Is another bout of QE a good thing?

This is a reaction to another tranch of QE. It related to the UK but the arguments are relevant everywhere.

http://morganisteconomics.blogspot.co.uk/2012/06/is-another-bout-of-qe-good-thing.html

 

well morgan, the problem is, there are two parts to the question.

1. What's good for the economy?

2. What's good for my account?

Those that are long stocks like it

Those of us that are long USD don't like it

but that can change any moment for both of us

I guess this is the economics forum so we should be talking economics rather than our book (if you want to call my small miniscule account a book.)

but I've noticed many so called experts are really just talking their book, whether it's real money or previous articles they have written

 

but now one thing I'm seeing since I started trading forex is, if somebody starts printing, it doesn't necessarily mean EUR goes down and USD goes up or visa versa, it means currencies go down, and when one starts printing they all go down.

Fun for us forex traders trying to guess which one will go down faster, but over all, it means the value of all paper money is decreased.

So, when you print over there, that makes my gasoline (that's what we call petrol over here) go up.

Makes you just want to take your Chevy V8 and put it in the car park.

 

By golly, if the third one doesn't work than the 18th one surely will!

 

Seem to work out fine for the Weimar Republic and brought on the Third Reich so what's no to like?

from wikipedia"

In the early postwar years, inflation was growing at an alarming rate, but the government simply printed more and more banknotes to pay the bills. By 1923, the Republic claimed it could no longer afford the reparations payments required by the Versailles Treaty, and the government defaulted on some payments. In response, French and Belgian troops occupied the Ruhr region, Germany's most productive industrial region at the time, taking control of most mining and manufacturing companies in January 1923. Strikes were called, and passive resistance was encouraged. These strikes lasted eight months, further damaging the economy.

The strike prevented some goods from being produced, but one industrialist, Hugo Stinnes, was able to create a vast empire out of bankrupt companies. Because the production costs in Germany were falling almost hourly, the prices for German products were unbeatable. Stinnes made sure that he was paid in dollars, which meant that by mid-1923, his industrial empire was worth more than the entire German economy. By the end of the year, over two hundred factories were working full time to produce paper for the spiralling bank note production. Stinnes' empire collapsed when the government-sponsored inflation was stopped in November 1923.

In 1919 one loaf of bread cost 1 mark; by 1923 it cost 100,000 million marks.
1 Million Mark notes, used as note paper, October 1923

Since striking workers were paid benefits by the state, much additional currency was printed, fueling a period of hyperinflation. The 1920s German inflation started when Germany had no goods to trade. The government printed money to deal with the crisis; this meant payments within Germany were made with worthless paper money, and helped formerly great industrialists to pay back their own loans. This also led to pay raises for workers and for businessmen who wanted to profit from it. Circulation of money rocketed, and soon banknotes were being overprinted to a thousand times their nominal value and every town produced its own promissory notes.

The value of the Papiermark had declined from 4.2 per U.S. dollar at the outbreak of World War I to 1 million per dollar by August 1923. This led to further criticism of the Republic. On 15 November 1923, a new currency, the Rentenmark, was introduced at the rate of 1 trillion (1,000,000,000,000) Papiermark for one Rentenmark, an action known as a monetary reset. At that time, one U.S. dollar was equal to 4.2 Rentenmark. Reparation payments resumed, and the Ruhr was returned to Germany under the Locarno Pact, which defined a border between Germany, France and Belgium.

Further pressure from the right came in 1923 with the Beer Hall Putsch, also called the Munich Putsch, staged by the NSDAP under Adolf Hitler in Munich. In 1920, the German Workers' Party had become the National Socialist German Workers' Party (NSDAP), or Nazi Party, and would become a driving force in the collapse of Weimar. Hitler named himself chairman of the party in July 1921. On 8 November 1923, the Kampfbund, in a pact with Erich Ludendorff, took over a meeting by Bavarian prime minister Gustav von Kahr at a beer hall in Munich.

Ludendorff and Hitler declared that the Weimar government was deposed and that they were planning to take control of Munich the following day. The 3,000 rebels were thwarted by the Bavarian authorities. Hitler was arrested and sentenced to five years in prison for high treason, a minimum sentence for the charge. In the event, he served less than eight months in a comfortable cell, receiving a daily stream of visitors before his release on 20 December 1924. While in jail, Hitler dictated Mein Kampf, which laid out his ideas and future policies. Hitler now decided to focus on legal methods of gaining power.

 

Who said QE did not work.
It pumped up the asset side of the banks balance sheets,
and enabled painless deficit spending by politicians.
That your living expenses go up,
well we don't count that in the CPI.

 

my living expenses are not going up. I can buy a much better computer now than I could ten years ago for less money.

When I was young, I could buy steak everyday, but now that I am old, I can only eat one a month, so my steak expense is actually cheaper.

I already have everything a man could want, so I don't need to drive much to buy new things, so the price of gas doesn't affect me much.

How are my living expenses going up?

What is it that costs you so much more than your parents paid?

You know the rule, 25% of monthly income to housing.

It use to be 25% for utilities and home repairs, now that is a lot less.

25% for installment debt

and 25% for longterm retirement

How have any of those living expenses gone up?

Most of them have gone down.

That's why we have so much money to blow on useless things like buying stuff and trading.

 

They don't do it with paper any more.

 

That is because the effect of QE has not been seen yet. It is the short term benefit time. You will see it in a year or two or three depending on when it stops.

 

How do they do it? "Digital" is not a correct answer.