Quantitative Easing

[opebo]

The Feds new wave of quantitative easing is good, but why on earth do they create money to buy bonds?  Why don't they print up the 600 billion and give it to people who will spend it (such as myself)?

[opebo]

They're almost intent on keeping the funds within the financial sector. Why would they 'spread it out'?

But the point is that it can't do any good in the financial sector ('pushing on a string').  If it were sent outside that sector it would be spent, thus actually having a growth effect.

Apparently no one at the Fed has studied the great Depression or Japan.

[opebo]

Given that the Japanese invented QE and given Bernanke's reserach background...lol.

They don't want to redistribute wealth, only increase liquidity (that is oversimplifying a little bit of course)

Yes, that's the point - that doesn't work.  Only redistribution works.  And anyone who observed the Japanese case should know this.

[opebo]

That would be teh socialism. I miss the $300 checks W sent out. I could use a few more of them.

Precisely.  If the Fed would print $300/week for every poor, and send it out, then we would have economic growth.

[opebo]

But, angus, without even the low-quality stimulus of monetary policy, there is precisely nothing to make the economy grow ever again.

[opebo]

...Still, I don't think you can say that since we have an extremely low inflation rate just now, then it's okay to inject 600 billion dollars into the economy in the form of a massive federal buyout of securities.

Actually it can't have any effect on inflation because it is such a picayune amount, and the economy is so extraordinarily slack right now.

Banks are going to be a bit reluctant now to lend money to small businesses and families following the latest round of regulatory pressures. 

No, the reason banks lend or don't lend it their prospects of being paid back, which can only be rosy in a Keynesian 'inflationary' growth environment.

[opebo]

... it seems that we're in a period of adjustment not because the model failed, but precisely because the parametric rules of production, depreciation, and investment were ignored.  Folks lived beyond their means and clever investment councilors sold air, packaged as goods, to people.  We will find that equilibrium again, if we're patient. 

Quite wrong, angus.  The capitalist model 'failed' completely generations ago (in the 1920s-30s), and performed abominably before that in terms of making the great majority of people relatively worse off, and causing astonishing instability.  What we're seeing now is just the breakdown of Keynensian nirvanna since bad governance set in in the 1980s.  Another way of saying this is that the ills you describe above are inevitable in capitalism sans reform and most importantly redistribution. 

And the important lesson is only the State can save us from capitalism.

but further devaluing the dollar doesn't seem like a reasonable long-term solution for raising the standard of living.  If we can't compete with Asian economies, we need investigate the reasons (educational, legal, cultural, etc.), and try to understand and then ameliorate the underlying causes of our weakness.

The reason we're 'uncompetitive' is we make too much, angus, and the owners want us to be as poor as the Asians.  The long term solution (and the purpose of free trade) is a lower standard of living for all workers everywhere, and higher profits for the owning class.  Thus, again, the underlying cause of all miseries are political (owner-power).

[opebo]

Is it possible that QE might produce inflation in other countries?  It's hard to see how it causes inflation here though. I would even prefer a little inflation right now.

Yes, particularly China with its very undervalued currency.  They're already having some inflation troubles there.

[opebo]

...I guess, at a stretch, you could argue that increased liquidity in the world's largest economy could spur the sort of investment that tends to spur consumption, and thus inflation, in other economies as well.  In that analysis you could predict that inflation pressures are real outside the U.S.  Let's call that area the G19, just for fun.  And the G19 would like to see a strong, stable U.S. economy.

And putting six hundred billion dollars in the pockets of already super-rich Americans doesn't help them do that any more than it helps us.

Actually, it would only create inflation in those countries which now have very artificially low exchange rates, mainly China and some other Asian countries.  It should have no such effect in Europe, which while not as moribund as the US or Japan, is still relatively so compared to the rest of the world. 

Also, it is quite inaccurate to call Americans 'super-rich' - disposable income outside the elite class (which is not a significant source of consumption) has been in steep decline for decades.  The 600 billion, even if it somehow managed to find its way to consumers, is such a minute amount that it isn't really worth our time discussing it. 

It is worthwhile to keep in mind that neither China nor Germany are good world economic citizens - China is a mercantilist monstrosity, and Germans are defined by inflation-angst (bizarrely).

[opebo]

Regardless of the fate of the extension of Bush's tax cuts and unemployment benefits, the Fed is sticking with its quantitative easing strategy.

Thank goodness!  In point of fact their only error was that they didn't increase the quantitatve easing in light of the tax/spending issues you mentioned above.  They should've increased it from 600 billion to 900 billion.

[opebo]

The yield curve was different on different dates, phnkrocket.  That doesn't mean that the difference was caused by quantitative easing.