I have been saying this for years and years and years, I have made numerous posts on how QE has done nothing but help wall street, the big banks and the millionaires and billionaires, thats all it has done, it has created bubbles in housing, stocks, private equity, the art world, the car auctions, price of goods and services have skyrocketed even though the fed says inflation is running around 2% which is a complete LIE. It has created bubbles in the secondary IPO market valuing companies in the hundreds of millions and tens of billions when they are only worth 1/25th of what they claim they are valued at. I can go on and on but as you can see from this one fed official he says there is NO EVIDENCE QE BOOSTED ECONOMY...he also says "And he believes the "forward guidance"the Fed has used to communicate its intentions has instead been a muddle of broken vows that has served only to confuse investors." Which is 100 million % accurate, as I have been saying the entire time, its lies and broken promises the entire time as the fed BOWS to wall street. The only thing QE did since day one was inflate stock prices, thats all it has done, and thats what I have been saying the entire way up, without QE the markets would be 50% lower from where they are today, the s$p would have never crossed back over 1000 if it wasn't for QE, QE only helped wall street and once this all comes to an end and the next crisis is back you will finally notice the fed did absolutely nothing but literally print trillions of dollars for their wall street friends......Im wondering what their exit strategy is, because if you really want to know the fed doesn't have one, they never did have an exit plan and never will, that will all come to light when the next bottom falls out of the economy and the fed is scrambling to find a way print more money....however the next fix wont occur as easy as printing money because the next crisis that comes there will be no way to fix it as the fed will have lost every bit of credibility they once had......... St. Louis Fed official: No evidence QE boosted economy Jeff Cox | @JeffCoxCNBCcom 1 Hour Ago The Federal Reserve is putting some of its post-crisis actions under a magnifying glass and not liking everything it sees. In a white paper dissecting the U.S. central bank's actions to stem the financial crisis in 2008 and 2009, Stephen D. Williamson, vice president of the St. Louis Fed, finds fault with three key policy tenets. Specifically, he believes the zero interest rates in place since 2008 that were designed to spark good inflation actually have resulted in just the opposite. And he believes the "forward guidance" the Fed has used to communicate its intentions has instead been a muddle of broken vows that has served only to confuse investors. Finally, he asserts that quantitative easing, or the monthly debt purchases that swelled the central bank's balance sheet past the $4.5 trillion mark, have at best a tenuous link to actual economic improvements. Williamson is quick to acknowledge that then-Chairman Ben Bernanke's Fed, through liquidity programs like the Term Auction Facility that injected cash into banks, "helped to assure that the Fed's Great Depression errors were not repeated." "There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed—inflation and real economic activity"-Stephen D. Williamson, St. Louis Fed vice president But as for spurring inflation, reducing employment or otherwise generating sustained economic activity, the results, particularly for QE, are "at best best mixed." In addition to muted inflation, gross domestic product has yet to eclipse 2.5 percent for any calendar year during the recovery, while wage gains, and consequently living standards, have been mired around 2 percent or less. Read MoreThis is 'more damaging...than the Great Recession' "There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed—inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation," Williamson wrote. "For example, in spite of massive central bank asset purchases in the U.S., the Fed is currently falling short of its 2 percent inflation target," he added. "Further, Switzerland and Japan, which have balance sheets that are much larger than that of the U.S., relative to GDP, have been experiencing very low inflation or deflation." The primary place where QE seems to have worked is in the stock market, where the S&P 500 has soared by 215 percent since the recession lows in March 2009. Elsewhere, though, deflation fears have permeated and interest rates have remained low. Interestingly, one of the biggest fears Fed critics have espoused about its activities has been that the bloated balance sheet would drive inflation by releasing that "high-powered" money into the economy and driving up prices. However, the inflation rate for the U.S., and for much of the other developed world where central bank activism is high, has remain muted, at least by conventional measures. Read MoreFed's trillions haven't helped worker paychecks In Williamson's view, that's a product of policymakers wed to the Taylor rule, which dictates the level of interest rates in regard to economic conditions. The thinking essentially is that low rates beget low inflation, trapping central banks in zero interest rate policies (or ZIRP). "With the nominal interest rate at zero for a long period of time, inflation is low, and the central banker reasons that maintaining ZIRP will eventually increase the inflation rate. But this never happens and, as long as the central banker adheres to a sufficiently aggressive Taylor rule, ZIRP will continue forever, and the central bank will fall short of its inflation target indefinitely," Williamson said. "This idea seems to fit nicely with the recent observed behavior of the world's central banks." Source: Federal Reserve Bank of St. Louis Steven Williamson The trap then manifests itself in a failed communication strategy. In the third stage of QE, the Fed sought to establish specific targets for when it would raise rates, such as 6.5 percent unemployment rate and a 2.5 percent inflation target. However, as unemployment fell and inflation lagged, the Fed began moving the goalposts, to the point where the headline unemployment