When a central bank begins QE the market is not flooded with cheap cash. In fact, the opposite situation pertains at the time QE begins. There is a lot of de-leveraging, paying down of debt, and belt tightening going on. It takes months for the additional money created through QE to find its way into the economy. However what does happen right away is that traders begin to sell the currency in anticipation of it weakening, which of course then becomes self fulfilling prophesy. As the currency weakens relative to the currencies of trading partners, equity prices naturally rise. Traders will go short the currency and long equities in anticipation of the ultimate effect of QE. QE was very effective in rescuing the U.S. market, for example, and for many months the U.S. equities market moved in lockstep with the dollar futures, in opposite directions of course. This tight connection between equities and the currency is gradually lost as the economy, and currency, recovers from recession, and an end to QE is anticipated. I would expect to see a similar pattern in Japan assuming they can get their act together and stop throwing monkey wrenches into the works, such as they did when they announced an 8% consumption tax! (Fortunately that decision was quickly rescinded. What were they thinking!?) The central bank's goal is to make money available to the banks for lending and to the government for stimulus spending. But the difficult part is changing the collective mindset from woe is me to happy days are here again. A market recovery is an important step in that process. Until the mindset change kicks in, the government has to fill in as the source of demand in the economy. As the recovery continues, government revenues rise in both nominal and real terms. The Central Bank can begin the long process of unwinding its bond position. Naturally this has to be done very carefully so as not to cause a steep and sudden rise in interest rates. Naturally too, markets overshoot on the way into a recession and on the way out. That's the nature of real markets. Central bankers have more than adequate tools to moderate markets and keep extreme bubbles from forming if they want to. However they have not made good use of these tools at times in the past when they otherwise might have. I think that is mainly because they believed in outmoded, incorrect market theory, but also of course out of fear that they might go too far and tip the economy into recession.. Greenspan was very good during smooth sailing, but a terrible Chairman when sailing in stormy weather. His forte was in playing the hands-off role, where he was masterful, but when it came time to enforce regulation and use the less-commonly used tools available to him, he sat on his hands. I do not believe, as some do, that his inaction was out of ignorance. The evidence shows he was fully aware of what was transpiring in the mortgage-CDO-CDS cycle. His inaction was due to his lack of belief in regulation, not ignorance of what was going on. He believed in a market equilibrium theory that is false. He has said he failed to recognize that bankers would act against their own self interest. This played a hand in his failure, but I firmly believe that at the root of his failure to act was a belief that markets, if left alone, would self-correct their excesses with out undue harm. He was wrong, and Soros is right. Markets, if left alone, will tend to move spontaneously away from equilibrium, not towards it. Soros has explained very nicely why this is so. He, Soros, when bit younger, would have made an outstanding Fed Chairman.
Yes, very effective in the US. That's why we did it for 6 years and the economy is still dragging along. If "effective" to you is the simple raising of asset prices, then yes, it was. But to me, I judge effectiveness by employment (true employment, not most of the headline employment garbage), food stamp usage, foreclosures, wage growth (or in our case, decline), etc. You know, stuff like that. And Japan is on what QE? How many years have they been doing emergency measures? And you think they have a chance of coming out of it? LOL! As for the rest of the hilarity that you wrote, it looks to have come directly out of some Krugman editorial. Solve debt with more debt. And if it doesn't work, we need moar debt! It's always more with you people.
I think Krugman is more right than you are. Your views are far from unusual however. You look at public finances the same way you look at your private finances. This is understandable. Nevertheless, finances of a sovereign country, with its own currency, must be managed differently then you or I would handle our own private finances.The same rules don't apply to individuals and countries. The U.S. can't default or go bankrupt, you and I can. When a country falls into deep recession jobs are lost, business profits, consumer spending, and government revenues fall. If the government then cuts back spending because of falling revenues, you end up with both government and private sector cutting back at the same time. This can, and will!, throw an economy in recession into a depression that gets worse with time. We saw a perfect example of this in the Great Depression during the Hoover presidency. Even Hayek eventually came around to recognizing that governments should run deficits during recessions. But he refused to recognize the need for increased government spending to replace the lost private sector demand. Keynes realized that when the private sector tightens its belt, the public sector must spend enough to replace lost demand. Otherwise the recession will deepen and get worse, because of what the Nomura economist Richard Koo calls "Debt Trauma". The EU, over waning objections from Germany, will soon embark on QE. (The falling Euro/USD is a reflection of traders anticipating both Fed tightening and ECB QE.) Why will the Germans be forced to give in on QE? Because austerity in the EU has made matters worse not better. Germany is seeing 0.5 % inflation and threatening to fall into deflation! The southern countries have huge unemployment and are still in deep recession six years after the collapse. This is the result of the EU following an austerity regime, or having to borrow at high interest rates in the case of the PIGS, after the financial crisis. Contrast that, if you will, with how the U.S. Fed and Treasury handled the Great Recession in the U.S. I'm confident the ECB will model their QE program