3 ms·

Thank you for a comprehensive answer to my question and your correction to my massive conflation of the TARP assets and QE. Is it fair to say that you disagree

Thank you for a comprehensive answer to my question and your correction to my massive conflation of the TARP assets and QE. Is it fair to say that you disagree with the original poster's pessimism (that appears to be quite popular at the moment with the HN crowd)?

wahern 9y ago
Well, I disagree in the sense that the conclusion--a bubble--doesn't follow from the characterizations--Federal Reserve QE, ability to print money, etc. And the characterizations used seem to echo a particular narrative that elides almost all detail, deriving its conclusions almost entirely from political philosophy. Even if the political philosophy is correct, it's so divorced from the here-and-now that it has zero value--like how fundamental physics predicts the inevitable heat death of the universe but tells you little if anything about the precise arrangement of matter tomorrow. When QE first started, conservative analysts were swearing up-and-down that we'd shortly see inflation. That has yet to happen. A couple of years ago some more mainstream analysts (as well as the market) were predicting 20-30 years of extremely low inflation. But today the mainstream is much more unsure about long-term rates. Neither group seems right or wrong to me; more that they underestimated uncertainty, rather than misjudged risk. Unfortunately, that doesn't stop them from qualifying their assessments after the fact and claiming that _now_ they're more certain, just with larger error bars. Even if we presume that we are in a bubble and that this bubble was created by QE[1], that still doesn't tell you much of anything. If it did there'd be many more rich investors than there apparently are; and their absence isn't necessarily just a reflection of their inability to time things precisely. The _determinative_ factors going forwards aren't necessarily the big, obvious factors in the prelude. But I'm neither pessimistic nor optimistic. I'm personally more interested in how the clock works, not what time it is. [1] QE added $2 trillion into the system. That seems like a lot until you realize that the U.S. stock market is $25 trillion and the U.S. bond market is $35 trillion. And trade in U.S. assets is part of a global market, which is greater than $100 trillion in stocks and bonds alone. Many other commenters on HN are much more knowledgable than me, but in light of those numbers I don't see anything obvious or inevitable about the ultimate effect of the Federal Reserve's QE program. I can understand, superficially, how QE _could_ theoretically effect the system. Even at a substantially lesser amount other factors could compound the intervention. On the other hand, theoretically QE could have had almost no effect whatsoever (other than the timing preventing a collapse), simply displacing $2 trillion of foreign investments that would have resulted in the same asset prices we have today. EDIT: The most recent information I found Googling shows close to $200 trillion in stocks and bonds in 2014 (<$60 trillion public debt), and almost $300 trillion in global financial assets (stocks, bonds, and other loans). See http://webcache.googleusercontent.com/search?q=cache:4MeIUgO8lHgJ:www.businessinsider.com/global-financial-assets-2015-2+&cd=2&hl=en&ct=clnk&gl=us http://webcache.googleusercontent.com/search?q=cache:4MeIUgO...
- roymurdock 9y ago
  Some of the first studies on QE's economic effects are starting to come out - "Using confidential loan officer survey data on lending standards and internal risk ratings on loans, we document an effect of large-scale asset purchase programs (LSAPs) on lending standards and risk-taking. We exploit cross-sectional variation in banks’ holdings of mortgage-backed securities to show that the first and third round of quantitative easing (QE1 and QE3) significantly lowered lending standards and increased loan risk characteristics. The magnitude of the effects is about the same in QE1 and QE3, and is comparable to the effect of a one percentage point decrease in the Fed funds target rate." https://www.federalreserve.gov/econres/feds/files/2017093pap.pdf https://www.federalreserve.gov/econres/feds/files/2017093pap...

wahern 9y ago

Well, I disagree in the sense that the conclusion--a bubble--doesn't follow from the characterizations--Federal Reserve QE, ability to print money, etc. And the characterizations used seem to echo a particular narrative that elides almost all detail, deriving its conclusions almost entirely from political philosophy. Even if the political philosophy is correct, it's so divorced from the here-and-now that it has zero value--like how fundamental physics predicts the inevitable heat death of the universe but tells you little if anything about the precise arrangement of matter tomorrow. When QE first started, conservative analysts were swearing up-and-down that we'd shortly see inflation. That has yet to happen. A couple of years ago some more mainstream analysts (as well as the market) were predicting 20-30 years of extremely low inflation. But today the mainstream is much more unsure about long-term rates. Neither group seems right or wrong to me; more that they underestimated uncertainty, rather than misjudged risk. Unfortunately, that doesn't stop them from qualifying their assessments after the fact and claiming that _now_ they're more certain, just with larger error bars. Even if we presume that we are in a bubble and that this bubble was created by QE[1], that still doesn't tell you much of anything. If it did there'd be many more rich investors than there apparently are; and their absence isn't necessarily just a reflection of their inability to time things precisely. The _determinative_ factors going forwards aren't necessarily the big, obvious factors in the prelude. But I'm neither pessimistic nor optimistic. I'm personally more interested in how the clock works, not what time it is. [1] QE added $2 trillion into the system. That seems like a lot until you realize that the U.S. stock market is $25 trillion and the U.S. bond market is $35 trillion. And trade in U.S. assets is part of a global market, which is greater than $100 trillion in stocks and bonds alone. Many other commenters on HN are much more knowledgable than me, but in light of those numbers I don't see anything obvious or inevitable about the ultimate effect of the Federal Reserve's QE program. I can understand, superficially, how QE _could_ theoretically effect the system. Even at a substantially lesser amount other factors could compound the intervention. On the other hand, theoretically QE could have had almost no effect whatsoever (other than the timing preventing a collapse), simply displacing $2 trillion of foreign investments that would have resulted in the same asset prices we have today. EDIT: The most recent information I found Googling shows close to $200 trillion in stocks and bonds in 2014 (<$60 trillion public debt), and almost $300 trillion in global financial assets (stocks, bonds, and other loans). See http://webcache.googleusercontent.com/search?q=cache:4MeIUgO8lHgJ:www.businessinsider.com/global-financial-assets-2015-2+&cd=2&hl=en&ct=clnk&gl=us http://webcache.googleusercontent.com/search?q=cache:4MeIUgO...

roymurdock 9y ago
Some of the first studies on QE's economic effects are starting to come out - "Using confidential loan officer survey data on lending standards and internal risk ratings on loans, we document an effect of large-scale asset purchase programs (LSAPs) on lending standards and risk-taking. We exploit cross-sectional variation in banks’ holdings of mortgage-backed securities to show that the first and third round of quantitative easing (QE1 and QE3) significantly lowered lending standards and increased loan risk characteristics. The magnitude of the effects is about the same in QE1 and QE3, and is comparable to the effect of a one percentage point decrease in the Fed funds target rate." https://www.federalreserve.gov/econres/feds/files/2017093pap.pdf https://www.federalreserve.gov/econres/feds/files/2017093pap...