rate is now 5.3 percent and the central bank has yet to move on interest rates. Williamson argues that the Fed is perhaps overdoing it with transparency, and he uses a simple comparison of post-Open Market Committee meeting statements: After the Jan. 31, 2007, (precrisis) meeting, the Fed statement consisted of just 129 words; following the Jan. 28, 2015, meeting, the statement more than quadrupled, to 529 words. Read MoreThe Fed's muddied message causing market mess In that type of environment, the market becomes glued to certain phrases the Fed uses. In this case, the FOMC had been including the term "extended period" for how long it would remain accommodative. However, as the benchmarks fell and the Fed kept ZIRP in place, the impact of forward guidance became muted. "'Extended period' is far too vague to have any meaning for market participants; monetary policy rules should be specified as contingent plans rather actions to take place at calendar dates; 'thresholds' are meaningless if nothing happens in response to crossing a threshold," Williamson wrote. "Thus, the Fed's forward guidance experiments after the Great Recession would seem to have done more to sow confusion than to clarify the Fed's policy rule." Many Wall Street strategists have issued forecasts expecting the Fed finally to end zero interest rates in September. However, uncertainty lingers: The CME's FedWatch tool, which monitors futures contracts, indicates just a 36 percent chance of September tightening.
You need M3 Money velocity to pick-up for there to be proof of a stronger economy. The Fed has discovered their tools aren't working to increase M3 velocity.
I don't think the Public is smart enough to figure out they got ripped off! Many posted here that QE was a joke, holding rates down only benefited companies wanting to enrich shareholders(not a bad idea if its fair, Adam Smith attacked cheaters!) and corporate executives. Bill Gross has been critical of QE and forcing Japanese style economic warfare against US Citizens since 2010.
Low interest rates have been wonderful. Any investors or traders who missed the boat on the bull market since 2009 have only themselves to blame. Smart investors have done very well. Those who believed in conspiracy theories and that somehow the world economy was ruined ( too many of these types on Elite Trader from 2009-2013 ) did very badly, especially if they rent their place and short things like US indexes. QE was all about preventing a depression due to the subprime fiasco. It was successful, the world came out of it far better then most expected. Is everything perfect and the economy robust ? Of course not, just be glad it's reasonably stable and there are at least some improving aspects to the US situation now. One can argue now that QE wasn't tapered off fast enough and other miscellaneous ideas, but it's got nothing really to do with QE the first few years. Those like S2007S who continue to pretend it's still 2009 and they are still in the same trade in their head will continue to be ineffective in their decisions as they try to play catch up instead of a fresh start approach to investing.
How have low interest rates benefited seniors who had their money parked in banks or money-market funds? How have low-prices benefits first-time home buyers? Boosting housing asset twice or three times its natural worth because i-rates are at 0 percent? The transfer of wealth from the people's money sitting in banks at 0%, this has not helped the Middle Class nor has it helped America one bit! That money has not been used to create jobs nor has it been used in ways to make America great, its all been used by the likes of Tim Cooke borrowing $200 Billion USD in debt offering to buy back stock or Tax Inversions! Mr. Warren Buffet has affirmed exactly what Bill Gross and many other lovers of capitalism are yelling, since 2008's meltdown we became a socialist country for the 1% and the American Worker's wage has stagnated, his/her lifestyle has slowly been sucked away. Why can't we give a free education instead of free money to companies that are going to pull the wrong from underneath our legs? Tax-Inversions, go ahead and allow your tax-base to run off to another country like Big Pharma as they suck Medicare and Medicaid dry. Their not doing these Inversions to help drive down brand-name or generic drug prices down, it's about driving shareholder value. There's a saying in almost every culture, "when the masses are hopeless and hungry" stupid remarks by rich people like the following will not provide us any security, they drive us over the brink. Q-E did not help everyone, I am a conservative who cares for people without the means to get where you are, everyone needs a chance, not just the 1%. "Once I pay for the helicopter, the helicopter fuel, the townhouse and the Lexus, I barely have more spending money than your entire yearly salary." https://www.janus.com/bill-gross-investment-outlook
Life is too short to get upset about something like interest rates. I think low interest rates are wonderful, much better then when mortgages got as high as 14-20% when I was younger. You don't want to be like S2007S and rant and rave about everything and totally miss the boat on the new opportunities that occur as the world changes. If first time home buyers can't afford homes, they probably shouldn't be buying at all anyways. Younger seniors probably should have been in things like REITs and preferred shares not in savings accounts from 2009-2014. Many seniors are baby boomers that had it easy most of their life ( cheap education, guaranteed career path, very low taxes ), and should have a paid off home by now that they can remortgage if necessary at very low rates if they need cash. I have far more concern for today's younger generations that face tight job markets and living in their parents home can be a reality into their 30s. My take is the US lived it up for a few decades and overextended. Things people took for granted are no longer guaranteed. It's a painful transition, you get taxes rising to what we in Canada experienced in past decades already. What's left is a lot of squabbling about who will pay the bills; somebody has to pay them.
