that would explain why it is impossible to understand what he is saying, or has anything to do with reality.
I think most of us somewhat knowledgeable on the subject are self taught. That way we were able to toss out a text if it didn't seem to fit reality and concentrate on texts that work with the real world. In college, if you are taught wrong theory for four years it is nearly impossible to abandon it no matter how wrong it is.
Everything has changed in the last 20 years since the advent of derivatives and what looks to be perpetual QE and ZIRP. If there is an exit stategy, I certainly cannot see it without considerable pain and suffering. This seems to be the point Tsing is trying to make from what i have read.
The Fed members are concerned about this, too. It's not only going to push the markets the wrong way but it's going to create billions in losses for the Fed. Monetization of the Fed holdings, if they went this route, would come at the worse time, too. Maybe Bernanke is planning to just leave the mess for the next Fed Chairman.
+1 Max In a free market, an asset is only worth what the highest bidder will pay for it NOW. That the market isn't always moving towards 'equilibrium' is a moot point once an individual understands this.
I think those few Fed members are full of shit, to be honest. It never stops them from rubber stamping the next round of asset purchases or extending the ZIRP accomodation. What they do worry about is their public image and/or their credibility. So they throw a few bones out there in the Fed Minutes about "concerns" and just keep on with the status quo.
Tsing Tao made a crucial point: "1. The Fed has enabled politicians to spend without any concept of worrying about debt, or making that spending efficient. Congress doesn't care about debt because congress doesn't understand what is going on. All they know is rates are quite low and they believe this is because the bond market is OK with them borrowing forever. They don't get that the bond market is actually not ok at all (see point #2) and that the Federal Reserve is cornering the market, giving the impression all is well." This must seem like some kind of nirvana to politicians. They can spend recklessly and the Fed just prints enough money to cover it. Meanwhile, the bond and currency markets appear to love it. We're "borrowing" (actually just printing money) to cover a staggering 40% of the budget. And amazingly, there are no consequences. It's like AmEx gave you an unlimited credit line on your card and said not to worry about ever paying it off. Forget competing schools of economics. Common sense tells you this condition cannot endure forever. If it does, people sure wasted a lot of time and effort working and trying to create wealth. All they had to was get the govenrment to dial up ever how much they wanted. No one can predict how long this works. Maybe we can emulate Japan and let it go on for 20 years. Rigged markets have a tendency to correct violently however, so if it becomes apparent that the policy will change, everyone will rush to the other side of the boat at once. Not good. Let's get one thng clear however. The QE policy is not about goosing the economy. Clearly it is a dismal failure in that regard. It's not even about goosing asset values, although that has been a byproduct. What it is about is paying for the Obama bailouts and vote buying schemes without having to cut elsewhere in the budget. From an economic standpoint, it has been a massive reallocation of resources from savers to parasites, all done by such cunning sleight of hand that those who were being robbed actually thought it was for their benefit. Obama has come a long way since his clumsy reply to Joe the Plumber about "spreading the wealth."
Obviously they are going with the "there is no spoon " philosophy because there is no plan to clean up the feds balance sheet.
I am much more comfortable with the possibility that the Keynesian approach to bring the U.S. out of a deep recession may not work as intended, and might even make matters worse, then I am with the idea that equilibrium theory is correct, and therefore the laissez faire school of economists are also correct.
QE is a means of providing money to the Treasury to cover deficits without putting upward pressure on interest rates.