Article

 

originally posted on Bloomberg:

It's Now Clear That QE Was A Colossal Policy Mistake ALLISON SCHRAGER

"The great quantitative easing experiment was a mistake. It's time central banks acknowledge it for the failure it was and retire it from their policy arsenal as soon as they’re able."

(Opps...lil late yo.)

"Since the global financial crisis of 2008, an integral part of central banks' play book in the US, the UK and the European Union has been QE — the practice of buying up long-term bonds and mortgage-backed securities. QE is supposed to work by lowering long-term interest rates, which boosts demand and increases lending and risk-taking."

"There is little to show in terms of the economic benefits of QE, but there are plenty of costs. Now central banks find their hands tied as they try to curb inflation with interest rate increases and quantitative tightening, which means no more purchases of long-term bonds and mortgage-backed securities. But they're finding that ending QE can itself be a threat to financial stability."

"During the 2008 financial crisis, central banks were desperate to inject liquidity into the financial system. With the policy interest rate at zero, it needed to figure out another mechanism, so it bought long-term bonds and mortgage-backed securities, ballooning its balance sheet. That was supposed to be an emergency measure, but it went on for years. QE was followed by QE2 and then QE3 as the Fed became fearful that stopping would crash the bond markets.

(It's called "loose" or "easy" monetary policy and it became our addiction. Notice who used it the most, US, UK, EU...who is Putin going after again?)

"About a decade later, just as the Fed’s balance sheet finally started to shrink, along came the pandemic and the biggest QE ever. It lasted well after the immediate crisis passed, even as inflation and the housing market started to heat up."

(Think that was a fluke? Who bends the ark of history to his trajectory again? The Almighty alone, see post on idiosyncrasies etc...)

"In cases where a market is in trouble, having the central bank step in and buy bonds can provide needed liquidity. But using QE to boost the entire economy, to lower unemployment or boost inflation, has a more dubious record."

"QE is essentially taking a leveraged bet that won't pay off if interest rates increase. The Fed pays interest on the reserves it holds for banks, and it uses those reserves to finance its purchases of long-term bonds. Now that the interest rate has increased to fight inflation, the Fed must pay more for reserves than it's getting from the bonds in its portfolio, and it’s losing money."

"Using QE to keep interest rates low distorts risk assessment since bonds are considered the risk-free assets in the economy — they're used to price assets and act as a barometer on risk-taking. Long-term bonds are among the most systematically important assets in the economy, and when their price is distorted, risk prices have less meaning."

Translation, "easy $", "loose monetary policy", "QE" etc...I got kazillions OF $'s or other forms of wealth, I leverage those to the hilt, take a no interest or .25% interest loan, get more kazillions, invest that in the stock market with way better returns than what the banks are paying, after my investment reaches a certain threshold I "cash out" my investments having increased my kazillions and now I repeat the entire process. It's not hard to see why certain individuals dont/didn't want the process to stop and the 34 year old's who were 20 when this was all initiated? They think this is "normal", this is their "baseline", everything else in the past is an aberration because it's all they have ever known, when in fact the other side of that equation is whats "normal" and their "normal" is the "aberration.")

"The Bank for International Settlements published a paper arguing that lowering long-term rates made corporate debt cheaper, which propped up zombie companies."

(All waste in a sewer, all that "liquidity" the fed created  had to go somewhere and it largely went to creating and financing "Zombie corporations" which wouldnt have existed under "normal" conditions and dont provide any benefit other than barely being able to carry their debt loads and with interest rates climbing? They are now doomed to failure.)

"QE blurs the relationship between fiscal and monetary policy and threatens central bank independence because the Fed is essentially monetizing government debt. It also makes it very hard to follow monetary policy rules."

"Many economists think rules are better in most situations because they maintain the Fed’s credibility and promote transparency. There is no such formula or rule for QE; it's always ad hoc. That may be necessary in an emergency like the financial crisis. But the persistent use of QE shows central bankers will then extend that emergency action into normal times."

(I might add we tried raising interest rates a while back, 2.5% and it headed us straight to a recession, once we were backed in the corner of QE? there was no escape and the only way it's ever going to get fixed is with a complete collapse of current world economic order, hello 666, the new economic system spoke of in the book of revelation.

"Revelation 13:17-18

..."so that they could not buy or sell unless they had the mark, which is the name of the beast or the number of its name.

This calls for wisdom. Let the person who has insight calculate the number of the beast, for it is the number of a man.[a] That number is 666."

(Thank you Brother Joe for pointing out during your revelation bible study that "666" wasn't Satan but the new economic system that's coming.)

"Ending QE won’t be easy. Central banks now have enormous balance sheets that will take years to whittle down. And as we see in the UK, when a central bank stops buying bonds, it can throw markets into chaos. Now that QE has become the norm, the next time there is a recession markets will expect more QE, and if doesn’t happen that could cause more trouble in the debt market.

That’s why central banks need to admit QE was a mistake. Their credibility is already at stake after they underestimated inflation. Now is the time to take a hard look at monetary policy over the last decade and rethink what worked and what didn’t. Otherwise we’ll be stuck with QE forever."

(What do you call it when a mistake is your only choice? 

I dont know what you call it but I hear:

Revelation 6:15-17

And the kings of the earth, and the great men, and the rich men, and the chief captains, and the mighty men, and every bondman, and every free man, hid themselves in the dens and in the rocks of the mountains;

And said to the mountains and rocks, Fall on us, and hide us from the face of him that sitteth on the throne, and from the wrath of the Lamb:

For the great day of his wrath is come; and who shall be able to stand?

We were just about out of it and here comes covid and makes it worse...you might want to just think about it for a minute and think why is it that our only option was a mistake?

"Their credibility (Central banks, the Fed etc) is already at stake after they underestimated inflation."

(I disagree, they knew ahead of time what was coming and that they were powerless to do anything about it, THATS why they let inflation be underestimated, they didn't wanna "remove the punch bowl from the party" so to speak until they had no choice, but they knew what was up, these people are not that obtuse. WOD BTW, obtuse :-).

"Now is the time to take a hard look at monetary policy over the last decade and rethink what worked and what didn’t. Otherwise we’ll be stuck with QE forever."

(Again, I disagree, i know go figure right? 1) it's not a substainable solution and 2) Russia and China just might have a say in what happens next, they sure seem to understand whats going on but all the combined central bankers in the US, UK and EU dont? Come on now...

Maybe?

Maybe there was a reason I got a job at the height of the financial crisis where I could sit and read all night night after night in quiet about QE etc...

Doin this 10+ years now...