loans than it was 10 years ago. There is nothing there to drive up prices.
IMO the best way they could have combated deflation would have been throwing cash at consumers. That doesn't however benefit the banks and mega-rich so well, nor follow the grand plan whereby the US is sucked dry to support globalization.
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