Posts Tagged ‘federal reserve’

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by @anarchyroll

Janet Yellen chaired her first Fed meeting this past week. Afterwards she announced Fed policy going forward regarding her baby, quantitative easing. She helped construct QE at the height of the economic downturn several years ago, a topic written about repeatedly on this website. Yellen announced that QE will continue to taper down at a rate of $10 billion per month until the end of the year.

That is good, QE needs to end, the sooner the better. The problem is the economy has become somewhat dependant on it. The markets took a small but sudden dive at just the announcement about anything QE related. Yellen also said that QE coming to a total end will depend partially on unemployment numbers.

If you haven’t noticed the unemployment problem is a deeper wound in the economy and in the country not seen since the Great Depression. Not only are a huge number of people out of work, but even more are underemployed and wages have been stagnant for over a decade. When the  markets react negatively to even the mention of QE ending, which it does every time there is an official announcement on the subject, employment numbers are likely to take a hit.

Why? Because the 1% who employ the other 99 have their assets all up in the casino stock market. So if/when those numbers go down unemployment goes up, underemployment goes up, wages stay stagnant or go down. So tying QE to the employment numbers is an out to keep QE going indefinitely since the unemployment crisis could be indefinite. What will the effect of a possible government mandated rise of the minimum wage? All these moving parts will affect whether QE ultimately comes to an end.

The minimum wage debate will be the subject of the next Excess and Algorithms article.

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Click Here for Part One

Getting high, if it wasn’t fun, why would so many people do it? The only problem is that the high doesn’t last forever. The come down is often a crash, back to reality, damnit there’s still the law of gravity. Oh no, the stash is gone. What to do? Face life and the world as it is? Okay, but only for as long as it takes to get the next hit.

The sky was falling in the fall of 2008.  Not just millions, not just billions, but TRILLIONS of dollars evaporated from the global economy.  The wound wasn’t just opened, it was hemorrhaging blood.  What to do? Let the free market run free until it corrected itself?  Use taxpayer money to try and plug the leak? Bomb another middle eastern country?

Desperation causes people to do things that they don’t fully understand. Under intense stress and scrutiny many human beings seek a temporary escape from reality in mind or mood altering chemical substances produced naturally or artificially known to many simply as drugs.  Coffee, cigarettes, alcohol, marijuana, molly, mushrooms, lsd. cocaine, heroin, meth, crack.  Those who shake their head and thumb their nose at drug users often substitute adrenaline, food, binge screen watching, and other socially accepted mind altering reality escapes in place of the illicit stuff, but it’s all the same.

The federal government and federal reserve bank of the United States of America is run by human beings. Human beings susceptible to the same highs, lows, pros, cons, disciplines, and vices as you and me.  In the midst of panic, desperation, and catastrophe a series of steps were taken to stop the economic bleeding, stabilize the markets, and attempt to spur future growth.  However, the policies were all nothing more than reality escaping substances on a meta scale.

First came TARP. Then came the auto industry bailout.  Those got the headlines and the public ire or support depending if you’re a political elephant or jackass.  However another, much less sexy, but equally if not more important was the Federal Reserve Bank’s $85 billion per month bond buying program known as Quantitative Easing.

There have been three waves of QE from 2009 through present, it is expected to end in 2015.  But if it’s expected to end clean, at a predetermined time, why the drug analogy?

The problem, is that the markets have become dependent, on the fed flooding the market with cash, now there is a new bubble, that could bring the market(s) down in flames.

So the withdrawal pains, in the form of inflation and higher interest rates, could cause a relapse into recession or worse for both the US and global economy.  QE has been like an alcoholic going to rehab and starting a two pack a day cigarette habit.  Our recovery has been artificially enhanced by QE. We haven’t quit cold turkey, we’re on synthetic drugs. It isn’t until all the meds are out of our system that we’ll know if the economy has recovered or not.

Where does QE go from here?  I’ll cover that in part 3…

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by @anarchyroll

Quantitative easing is a hard concept to comprehend and I would not classify it as easy to write about either. I wanted to write an article about the subject in August. I sat down to do my research and gather sources. When I decided to take a break, I saw that I had been reading articles, watching videos, and listening to audio clips on the subject for five hours. And I felt like I had barely scratched the surface of the subject. And I just wanted to write a blog, not a graduate school thesis.

The economic collapse of 2008 and the fallout of it, part of which being quantitative easing, are the fuel for me wanting to write economics articles in simple language.

QE (quantitative easing’s often used abbreviation) is a tool in the monetary policy tool belt of the a country’s central bank. In the case of the QE being used by the United States Federal Reserve Bank (not associated with the federal government) to ease credit flow or encourage lending by banks to small businesses and citizens, buy up government bonds with freshly printed money to keep the financial markets stabilized, and encourage large scale investors to invest in safer more boring assets than riskier/sexier assets (derivatives, credit default swaps).

So the Fed is printing money and buying government debt with it to stop the bleeding, close the wound, and aide in the rehab of the US financial sector and the global economy.

Sounds good right? The central bank of the United States is using their stroke to end a financial crisis and prevent another one…..except…Many signs and indicators are pointing to the economy becoming or already being dependent upon QE, hence the crack analogy/drug metaphor. There are also signs pointing to an asset bubble growing in the debt market. What do both of those last points mean? I’ll explain and expand in part two…