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View Diary: Markets hated the tax cuts for the rich (288 comments)

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  •  but but QE2 (9+ / 0-)

    was installed to lower the rate was it not ?

    •  QE2 only makes things worse (15+ / 0-)

      Quanitative easing is the 21st century term for "printing money".

      QE2 and Last Rites for the World's Reserve Currency

      The truth is, Quantitative Easing will not reduce unemployment, narrow the output gap, or increase aggregate demand. At best, it will lower long-term interest rates (slightly) and buoy asset prices. That may be good for the stock market, but it won't lay the groundwork for a strong recovery. In fact, it might not even be enough to keep the economy from slipping back into recession. As last Friday's report from he Bureau of Economic Analysis indicates, most of 3rd Quarter GDP was from rebuilding inventories. Remove inventory restocking, and final demand was a sickly 0.6%. So, how will Bernanke's bond purchasing program increase final demand?

      It won't. If the Fed buys Treasuries, Treasury yields go down which pushes investors into riskier assets (like stocks). That pushes stocks higher, investors feel richer, spending takes off, businesses hire more workers, and the economy grows. It's a great theory, but it doesn't work. Yields are already at record lows and businesses are still not hiring because there's no demand for their products. The problem cannot be fixed from the supply side, which is to say, that it doesn't matter how cheap money is, if no one is borrowing. And no one is borrowing because they are either broke or out-of-work. Bernanke's grand plan doesn't get money to the people who need it, so the economy will continue to sputter.

      Also, Yields on the 10-year and 30-year Treasuries have already dipped in anticipation of QE2, but is there any sign that businesses are planning to start hiring again? Of course not, because low interest rates don't matter in this environment. Case in point; record-low interest rates haven't increased home sales at all. Cheap money doesn't generate demand when personal balance sheets are underwater. Bernanke knows this because he's studied Japan's Lost Decade and understands what happened. They initiated two massive QE programs and got zippo---bank loans and credit continued to go sideways. So, Bernanke is being disingenuous. But why?

      The reason is that the Fed is locked in a violent exchange-rate war to push down the value of the dollar. Bernanke wants to trim the current account deficit to boost exports. But he'd rather not tell the American people that he's using their currency as a bludgeon to beat trading partners into submission. It's easier just to scribble some gibberish about "generating jobs" and send it off to the Washington Post.

      The Fed is at war; that's the truth of the matter. Economist Michael Hudson calls Quantitative Easing (QE) "a form of financial aggression." But Hudson probably understates the case; "monetary terrorism" (moneterrorism?) is probably closer to the truth. QE is flooding emerging markets with cheap capital that's forcing their leaders to take defensive action to protect their economies. EM's have already seen the first wave of liquidity surge into their markets raising havoc with prices and forcing central banks to raise rates. But emerging markets aren't taking it laying down. They're throwing up protectionist barriers and monitoring capital flows. If Bernanke's going to print more money, they'll print, too. Mass competitive devaluation will ignite a full-blown currency war that leaves the present trade regime in tatters and the dollar in the dustbin.

      America legalized torture before they legalized marijuana.
      Take your stinking paws off me, you damned dirty ape!

      by xxdr zombiexx on Fri Dec 10, 2010 at 03:07:37 AM PST

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