The highlighted part is what I was getting at previously.
The idea that QE does nothing is now reasonably well distributed.
Those holding positions include a lot of managers who highly suspect QE does nothing.
But they believe others who do believe QE is ‘inflationary money printing’ will keep driving prices.

Same with austerity. The idea that it makes things worse is taking hold, but those who believe it is a good thing- that govt borrowing takes away money from the private sector and all that nonsense- still have the upper hand.

But ‘reality’ is working against those out of paradigm, as the dollar is firming and the rest showing signs of coming apart as well.

As for Europe, it all holds as long as the ECB keeps buying bonds in the secondary market in sufficient size to keep shorter term yields reasonable. And comes apart when they don’t.

The problem is politically it isn’t ‘fair’ to spend euro resources on targeted nations, which carries with it the notion that all the others are ultimately paying for it, though they don’t know exactly how that will play out. So you see the core addressing that with loud noises of restructuring, etc. which may or may not happen. But the real possibility is there.

My proposal of the ECB making per capita distributions to all the member nations of, say 10% of GDP in the first round, would not carry that notion of ‘unfairness’

And as long as member nation spending was appropriately constrained politically there would be no inflation or monetary ramifications, apart from better credit ratings and the ability to fund existing deficits at lower risk premiums.

But it’s still not even a consideration, best I can tell.

Fasten Your Seatbelt
November 11, 2010
By John R. Taylor, Jr.
Chief Investment Officer, FX Concepts

‘… Although the world believes that QE2 is there to push the dollar sharply lower, Bernanke argued that his goal was something else. On the day after the Fed’s move, he wrote in a Washington Post editorial piece that QE2 would push up the equity market, bonds, and other risky securities thereby stimulating consumption and economic activity. Even Greenspan did not publicly proclaim his “put,” but now Bernanke has made it the centerpiece of US strategy. Equities are already overpriced, with profit margins at all-time highs and PE ratios far above average. Speculation is now more American than apple pie – but this is a very risky time to practice it. As one highly respected analyst noted about Bernanke’s article, “these are undoubtedly among the most ignorant remarks ever made by a central banker.” As we and many others have noted that QE has shown little or no positive impact on actual economic activity, so the Fed has taken a big gamble, and if it fails as we expect it will have nowhere else to go. With the Republican victory tainted by the Tea Party “starve the beast” mentality, austerity has come to Washington. This next year will be a terrible one for the world’s biggest economy, so we would go against Bernanke on the equity side, but buy government bonds along with him…’

11 Responses

  1. There is in print right from the horse’s mouth. The job of the Fed is to blow another bubble when the last bubble pops. Amazing admission. Where does this all end?

    1. With a bigger bubble and an even bigger crash, apparently. In order for any real change to occur, the status quo will have to be utterly and thoroughly discredited through massive failure. Unfortunately this will cause a lot of innocent people a lot of pain.

      1. exactly: there may not be another successful bubble; QE2 may well fail, especially if there’s more resistance from emerging mkts;

  2. Just thought I’d mention this (not that I’m an expert of any sort):

    There is already a distribution mechanism in place in the EU (of existing NFAs) that finances large infrastructure investments in the weaker regions of existing or aspiring EU countries under the condition that they not run larger deficits than defined by the (in)stability and growth(lessness) pact beyond these payments. I believe that one of the main reasons, that for example the Baltic nations are so enthusiastic about the EU and the Euro is that they are basically being bribed into joining with large up-front undercurrents of direct investments (in Euros?). The problem, being a targeted redistribution of existing funds, is exactly as you say: they are considered unfair by the paying nations, especially when one of them suddenly changes from net benefactor to net payer in the wake of other, poorer nations joining. This happened with Portugal, Greece and Ireland after the EU expansion into eastern Europe. They basically lost most of their funding and had to start paying instead. Germany is by far the largest net payer which may explain some of the things one hears from there. The other problem is obviously that these flows are not flexible or adjusted in line with any real-time economic events. And of course that they don’t add any net assets to the system.

    I’ll give the href code one more try (I failed miserably last time):

  3. This is a bit off topic, though related to the proposal for “the ECB making per capita distributions to all the member nations of, say 10% of GDP in the first round”.

    Been thinking about this. MMT makes eminent sense, but as long as the largest financial players are writing the regulatory rules, excessive leverage (or systemic fragility) will be inevitable (or said another way, capital requirements will continue to be too low, something Gene Fama observed on B’berg this morning…he’s no dummy, despite EMH).

    Thus, way too many new dollars, even if initially distributed equitably, will end up in the financial sector (e.g., Keen’s systemic Ponzi finance). So MMT without stricter financial regulation will do little to prevent future crises, even if it were to become more prevalent in addressing their fallout. This would seem to especially true on the continent, where large banks have exhibited a deep and abiding love of stratospheric leverage (int’l accounting standards may explain much of that, but Anglo and US banks at 40+ leverage are hardly a comforting benchmark).

    1. Yes, without reform MMT principles could just enable a dysfunctional system, but MMT-based policies would relieve the problem of unemployment.

      However, without reform, the problems just fester and reappear in a more serious form as the Ponzi environment develops. MMT’ers are well aware of this an propose reforms. See “Proposals” in the menu bar.

      Michael Hudson has been writing for a long time on the necessity to eliminate or least greatly reduce economic rent — land rent, monopoly rent, and financial rent — in order to right the balance of productive and financial capital. Presently, a great deal of the problem is due to excessive rent-seeking, which leads to Ponzi finance and the type of control fraud documented by William K. Black and others.

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