Bernanke has basically stated we're going to get Quantitative Easing 2 -- QE2 for short. Which is an appropriate monicker for this. The QE2 is an ocean liner. Like the Titanic. And QE2 is gonna go down like the Titanic... glug, glug, glug.
The problem is this: Bernanke is proposing to buy bonds. And the companies he's proposing to buy bonds from aren't spending any of the cash they're getting from selling bonds. They're just depositing it in banks. Where it gets deposited right back into the Federal Reserve as reserves because banks aren't lending money because people don't have jobs and thus aren't borrowing money. Meaning the money doesn't even take one round through the economy, it causes no (zero) economic activity, it simply ends up moving from one database ledger entry to another at the Federal Reserve.
In other words, simply turning on the printing presses isn't going to do the job of putting Americans back to work again. It's all Bernanke can do because he's a central banker, not Congress, but simply printing money when you're at the zero bounds results in the money coming right back into the (virtual) vaults of the Fed as deposits. This was noted during the Great Depression too, even by right-wing commentators who then proceeded to accuse the Fed's "hoarding the nation's gold" as the proximate cause of the deflation that afflicted the nation then, but it's not something the Fed itself has any control over. To get economic activity, the money has to be given out with strings requiring it to be spent, or at least given out to people who have a high propensity to spend -- such as to, gasp, POOR PEOPLE (the horror, oh the horror!) the majority of whom have unmet needs that they'll immediately spend the money on, such as a new(er) car to replace the falling apart one they use to drive 2 hours to work every day from the Central Valley, or etc.
So, QE2 is gonna go down like the TItanic. And Congress has neither the brains nor the will to put money into the hands of people who are going to spend it and thus create demand to get those companies who are currently hoarding cash to hire workers to meet that demand, instead we get trillions to bail out banksters who merely hoard cash. We are so fucked...
-- Badtux the Bent-over Penguin
Karl Smith and I think Ryan Avent are encouraged by the Fed's presumed commitment to (essentially) 0 short rate for as long as it rakes.
ReplyDeleteJames Hamilton calculates that $800 Billion of QE2 will yield 13 basis points on long bonds.
This isn't even worth thinking about, let alone acting on.
To your point, the M1 multiplier has been around 0.8 since it plunged in Sept. '08.
Other than I - and I have NO idea what to make of it - nobody is talking about this at all. Isn't the fact that money is DOA kind of a big deal?
WASF,
JzB
But Badtux how are the CEOs going to justify those big bonuses they're skimming off all that money?
ReplyDeleteDemeur the snarky 99er
QE II makes perfect sense if you're a bankster maggot and you want to make sure the books at your maggot friends' banks meet reserve requirements and other technicalities that cover up the fact that THEY'RE BANKRUPT!
ReplyDeleteSo Bernskanke gives them "real" money in exchange for loans that will never be paid back (i.e. these bogus "bonds" on mortgages, credit cards, student loans, etc.) It's all a Potemkin ploy to prop up banks' balance sheets. Great if you think the sun rises and sets because of the bank debt-finance, fractional reserve zeitgeist.
Maybe the central banksters think that if they hide the losses deep enough -- who's going to say "The U.S. dollars issued by teh Fed are backed by nothing but worthless bonds!" -- that confidence in the system will continue. Given enough time, people will forget their money is supported by nothing. But people, and especially other countries that extend credit to the U.S., are not that stupid. There will come a day of reckoning when the world tells the U.S. "Your money's no good here." And they won't mean it in the friendly way that people said that line to heroes at the saloon in Western movies.