Thought for the day
"The most common lie is that which one lies to himself; lying
to others is relatively an exception."
-
Friedrich Nietzsche (German, 1844-1900)
Word for the day
Indignant (adj)
Feeling, characterized by, or expressing strong displeasure
at something considered unjust, offensive, insulting, or base:
(Source:
Dictionary.com)
Teaser for the day
Does our Constitution allows me the
freedom to express my views on how women, children or men should dress, so long
I am not imposing my views on anyone including my family?
QE is dead, long live QE
US Federal Reserve (The Fed) finally brought the curtains down
on its two year old bond buying program, popularly known as "QE3",
being the third round of quantitative easing post Lehman collapse in early
winter of 2008. The gradual withdrawal ("taper") of the US$85bn a
month buying program had started early this year.
The markets have appeared to taken the event rather with some
relief. Remember, the talk of tapering and fear of potential consequences had
caused substantial volatility in global markets last year.
I find it pertinent to reproduce the
farewell note written by my favorite Bob McTeer for readers benefit. Trust
me, few could have done this job better.
"I retired from the Fed on November 4, 2004, which will be
10 years ago in 6 days. At 8 AM tomorrow, I’m scheduled to give a speech on the
economy after which I’ll have to give a defense of Quantitive Easing.
Texas audiences are polite, but they know deep in their bones
that there is (was) something not quite right about QE. Their doubts have
something to do with the impropriety of “printing money” even if doing so seems
not to have turned out too badly. I’ve tried and tried to explain that there
has been very little money printing during QE, and that is why the dire
consequences of hyper-inflation, a collapse of the dollar, sky-high interest
rates, and gold through the roof have not taken place. Unfortunately, it’s also
the main reason that QE has not stimulated the economy any more than it has.
But nobody seems to believe me. They are deeply invested in the
notion of money printing. They don’t want to hear that the Fed has been “printing”
bank reserves and that banks have held onto large amount of those reserves as
excess reserves without using them fully to fund new loans and investments and
thus unleash the money multiplier. I realize I will never win the debate
because everyone calls it an “experiment” and won’t let the jury come in until
the experiment ends. As long as I’m leading on points, the experiment isn’t
over.
Many critics still expect to be right about the dire
consequences—just you wait. Well, I have some bad news for them. Growth in the
M1 and M2 measures of the money supply has actually slowed over the past year;
so, we aren’t on the verge of an inflationary blowout. QE is ending quietly.
Not that I’ve been a big fan of QE. I was when it started around
November 2008. Chairman Bernanke’s improvisations saved our cookies back then.
Sometime between then and now, the economy was probably strong enough to
survive an earlier phase-out or taper, but every time one Q was about to end
the economy swooned and we got another one. Following along one meeting to the
next, I remained supportive, but, looking back on it, I find it hard to imagine
that it lasted so long. Good riddance.
I do find it amusing that many of the early critics of QE are
now faulting the ECB for not getting into the game earlier. I do dread the
inanity of trying to guess in the next few FOMC meetings whether the phrase
“considerable time” will survive and just how long is a considerable time
anyway. Don’t forget that Chair Yellen following the previous FOMC meeting said
that considerable time had nothing to do with time."
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