The Utter Stupidity Of The QE Apologists

The Market Ticker - The Utter Stupidity Of The QE Apologists The Market Ticker by genesis  /  1min  //  keep unread  //  trash  //  preview   +TAG C'mon folks, think this crap through will you? Including people like Klein: When confronted with concerns about people struggling to live off fixed incomes, Yellen agreed that “low interest rates harm savers, it’s absolutely true.” Harming at least some savers, however, may be part of the plan, at least if Yellen agrees with Charles Evans, the president of the Federal Reserve Bank of Chicago. He has argued that the threat of wealth confiscation by negative interest rates is necessary to restore spending and “risk-taking” back to “normal levels.” Uh huh. So what does "bringing down interest rates" really do? Well, it makes it easier for those who are rich, or who have really good and secure jobs, to borrow more money.  It makes it easier for corporations to borrow more money too, including borrowing to buy back stock. But think about it folks -- someone has to buy the debt, eventually, that is issued. So let's say that I borrow $100,000 against my house at a "super-duper" interest rate, or I go borrow $50,000 to buy a really nice new car.  That loan will eventually get either sold or securitized or somethinged to someone. And then the problem comes. See, that person who buys the paper gets a much lower return than they would otherwise.  It's not just "savers" who get hurt, you see, because all savers are a subset of the larger group known as lenders. So we have simply pulled forward demand that is created with these ultra-low rates, at the price of tomorrow's spending, because the person who buys the paper gets less interest for the next five, eight, ten or thirty years and they can't spend what they never receive. And that's just the direct damage.  The indirect damage is monetary; by debasing the currency when you perform QE you are faking actual economic output since GDP is of course reported in nominal terms and "deflated" by the CPI instead of the true value -- credit expansion. This is why when you first cut rates (no matter how you "ease" conditions) the initial impact in the economy appears to be pretty good.  But that's a distortion, because you've simplypulled forward the demand from tomorrow into today, and you wind up paying for it with less income to and thus less spending by the lenders tomorrow. Want proof that I'm right?  You have it right in front of you -- both here in the United States and in Japan.  In Japan despite 20 years of this crap there has been no grand recovery.  In the US despite four years of this crap the labor participation rate has not moved a millimeter upward since 2009 and GDP "growth" has been less than the QE applied (that is,real economic movement has been negative.) The asset price appreciations that are built up by this are also temporary and dangerous.  The guy who gets the cheap house loan thinks he's a genius, but he's dead wrong. The guy who wants to buy his house five years from now didn't get the formerly-expected income from that loan when he bought the first homeowner's certificate and thus has less with which to purchase that house with down the road! The guy who buys the stock where the company is buying it back with borrowed money sees a nice pop.  The little old lady who financed that through her holding of a bond fund gets less in interest and guess what -- she doesn't have the money down the road to buy that firm's products, which ultimately results in an earnings miss! When -- not if -- this catches up with you the entirety of what you did must, mathematically, come back off -- plus the time value that you squandered. It's arithmetic folks, and if you think about it for about five minutes you would instantly throw rotten tomatoes at anyone who propounds, supports or causes such a policy to be put in place because it cannot, mathematically, work. Visit Website