How can QE cause inflation where there is no printing of money but only creating electronic money and transferring to the banks with the promise of not giving credit to the market? Can someone explain?
Those charts and statistics do not prove causation, and that QE2 "worked." If only we could do controlled experiments in Econ as we do in drug tests, for example. My son grew 3 inches since the start of QE2. I guess I can thank Bernanke for that, too. Obama says he saved how many million jobs? The entire premise for saying such a thing lies on the fact that you can't prove he didn't (nor that he did).
so I guess he should'nt be taking credit for the market runup...if money is not finding its way out into the street.
The Bank of England has attempted to estimate the impact of QE on the UK economy, for those curious about the methodology. The upshot, pretty much, is that it's inconclusive. http://www.bankofengland.co.uk/publications/workingpapers/wp393.pdf
The stock market rise was not the expressed goal of QE which was for lower interest rates and higher inflation (self contradictory on its face but expressed goal nontheless). The rise in the stock market is due to perceived promise of continued Fed action to prevent rate increases and does not reflect the impact on the Main Street economy which is still starved for debt due to collateral value collapse in the non-public debt markets, and where wealth destruction was most accute. Pointedly the failure of QE is clearly seen in the continuing fall in real estate asset valuations both residential and commercial, the continued high unemployment and low wage gain environment, and the continued contraction of private credit. In Weimar Germany the stock market rallied during the whole two year period of hyperinflation that lead to currency collapse. The real story is in the economy of small private corps. The Bloomberg author is oblivious to that fundamental economy. Risk spread on high yield bonds is just more evidence of Fed manipulation to maintain lower interest rates. Fed activity is distorting price information and creating a credit bubble that will become dangerous when the Fed withdraws its manipulation. Inflation Expectations may be up but inflation is not being reflected in the price index measures. This is becasue the Fed cannot drive credit expansion through monetary manipulation. It has no transmisson mechanism that can transfer lower interest rates or increased base money supply into bank credit and increased leverage which is what actually drives the increase in the price of index components. Instead, becuase of a fiscal context that discourages entreprenuel risk of debt formation and investment, the monetary efforts have only resulted in a build up of excess reserves. These reserves in turn seek expanding credit markets for investment and so create inflation through carry trade along with great carry trade risk and emerging market bubbles that will be dangerous in any unwind. Domestic cash producers (cash flow positive actors) in the face of inflation expectations, and the investment disincentive of the fiscal context, seek real money or absolute liquidity to park the excess reserves in liquid positions thought to protect against immediate capital loss...so liquid commidity funds rise out of proportion to their use values and insured bank CD and Treasury rates are suppressed as the 10ry TBond is used for its liquidity and not its return. This creates a domestic 'hot' money situation from all the money created by the Fed. Should the credit market begin to expand, the deluge of capital flow out of short term liquid reserves will overwhelm any politically practical policy the Fed could use to oppose it...unless you think they will pull a 'Volker' at the very beginning of a main street expansion. One of the lessons of Weimar was that once an inflation is in process the politics of deflation become untenable. To stop the inflation you have stop credit expansion and that action will create immediate and traumatic contractions and unemployment. In the context of just then coming out of high unemployment suffered for years; it would appear that such action would be against the Fed policy directive of full employment and would be opposed by the political class and the populaton. Will the Fed shut down the economy to meet its price stabilization mandate, and abandon its employment mandate? If the Fed drives interest rates up, wont that put intollerable stress on the U.S. budget allocation dedicated to debt service on accrued debt?
The facts behind QE1 & 2 are obvious. The "Printing Press" has helped to prop up the stock market. It has caused commodities to rally. It is the main cause for the commodities to rise but not the only cause. Nobody is saying Qs have not served the purpose it was intended for. However, unemployment numbers are still at all time highs. Companies are sitting on sidelines full of cash but not putting it to work. The Middle class is falling behind in net-worth as inflation dilutes their real net-worth. Housing has not bottomed out and inventory is huge, but no buyers. So, as the country is still headed into the abyss for 90% of the population, the 10% will be able to live well, even with the net-worth diluted. Inflation is around 6% in real terms. PPI/CPI are a joke and anyone in the financial world understands that. Bottom line, Qs have keep deflation at bay for now, they have "Taxed" the producers and workers and the cost of living is rising in all aspects. So, either your making great money and living well, or ur fucked.
In other words, The Bernanke Put. Which is different from the Greenspan Put.... ....because it has Bernanke's name.