Posts Tagged ‘qe’

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by @anarchyroll
3/22/2014

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.

eanda logoby @anarchyroll
2/1/2014

Part One  |  Part Two

Ex cons have a hard time getting jobs in America due to a stigma that they can’t be trusted due to past actions. Even though going through the incarceration process is supposed to bring you the other end rehabilitated with a clean slate, the reality of the situation is often quite the opposite. It also often only applies to racial minorities who commit blue collar crimes as opposed to white collar criminals who not only don’t go to jail but often barely get a metaphoric slap on the wrist.  In the spirit of the latter example, Janet Yellen is the new Fed Chief.

Janet Yellen is a much better choice than Larry Summers.  Summers is one of the forgotten architects of the 2008 economic collapse thanks to his economic policy of derivatives deregulation during the Clinton administration during the 1990s.  Summers was thought to be getting the job last year before the liberal wing of the Democratic party threatened rebellion in the midterm elections if it happened.

Ben Bernanke who Yellen is replacing, well he is to the economy what George W Bush is to national security.  9/11 happened on Bush’s watch, the 2008 collapse happened on Bernanke’s watch, that’s all you need to know.

Janet Yellen was recently featured in a TIME magazine cover story since she is about to become the most powerful person in the economic world. Why does she fit into the Quantitative Easing conversation? Two reasons. One, she helped create it in 2010. Two, she will be responsible for the tapering (fading out of) and ending of it. But do drug dealers and drug addicts often voluntarily quit their habit? Or do they continuously justify their habit to themselves?

Yellen and QE have been, are presently, and will be in the future tied together for better and for worse.  Wall Street has benefited immensely from QE. The massive bond buying program has held down interest rates (QE’s stated intent).  This has allowed the casino that is the stock market to function smoothly and at times on steroids, seeing unprecedented highs.

But these highs are drug induced. When a person does blow, crack, or meth they get an intense high for a limited amount of time.  Someone who drops acid sees walls melt and a new world of colors birth before their very eyes. But these things do not last, because they are induced by an outside substance.  The crash afterwards can be brutal, even from a simple alcohol or marijuana high. The high may feel real, but not as real as the hangover.

The American economy was high after the recovery from the dot com bubble burst. Deregulation, default swaps, and derivatives were the drug of choice of the early 2000s and the high was tremendous making houses as affordable as cars, cars as affordable as vacations, and vacations as affordable as a credit card induced weekend shopping spree. The hangover that started in 2008 was and is very real. Make no mistake we are still in recession, the recovery is false.

The recovery is false because it is also drug induced, stock market highs snorted, smoked, and shot up thanks to quantitative easing.  Asset bubbles have been created, inflation is inevitable, and any time tapering is stated or hinted at the stock market nose dives.

Tapering is occurring at about $5 to $10 billion a month, which is a good thing.  Yellen has publically stated her support for stricter economic regulation and has the backing of Elizabeth Warren.  My concern is that Yellen is a wolf in sheep’s clothing. In addition to being an architect of the current quantitative easing policy written about here, she is also proponent of trickle-down economics or Reaganomics.

The last paragraph of her TIME interview is a quote which that TIME tries to spin as “a rising tide can lift all boats” and then point out that phrase was first used by President Kennedy.  The problem is Yellen states that the purpose of QE is directly tied to trickle-down theory. The more money rich people have, the more they will spend, and that will mean more money for the poor by osmosis.  Aka when a drunk person drinks a lot, they’ll piss a lot more. QE is nothing more than a tax cut substitute in the Reaganomics equation. She claims to have main street on her mind, but her economic actions indicate she is looking out for the people at the top, hoping their crumbs become big enough to feed the poor when they trickle down after their hedge fund has enough capital freed up to buy another section of homes.

Better than Larry Summers? Yes. Does she deserve some time as the Fed Chair to prove herself? Yes. But QE is her baby. The stock market and unemployment numbers are her master.  She is going to nurture her baby and serve her master as long as they are tied together.  And all economic indicators show that QE is directly tied to stock market gains and losses as well as the unemployment numbers.  Yellen has stated as long as unemployment remains high, QE will remain.

Drug cartel kingpins tend not to be at the forefront of legalization movements. Why? Because the status quo makes them rich.  Janet Yellen helped devise QE and now she’s in charge of ending it? Next thing you know you’re going to tell me the insurance companies helped write the Affordable Health Care Act…..

eanda logoby @anarchyroll
1/28/2014

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
1/17/2014

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…