A Multi-Trillion, "Helicopter Money" Stimulus Package
With the inherent weakness in US GDP and the rising probability of a recession (two weeks ago Bank of America modeled that the next recession would likely start roughly one year from now), Gluskin Sheff's David Rosenberg thinks that with monetary options exhausted it will take a fiscal boost in the trillions of dollars to kickstart the economy.
http://www.zerohedge.com/news/2016-10-20/david-rosenberg-calls-multi-trillion-helicopter-money-stimulus-package
I have ZERO COMMENT
Normally that would make me think "inflation" but that hasn't really happened in the last round of stimulus... thoughts?
Q: Is Quantitative Easing the same as "Printing Money"?
A: No. Although they are similar they have one key difference. In a normal inflationary "money printing" scenario the FED buys Treasury obligations directly from the Treasury. In so doing, it increases the money supply. Basically it is an accounting gimmick that allows the U.S. Treasury to create more debt thus expanding the money supply. But with Q.E. the debt has already been created and is already sitting on the books of the banks. So the FED takes it off the banks hands and gives them cash instead. (Actually, the FED just credits the numbers to the Bank's account, it doesn't actually move any currency). But this process just trades one type of asset (Treasury's) for another (cash deposits). It doesn't involve creating any new Treasury debt.
Q: Where does the FED get the money to pay the banks for Quantitative Easing?
A: It uses the reserves on its balance sheet. These are deposits from the member banks.
It is smoke & mirrors and we need to AUDIT the FED imfo
It's not the next leap into monetary science fiction, it's the reality of the balance sheets being run now by just three central banks -- the U.S. Federal Reserve, the European Central Bank and the Bank of Japan. Their $12.7 trillion in government bonds, loans and other assets -- built up through decisions to combat first the financial crisis, then persistently weak inflation and growth -- is the equivalent of about 17 percent of a year's global output and still climbing. :o
http://www.chicagotribune.com/news/sns-wp-blm-stimulus-dadabaa2-96cd-11e6-9cae-2a3574e296a6-20161020-story.html
QE is effectively debt cancelation. So long as the central bank keeps rolling over the bonds they earn interest that then gets paid back to the treasury as excess profits. Over time as QE grows, the central bank owns a larger & larger share of the overall bonds outstanding. Richard Duncan (https://www.richardduncaneconomics.com/) has a video series on this.
There are a few main reason QE didn't cause massive bouts of inflation
- there already was strong inflation prior to the bubble bursting (https://www.theguardian.com/business/2008/aug/15/inflation.useconomy). QE was a means of redistributing losses & forcing investors out on the risk curve. That moves investors (or at least those unable to front run official moves via insider information from Hank Paulson (http://blogs.reuters.com/felix-salmon/2011/11/29/hank-paulsons-inside-jobs/)) from seeking best choices to least worse choices. but by ensuring savers get negative real rates, it helps the banks paper over past losses while helping senior citizens enjoy a diet consisting of cat food.
- The way inflation is measured is completely absurd. there's all sorts of bogus ways to understate it. The out of pocket health expense might be double or more of the alleged cost of healthcare in the inflation basket. Then there's hedonics adjustments & so on. Also many inflation measurements ignore asset price inflation. That makes the measurements particularly useless when an economy becomes structurally dependent on asset bubbles to drive revenues (http://harpers.org/archive/2008/02/the-next-bubble/). Conceptually it is hard to simultaneously believe that the wealth effect is real AND that asset price inflation doesn't count. One needs years of indoctrination or to be on the take to keep those thoughts in their head at the same time & see nothing wrong.
There are certainly some alarm bells firing when Tinder for dogs (https://techcrunch.com/2014/05/27/barkbuddy-is-a-tinder-for-dogs/) gets funded (not once, but twice (http://jezebel.com/tindog-the-tinder-for-dog-lovers-is-here-1713793271)), but I really cringed when the WSJ recently published an article on investing in baseball cards (http://www.wsj.com/articles/you-shouldve-kept-your-mickey-mantle-cards-1475618712). Last time the WSJ was running those sorts of articles? 2008 (http://www.wsj.com/articles/SB122789688465664761).
Just back from a week off the grid. Thanks for the responses guys. I'm not sure what to make of them, but it gives me something to start with.
Buiter: Forget Monetary Policy, It's Had Its Day
Bloomberg November 2, 2016
In today's "Single Best Chart," Bloomberg's Tom Keene displays the steep decline to low and negative interest rates. He speaks with Willem Buiter, chief economist at Citigroup, on "Bloomberg Surveillance."
Watch the Video
https://beta.finance.yahoo.com/m/7ae8e66c-3f19-3a84-b308-bf43de0bf01d/buiter%3A-forget-monetary.html