Quantitative easying explained

1M people viewed this cartoon ... This is scary.<p>The guys who did this clearly don't understand macro-economics. And yet many people will be convinced that QE2 "is bad" because "deflation is good, I can buy more stuff for less money" or "Bernanke didn't see the subprime crisis coming, therefor is incompetent".<p>QE2 might not be the right thing to do. But this movie doesn't educate people or make them understand why QE2 might be a bad idea (hyper-inflation is the main risk). It just make people angry and suspicious, while keeping them ignorant.

Here is my prognostication on what will happen. There will be short-term inflation on account of QE2. This will put the squeeze on most americans, resulting in an increased drive to clear debt and an increased rate of debt default. Both of which are deflationary. Since inflation can be brought about by quantitative easing OR by debt expansion, and deflation can be brought about by quantitative tightening OR by debt contraction... Because the private debt markets still exceed the public debt and unfunded obligations by at least a factor of three, we'll see a year to two year period of deflation. The stock market will crash, gold will trend slightly downward or flat, and PGMs will go through the bottom (they're in a bubble right now that looks like it's starting to burst).<p>The question is: How will the government respond. I think it's highly likely that the Fed will respond with QE3... Alternatively, congress will vote to default on the public debt, which I think is highly unlikely. With QE3, considering the money multiplier, we'll finally see that hyperinflation that the tea partiers are (rightly) scared about, will be incredibly painful for anyone who is not really wealthy now. Unfortunately, because of the intermediary deflationary period, academic economists and punditry like Krugman will incessantly make fun of goldbugs like Ron Paul (who is ascending to chair the congressional subcommittee on monetary policy).<p>So. You have about year to shore up your debts, save some money, and buy nonperishable commodities, formulate an escape plan. Godspeed.

I saw this on Facebook. I'm a little dismayed to see it here, since it's such utter, uninformed garbage. "Deflation makes things cheaper. Yay! I want deflation!"

<i>easing</i> not easying

Everyone here can understand dilution in the context of a VC termsheet. Printing $600 billion has much the same effect: it dilutes down all other holders of currency by increasing the US government's share. QE is thus basically a massive tax -- it does not increase the real productive capacity of the economy, but puts ever more of it in government hands to allocate as they see fit.<p>Whether you think this is a good thing depends on whether you subscribe to Hayek or Keynes.

Quantitative easing is just a fancy newspeak-doublespeak word for monetizing debt. Basically the treasury bond auction has functionally failed and the Fed has to step in a buy the bonds because nobody else wants them.

I saw this on my friend's facebook feed and left this comment.<p>Yo this whole thing fascinates me like crazy so I've spent some time researching shit, and I still only understand the crust of it. But since I'm bored, here's what I know. Alright, so there's two camps. First is the paul krugman camp which thinks that during a recession a government needs to spend like crazy to cause consumption and inflation. Consumption is good since spending has ripple effects on an economy. It's not obvious (and definitely not proven) that deflation is necessarily bad though. The main case is that in a deflationary economy, people spend less and save more since there's a natural yield to holding your money, which in turn can cause more deflation. And since it's hard to cut wages (or they say it is), wages become out of wack with the economy.<p>Japan is always pointed to as the example of a zombie economy and what could happen to the US. This is the thing though - economists are so fucking caught up in their own theories and numbers that they forget about reality. They mistake symbols for economic growth (indicators) for real well being in a country. Japan is still one of the largest economies in the world, has one of the largest middle classes, lowest income disparity, and lowest unemployment in the world. I frankly can't understand why people keep shit talking Japan's economy as this nightmare when they seem to be doing pretty fucking well. They still MAKE things there like cars and have a nice mix of industry. They don't fit the economist mold of success and despite the reality that they're in many respects doing better than the US, they're the example of the worst case scenario of a deflationary spiral. Fucking academics...<p>Anyways, back to the point at hand. Even if you believe the krugman camp, it seems to me that all they are really doing is trying to control economic boom and busts and by doing so, only causing more of them. For example, let's say deflation happens - as long as you have an open economy (and the US does) - wages will decrease and eventually people will start spending again. The fact is that spending was way out of wack before and falsely propped up the economy. During the last two booms, the US was the only country where spending was higher than income - or negative savings, which is "good" for the economy by economist's standards, it's clearly something you can't maintain. So rather than let shit calibrate itself and fall in line, the government is like "woah - we need to spend for the people since they wont".<p>Anyways, capitalism is fun yo.<p>Oh and I forgot to mention that reading up on this stuff, my respect for economists has fallen like crazy. This is a blanket statement that I'm sure it'll turn out I'm wrong about, but seems to me that economic theory is really just a game of anyone's best guess with the addition of math to make the whole thing look sophisticated, when it's really just one big exercise in false precision and dick measuring.

So, why does the fed buy the treasury bonds from the goldman sachs instead of the treasury?