Is another bout of QE a good thing?

I think the periphery things that people need but need less than essentials are going up.

 

QE will not do anything as usual. It's not how the mechanics of banking works. Banks don't lend reserves, in fact reserves don't leave the fed. when a bank loans money it creates a claim on reserves or promises to pay reserves on demand. Reserves are created in response to banks increasing loan activity not the other way around.

For example when a loan for 10k is made the total amount of deposits in the banking system goes up by 10k, along with a corresponding liability of 10k to the borrower. Loans create deposits.

“[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.“
- Robert B. Anderson, Secretary of the Treasury under Eisenhower, in an interview reported in the August 31, 1959 issue of U.S. News and World Report

"[Banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts."
Chicago Federal Reserve Bank

The notion that adding reserves to the banking system will increase bank lending should be laughable for any real student of money. The fed responds to an increase in bank lending by adding reserves to the system. It has to, if it wants to maintain it's target rate.

"Based on how monetary policy has been conducted for several decades, banks have always had the ability to expand credit whenever they like. They don’t need a pile of “dry tinder” in the form of excess reserves to do so. That is because the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand in its conduct of monetary policy. In terms of the ability to expand credit rapidly, it makes no difference."
(1) William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, said in a speech in July 2009

Empirical evidence backs this up as well. You will find that increase in bank lending precedes reserve expansion. In a 1990 paper "Real Facts and a Monetary Myth" Kydland and Prescot found that credit money was created about 4 periods before government money. Banks are never reserve constrained only capital constrained.

The previous QEs did not cause inflation how could it. Loan activity did not increase, wages didn't either. How did money get into the hands of consumers to bid up prices? it didn't. Prices rise for a lot of reasons, but to blame it on money printing by the government is an easy, low level , low empirical analysis. As you can gather from above the FED can only control the price not the quantity of money. For example M3 money was greater in 2008 than after the QEs, yet during 2008 no such actions were taken.

 

There is only about $900 billion paper and coin dollars.
There is about $14 trillion dollars worth of credit supplied by banks.
There is about $55 trillion dollars in total debt, again, supplied by banks.
What backs the dollar is the faith that the $14 trillion dollars will some day pay the $55 trillion dollars off (plus $217 trillion financial derivatives).

Looks like it's a Ponzi/Pyramid scam on global scale since Nixon Shock.
https://en.wikipedia.org/wiki/Financial_position_of_the_United_States

 

I'm sorry, but QE is a joke in my opinion. What the F am i missing here?

Fed sets FED funds target at X%

As demand for money fluctuates, they buy or sell bonds in order to keep their target at X%

So, now comes Quantitative Easing, and the FED prints money to buy whatever assets.

Supply of money increases

FED Funds rate starts to fall LOWER than the target

FED must sell bonds and reduce money supply in order to bring back the FED funds rate to their target.

Basically any QE is neutralized by the FED Funds rate target. The only difference may be in what assets are purchased through QE. Instead of bonds, perhaps they buy stocks, or whatever. Still, the money supply itself should be unaffected by QE, since it is all neutralized.

 

It will do something but it will be temporary and have long term benefits. It will shift wealth around too, that might be good.

 

I've often thought that all the rich should just give all their money to the poor. That would create a flurry of economic activity as they try to win it back from them.

 

You don't have a proper understanding of money/debt/derivatives. Even under a true classical gold standard (take the one from end of the civil war until the FEDs creation in 1913), has a pyramid shape to it in the sense that $1 worth of real gold can support $9 or so of debt/money. It's the very essence of fractional reserve banking. But just because there is $9 of debt/money doesn't mean that it is being used at once. Let's give an example:

I deposit $100 in the bank. Bank loans out $90 into someone's bank account. Now, there is technically $190 of money out there in our deposit accounts with only $100 of real money. However, only $100 of it can be used at once. If both of us use our money, let's say we take $190 out of the bank, then $90 of it must come from someone else's deposit of real money. In that sense, the bank does not create more money, it just seems like there is more money because it is shown in multiple bank accounts.

Further, currency/coins is irrelevant, as it only represents a fraction of the monetary base. The monetary base is the amount of actual money out there, but its not needed to be completely represented by currency/coins because only a fraction of it is usually outside of the system. If necessary, the FED could print the currency to represent 100% of the monetary base without actually creating any more money than already in circulation, since the only difference is that before 25% of the monetary base was represented as currency while 75% of represented as bank deposit, but now 100% is represented as currency.

And to go even further, your involving derivatives into the picture is completely and utterly off the mark. The $14trillion does not need to "pay off" the $55 trillion. Derivatives are a ZERO SUM GAME. There is NO DEBT there. No one owes this money to anyone and thus does not need to be paid off. As an example, let's say that you sell me a gold futures contract for August at $1565. This derivative has a notional value of $156,500, but this does not create $156k of new debt just because we signed this contract or created this derivative. All that's happened is that you have told me that you will sell me 100 ounces of gold at $1565 per ounce. Even if you lose $10 on the trade, that means you have to give me $1000k extra once the derivative expires, all that happens is the money exchanges hands, hence the zero sum game. This has nothing to do with debt.

 

yeah, that's what I never understood. The banks said, "We made some bad bets on mortgages and lost a shitload of money."

So why didn't the government say, "Well that must mean somebody out there has a shitload of money."

If they had spent as much time and energy trying to figure out how the banks lost it as to trying to figure out who made it, we would have much more powerful lobbyists.

And I don't know about you, but I would rather have the government run by people who make money in times of trouble than people who lose it.

 

the only thing it does , is take away an interest bearing asset and replace it with a non interest bearing asset. If anything it is deflationary since it takes away interest payments.

 

No because the price of goods will rise when the money is spent later on in the business cycle.