Mr. Sensitive

September 14, 2012

We Didn’t Even Know Kate Middleton Was Pregnant

Filed under: Uncategorized — lbej @ 09:04

QE3 is here, and she’s not pretty.  Really, I expected better.

This round of easing is more aggressive and open-ended than was expected.  In essence, the Federal Reserve has committed itself to buying long-dated mortgage-backed securities at a pace of $40 billion per month for an indefinite period of time, as well as maintaining the Fed Funds rate between 0% and 0.25% through at least 2015.  Chairman Bernanke stated that this program—intended to hold short- and long-term rates at historically-low levels to stimulate economic activity—will continue until a sustained improvement in employment takes hold.  So…forever, basically.  The result: equity market averages jumped to new four-year highs, Treasuries sold off moderately, gold rallied, and bankster-backed pundits whined.

What did the whiners whine about, specifically?  QE3 will create inflation (maybe); QE3 is an unprecedented overreach (probably); QE3 won’t create sustainable employment (definitely).  What it will do, in the short term, is goose consumer confidence and pump up asset prices, both of which developments augur ill for Republican chances at the White House in November.  Thus the palpable disgust from CNBC and the bankster-mouthpieces in the investment industry generally.  The banksters want to go back to the deregulated Wild-West Wall Street of the Bush era, and Romney will do more to help them get there.  But they almost destroyed the banking system, you say.  Why would they want anything like that to happen again?  Greed is why.  The firms that survived—Goldman Sachs most prominently, but also JP Morgan, Morgan Stanley, and BofA/Merrill—made out like, well, bandits.  Why wouldn’t they want a redux?  With Bush-style crony capitalism back in vogue, Wall Street can return to the model of private profit and public risk that worked so well for them in the last decade.  That’s why Wall Street is funding the Romney campaign.  That’s why they’re not happy with Ben Bernanke right now, rising stock prices notwithstanding.

Does that mean the Goldman desk isn’t trading the rally?  Of course not.

So, are the whiners wrong?  Nope.  Monetary stimulus won’t create jobs in the U.S., because all the money created through QE3 will be invested in low-cost production overseas.  For monetary stimulus to create jobs (and healthy wage inflation) it must be coupled with fiscal and trade policy measures designed to prevent the stimulus from flowing straight through the banks and the multinational manufacturers (like Apple!) to Guangzhou and Shanghai.  Basically, we have to tax the Apples of this country punitively for moving all their manufacturing operations overseas, and/or hold the Chinese Communists accountable for immoral labor practices and illegal currency manipulation.  Are we going to do any of that?  Nope.  So the whiners are right; cynical and self-serving, yes, but technically correct nonetheless.

Maybe Bernanke is actually trying to create imbalances so massive that the existing economic framework can’t accommodate the shockwave to be produced when equilibrium is forcefully restored.  Maybe he appreciates that 2008 wasn’t enough, and now he’s shooting for 1932.  If he can’t save the system, would he focus instead on making sure the next explosion finishes it off completely, sweeping away the vampire squids and the Apple-outsourcers for good?  Probably not.

That sure would be something, though.

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1 Comment »

  1. I told Nicole this morning that I was waiting for this update. I read a handful of political blogs, and every post on QE3 tiptoed around the fact that the authors didn’t actually understand what it meant. They spun it politically, made vague guesses at its economic impact, or just wrote about the way pundits were sobbing or celebrating. So thanks, man.

    Comment by Justin Eure — September 14, 2012 @ 10:35 | Reply


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