I am sure that you all know by now!
However, if not, here is a fresh summary of it, from
founder of DailyFX.com, Director or Currency Research at GFT,
and Managing Director of FX Strategy for BK Asset Management,
Kathy Lien:
What The Heck Is Quantitative Easing? - Video | Investopedia
What is quantitative easing? It is the government using tax payer money to bid up asset prices so that those that own assets of the same kind can benefit from those higher prices while those that do not can choose to either pay the inflated prices to buy the assets at a substantially lower return on investment or go looking for alternatives. Meanwhile those that simply earn wages for a living are completely left out of the party as their output become less necessary and the purchasing power they earn for their labor time decreases.
Thus, quantitative easing is the effort of the politically empowered to defend the invested from the market. But in the end, it will ultimately lead to either a long drawn out period where despite economic growth assets remain stagnant in their market value and in their earnings performance like the Nikkei over the last two decades, or a much shorter term crash of asset prices like the housing crash in the U.S. in 2008.
What this means is that prices of assets and exchange rates will cycle up and down and up and down over decades only to cover the same territory over and over. So traders who can get in and out effectively will profit while buy and hold investors will suffer. So quantitative easing is the slow death of Grahamian value investing. While I would not count it out completely, investors must look at the Nikkei with some honest soul searching and answer: “What are you going to do if that happens to the Dow and the S&P over the coming decades?” The answer is in trading.
-Adrian
I feel like printing it and pinning it to my wall…
Inflation falls again on cheaper oil, imports, CPI shows
“Most Fed officials predict inflation will start to rise again in the near future” and we all know that Fed officials have a long history of accurate economic prediction “as the effects of cheaper oil and the strong dollar run their course. Yet so far there’s little evidence even though a falling unemployment rate has triggered scattered reports of rising wages, often a precursor of higher inflation.”
There will be no meaningful rate hike without CPI growth. Not only are assets not expensive enough for the FED, they want consumer prices to go up too. They want oil high and the dollar low. They want to make sure that retired folks pay top dollar for food and earn basically no interest income on their savings. Because standards of living are not what matters to quantitative easers. What matters is jobs. “Get back to work!”
There may be some token rate hike at some point. But if the CPI doesn’t get moving upward, the FED will ease and ease and ease like Japan-ease.
The Japanese monetary base exploded from 89 till today and the Japanese CPI did not go up much and in fact declined many times. The same can happen for the U.S.
-Adrian
You are spot on, Adrian…
Great post!!!
It boils down to the bankers’ belief that, as John O’Donnell says on Power Trading Radio, “six smart people sitting in a room can pull the levers to make the economoy grow”…
The job of economic growth should be down to politicians, not bankers… If politicians were not so entangled with the fortunes of finance, maybe they would indeed allow pensions to be up above inflation and really care about living standards, the Nordic way… But real economic growth = higher inflation = less accommodative Fed = risk aversion in assets (equities, emerging markets, etc
), so it seems impossible that “six smart people in a room”, as John O’Donnel says, can both control the global world of capital flow (you cannot) and inspire economic regeneration (that is the job of government).
There is no set of social circumstances that can do more to spread wealth better than free markets. That is precisely why there is QE. The whole point of QE is to save the politically connected from the markets. The markets would otherwise redistribute their wealth away from them. So the masses pay an inflation tax to cover the losses of the politically connected. Heads they win, tails everyone else loses.
“Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out!” [I]-President Andrew Jackson From the original minutes of the Philadelphia committee of citizens sent to meet with President Jackson (February 1834), according to Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels[/I]
-Adrian
Indeed … one would think you’d want at least seven or eight people, for that? 
Yes indeed … but those Nordic types, they have a whole different way of looking at it …
More impressive quotes from Lexys and Adrian!!!
Thank you, peeps!!!