I couldn't recommend Williamson's papers to anyone who's not a masochist, but i certainly can recommend this nice, clear, and eminently understandable explanation of why interest rates are so low, by the master. http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low Here is an important excerpt: "If you asked the person in the street, “Why are interest rates so low?”, he or she would likely answer that the Fed is keeping them low. That’s true only in a very narrow sense. The Fed does, of course, set the benchmark nominal short-term interest rate. The Fed’s policies are also the primary determinant of inflation and inflation expectations over the longer term, and inflation trends affect interest rates, as the figure above shows. But what matters most for the economy is the real, or inflation-adjusted, interest rate (the market, or nominal, interest rate minus the inflation rate). The real interest rate is most relevant for capital investment decisions, for example. The Fed’s ability to affect real rates of return, especially longer-term real rates, is transitory and limited. Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth—not by the Fed." [Underlining is mine.]
That's was a good read, Piezoe. Thanks for posting. What do you make of this comment.... Government spending and taxation policies also affect the equilibrium real rate: Large deficits will tend to increase the equilibrium real rate (again, all else equal), because government borrowing diverts savings away from private investment.
Real interest rates were considerably higher before the maestro and helicopter got involved. As the chart shows. That disproves the thesis that is being presented in this post. Secondly, Williamson goes onto to say that cap investment decisions are most effected by real interest rates. He didn't say in which direction, but can we assume he meant that lower real rates would tend to increase capex? In fact, capex has not increased in this low real rate environment. Read David Stockman, Pie, and forget this Williamson character.
Ten year real rates have been both higher and lower. In '75 and '81 they were negative, in '09 they hit 5%, in '14 they hit zero and right now they are somewhere near 2%, not unlike other periods in the past. Arnie, I think Bernanke, here, is just recapping what we already know happens under normal circumstances, i.e., the Treasury normally competes for capital with the private sector; thus when government demand for private sector capital increases, rates are pushed up and bond prices pushed down. This is just the opposite of what happens in QE; then the usual pressure on rates that would otherwise be caused by heavy government borrowing is offset by expansion of the Fed's balance sheet and rates can actually be pushed down as they were during the Feds recent QE operation! Recall that all Fed profits after expenses flow directly back to the Treasury. QE is by far the least expensive way for we tax payers to borrow massive amount of money in a hurry! There were both direct and indirect affects on the U.S. economy from the QE operation combined with qualitative easing (operation "Twist"). Some of the direct effects were the lowering of mortgage interest rates to historic lows; keeping variable rates from resetting, home owners in the homes, and their homes off the market. This played no small part in the rescue of the U.S. building-real estate industry, which recall was nearly one-fourth of the economy when the crisis hit. QE also made available massive amounts of rescue and stimulus money to the Treasury at extremely low cost. And though we didn't know it at the time, it appears now that the Treasury will actually make a net profit on the private sector rescue operations when it is all said and done. (The Tarp project is not yet complete, but nearing completion.) As the luck of the draw would have it, we happened to have one of brightest and most capable economists in the world heading up our Fed when we had a dire need for his steady hand and expertise. We are extremely lucky to have had Bernanke at the helm at that stormy moment in history! I'm convinced most don't realize how extremely lucky we were. It could have been Greenspan or someone worse!!!