How Does Quantitative Easing Create Jobs?
With QE supposed to save the world, let’s review what QE actually does to jobs. Courtesy Omid Malekan.
Federal Reserve Chairman Ben Bernanke recently announced the central bank will now undertake open ended Quantitative Easing until the economy gets significantly better. Specifically he said: If we do not see substantial improvement in the labor market, we will continue our asset purchases.
Although the first two rounds of QE have failed (if they hadn’t there would be no need for a third) the Federal Reserve has now decided to go all in on its signature program. Instead of taking finite action and waiting to see the results, going forward the Fed will take action every month until we get lots of job creation. To see how all these “asset purchases” are supposed to create jobs, lets study the mechanics.
Quantitative Easing is a fancy way of saying printing money and using it to buy stuff. In this iteration, the Fed will buy securitized mortgages. So every month it will create $40 Billion out of thin air and give that money to the big banks in exchange for mortgage bonds. According to Ben, these actions will lower rates, spur the housing market and make stocks go up, and as a result jobs will be created.
Will Bernanke Match Draghi Firepower?
Last week was all about the mighty Draghi and his determination to do “whatever it takes”.
What about Ben and the Fed? Weekend video worth watching on what the Fed should be doing.
“Acta est fabula, plaudite!”-Latest things that make you go hmmm.
Must read things that make you go hmmm. Courtesy W Grant.
Interestingly enough, the Fed’s very own Groundhog Bailabankout Ben testified before the House Committee on the Budget on February 2nd and, having been dragged from his burrow into the daylight, Ben saw all kinds of shadows:
While conditions have certainly improved over [the last two and a half years], the pace of the recovery has been frustratingly slow, particularly from the perspective of the millions of workers who remain unemployed or underemployed. Moreover, the sluggish expansion has left the economy vulnerable to shocks…
The outlook remains uncertain, however, and close monitoring of economic developments will remain necessary…
Although real consumer spending rose moderately last quarter, households continue to face significant headwinds. Notably, real household income and wealth stagnated in 2011, and access to credit remained tight for many potential borrowers…
…we still have a long way to go before the labor market can be said to be operating normally. Particularly troubling is the unusually high level of long-term unemployment: More than 40 percent of the unemployed have been jobless for more than six months, roughly double the fraction during the economic expansion of the previous decade…
Ben Greater threat to the USD than China
While markets are still trading in a no trend fashion, and the Euro politicians try talking up the market here is a must listen to interview with Rickards, for anyone interested in understanding what is actually playing out in the financial markets. Courtesy Da Silva.
“The likelihood of a collapse[US Dollar, Bond & Financial Markets] is higher than a lot of analysts assume…..therefore we are in very dangerous territory.”
“Ben Bernanke is probably a greater threat to US dollar stability than the Chinese Communist Party,”
and the oops,
“The Fed thinks they’re playing with a thermostat at home–but in reality, they’re playing with a nuclear reactor–and the danger is they melt the thing down”
Full interview click here.
Ben’s finest hour
- Amid great economic stress, policymakers have missed many opportunities to improve the situation and better the lives of people.
- The leadership void in the U.S. was illustrated by the dismal display of policy dysfunction that led the country to lose its AAA credit rating. European leaders have fared no better.
- Ben Bernanke and the Fed, however, have demonstrated leadership. What is both remarkable and instructive for the outlook for monetary policy is how active the Fed remains even though it has reached the zero-bound for interest rates.
“Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war…”
USA-6 in 10 Do Not Expect Economy to Improve Soon
While the HFT churn stocks according to the latest out of the Greek Parliament, the US has other issues to deal with. Despite Ben’s ramp up the Stock Market stimulus, people still feel everything is getting worse. Latest out if Gallup;
The lack of consistent economic progress since 2009 has dashed Americans’ optimism that things will get better in the near future. Just over a third of Americans expect the economy to be better a year from now. With the economy and unemployment firmly atop Americans’ list of the most important problem facing the United States, both the health of the overall economy and Americans’ perceptions of its health have obvious implications for President Obama as he seeks re-election next year. His jobs plan, which Americans generally support, is perhaps his most important step in trying to improve the economy. To be successful, it must not only move the needle on official economic statistics, but also re-instill confidence in Americans that the economy is getting better and will continue to do so.
Ben impressing (only HFT)?
Although Barton Biggs proclaimed the new bull is here at the end of last week, the market has now reversed, back to the same levels as prior to Ben’s “flooding the European Banks with USD funding” levels. Ben’s actions impress the Market with diminishing enthusiasm. The only ones left trading positive news from Ben seem to be HFT, and we all know, these guys are not the “strong” hands.
Markets are once again spooked by the Greek Mess. With conflicting news from everyone, and no trustworthy plan, the Greek story won’t disappear. The Trader argues for the focus to be shifting to Spain shortly, as the Collapsing Economy on the Iberian Peninsula should make investors nervous. SPX is back in the trend channel. While the market lacks direction, it should be traded like short gamma, ie the market comes back from “extreme” levels, just give it a couple of days, until it breaks totally….
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