after the U.S. Fed once Draghi gathers enough support, and he nearly has enough now, as German opposition is weakening because of the threat of deflation. (Lithuania's joining the EU is another potential source of help for Draghi.) The main difficulty the ECB will encounter, after Germany, is due to the lack of a Euro bond. They will manage nevertheless, and in six years the EU's economy will be much stronger than it is today, the Germans will have learned a valuable lesson and might even, at some point, agree to a EURO Bond.. Japan will follow suit, and will benefit greatly. They must do it right however, and there are signs now that they are finally catching on. (They have continually shot themselves in the foot in the past. A step forward, then "Bang!" over and over. They are finally showing signs that they get it.) The U.S. might have done even better had the Congress agreed to everything the administration asked for. Had they, we would have less unemployment today, and a still more robust economy. The U.S. debt to GDP is below what it was after WWII. U.S. debt is not excessive. A side benefit of QE is that the government, thus the tax payer, is able to borrow at extremely low rates. Most of the TARP money has been recovered. The car companies are still alive. AGI is still in business and has paid back their debt to the Treasury. GM has bought back most of its stock. Hundreds of thousands of jobs were saved. The building and real estate markets are recovering nicely. Hundreds of thousands have been able to refinance out of abusive loans and stay in their homes. None of these things would have happened without TARP and QE. Instead we would still be in recession, just like the EU, and possibly in a depression. It is not over. We don't know yet if the Fed can more less harmlessly unwind when the time comes. I think they will pull it off. But we have to wait and see. They can't just start selling their long bonds willy nilly. That would cause a sudden and steep rise in interest rates. They will have to be very clever, and circumspect as they reduce their balance sheet. I assume it will takes years. I have great confidence in Yellen. She's an extremely bright economist!
What you think is not surprising. Krugman is your high priest, I would expect you to support him, and your religion. Are you quite sure about that? Austerity. LOL! With debt/GDP rising year over year, if that's austere than I would hate to see what spending is like!
Anyone remember the business cycle? Booms followed by busts? Inflation followed by deflation? Central bankers are trying their best to eradicate the business cycle because the deflationary-bust part destroys banks, to which they are chartered to work for. Think about it, kids. The boom-bust cycle (business cycle) existed right up until 2001, since the dawn of man. America has experienced tens of business cycles over her existence. Did the world end each time a bust happened? No. In each bust, were debtors overwhelmed with debt and go bankrupt? YES. Did banks go under as a result? YES. Did the world end? NO. Did the sun rise the next day? YES. Did the economy find new footing and resume growth which explains how we got here? YES. It's all about the banks. Banks have made deflation a form of economic terrorism. If 'deflation gets us, we'll all die'. That's the meme. Truth is, the banks die if we get deflation. They hold the loan at paper value. When the money supply shrinks, asset values plummet as does demand. When people can't pay and the banks repossess, they're sitting on a huge capital loss = bankruptcy. The system is entirely run by the banks now. Creative destruction is now disparaged by the financial media as a dirty word. Basically calling the business cycle evil. It's nonsense.
Actually Tao, Keynes and Soros are my joint high priests. Krugman is just someone that is worthwhile listening to. Stiglitz is also a radical I enjoy listening to. You are a radical as well, by the way. That's something you and Stiglitz have in common, you are both radicals. I'm surprised you haven't yet commented on the missing article from the next to last line in my post #201 above.
I haven't commented about it probably because I usually skim through your posts of "Yellen is my idol" and "bernanke is a genius" and "rah rah Fed!" stuff. So I probably didn't see it. Compared to main stream economists and empty suit academia like yourself, I certainly am radical. Radical changes are necessary in order to fix the disaster we are witnessing before it becomes the disaster we are living through (as it is for many right now). The difference is that I read and consider the viewpoints by the kooks you worship, while you don't bother with any of the folks who share my viewpoint. This explains why you had no idea who Jim Grant was. I mean, how can you study the Fed and interest rates and not know Jim Grant??
Deflation only scares those who are in debt, and as a result, those who have lent out to those in debt. If you are fiscally responsible, deflation shouldn't scare you. As you said, it's part of the cycle. If I make $100,000 a year and you drop that by 10%, but you also drop everything I pay for by 15%, I'm ok with that! That is, unless I owe massive amounts of money to the bank which are due in post-inflated dollars. The fact that central banks and their piezoe cohorts are so afraid of deflation is a testament to the world's debt problems.
More Abenomics unmitigated success stories. Households on welfare hit another record high Japan Jan. 7, 2015 - Updated 00:02 UTC-5 The number of households in Japan on welfare hit a record high in October, renewing the record for a 6th straight month. Officials at the Welfare Ministry say households receiving welfare benefits climbed by nearly 3,300 from the previous month to about 1.61 million. That's the highest number since the government began compiling records in 1951. Households on welfare with people aged 65 or older rose by nearly 2,500 to about 761,000. That accounted for 47 percent of the total. Ministry officials say a surge in the number of elderly recipients is behind the growth in the number of households on welfare. They cite an increasing number of senior citizens who live alone in Japan's aging society. But the officials say the rate of increase of households receiving the assistance has slowed over the long term, as the number of working-age and single-mother recipients have been falling due to improving employment conditions.