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There's no mention about QE because QE is only about lowering the cost for the private sector to borrow money. The main threat to QE is inflation, which is hove

There's no mention about QE because QE is only about lowering the cost for the private sector to borrow money. The main threat to QE is inflation, which is hovering around 2% and stubbornly low, so QE is in the clear. The repo purchases are operating as intended, with new liquidity requirements for banks from Basel 3 reforms. Also you complain about negative nominal rates, which make banks less likely to lend; then you speculate on malinvestments and market distortions. So which way do you want it, is money too tight or too loose?

Retric 7y ago
Banks are far from the only lender. The US bond market is 40 trillion dollars worth of loans, where banks are closer to 14 trillion in loans.
tenpies 7y ago
> The main threat to QE is inflation, which is hovering around 2% and stubbornly low, so QE is in the clear. Obligatory comment that the measure of inflation used by the Fed - core inflation - intentionally under presents inflation. It literally takes a basket of all goods, sorts by least volatile, and picks the least volatile items possible.
- esoterica 7y ago
  Discarding the most volatile categories is not the same as throwing out the ones that increase the most. Energy prices fluctuate both up and down, so throwing out energy will frequently increase, not decrease the measure of core inflation.
roenxi 7y ago
> The main threat to QE is inflation, which is hovering around 2% If I lent money at 6% interest from 2007 to today, I would have performed about the same as the capital gains from owning an equivalent amount of everyone's Favourite Shiny Rock, gold. Not including the recent price jump from QE4. Owning a rock should not be generating a real return. In reality, it probably isn't. Real inflation is likely different from consumer price inflation. It isn't perfect evidence, but gold is basically as pure an asset as we can get and it lines up with what should be happening if the government is printing money with its ears pinned back. No practical uses, easy to store, rare enough to be valuable. Anyone who is interested in saving for their retirement would be unwise to treat CPI as inflation in their calculations.
- esoterica 7y ago
  Gold is fairly volatile and you are cherry picking dates. The spot price of gold fell 45% from 2010 to 2015, do you think consumer prices fell 45% over the same period?
  - edoceo 7y ago
    It didn't https://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/ https://www.usinflationcalculator.com/inflation/consumer-pri...
  - roenxi 7y ago
    No, I specifically said the gold price change suggested the consumer price inflation rate wasn't measuring real inflation; so obviously I don't think changes in the gold price are having an immediate reflection in consumer prices. And I think in the timeframe you indicate they stopped QE and people noticed the gold price had risen much faster than new money had been created so scaled back. Picking 2010-2015 is cherry picking the date substantially more than 2007-early 2019 when we're talking about QE spurred inflation. If I were cherry picking I'd go 2000 to late 2019 and get 19%. I'm just going a little pre-QE and then the lowest rate of return post-QE so people can't accuse me of cherry picking in favour of my argument. If you pick practically any pre-financial crisis to basically any post-crisis date it looks like a real rate of return. 4-5% real inflation lines up pretty well with what we'd expect inflation to be if we assumed doubling the money supply halved the value for money. So if asset inflation is a little high and consumer price inflation is a little low the theory seems reasonable.
    - esoterica 7y ago
      What exactly is your definition of “real inflation”? If you’re including the prices of financial assets then you are using a nonstandard definition of inflation.
      - roenxi 7y ago
        Persistent decline in the purchasing power of money. I forget the technical definition of a 'good', but I count assets as part of 'goods and services' that people want to purchase. Anyway, if the technical definition of inflation is only consumer goods, that shouldn't be the focus when talking about QE. If we are creating money we should focus on what that money is being used to purchase. If inflation is only going to be consumer goods then the main threat of QE obviously isn't inflation because it isn't being used to buy consumer goods. The risk is nobody being able to afford non-consumer goods like houses and other financial assets needed for retirement. My motivation is knowing how much my salary is worth in assets, because I don't spend most of what I earn and I think the political situation would be a lot more stable if everyone got to retire into their own home without having to spend years paying for a banks endorsement that they are worthy to own a home. I dunno, what do you want to call the steady erosion of purchasing power? We have to adjust asset prices by something to account for expected change caused by creation of new money. My understanding is people use CPI, which is not a good choice for reasons under discussion - the CPI isn't capturing the effects of QE.

Retric 7y ago

Banks are far from the only lender. The US bond market is 40 trillion dollars worth of loans, where banks are closer to 14 trillion in loans.

tenpies 7y ago

> The main threat to QE is inflation, which is hovering around 2% and stubbornly low, so QE is in the clear. Obligatory comment that the measure of inflation used by the Fed - core inflation - intentionally under presents inflation. It literally takes a basket of all goods, sorts by least volatile, and picks the least volatile items possible.

esoterica 7y ago
Discarding the most volatile categories is not the same as throwing out the ones that increase the most. Energy prices fluctuate both up and down, so throwing out energy will frequently increase, not decrease the measure of core inflation.

roenxi 7y ago

> The main threat to QE is inflation, which is hovering around 2% If I lent money at 6% interest from 2007 to today, I would have performed about the same as the capital gains from owning an equivalent amount of everyone's Favourite Shiny Rock, gold. Not including the recent price jump from QE4. Owning a rock should not be generating a real return. In reality, it probably isn't. Real inflation is likely different from consumer price inflation. It isn't perfect evidence, but gold is basically as pure an asset as we can get and it lines up with what should be happening if the government is printing money with its ears pinned back. No practical uses, easy to store, rare enough to be valuable. Anyone who is interested in saving for their retirement would be unwise to treat CPI as inflation in their calculations.

esoterica 7y ago
Gold is fairly volatile and you are cherry picking dates. The spot price of gold fell 45% from 2010 to 2015, do you think consumer prices fell 45% over the same period?
- edoceo 7y ago
  It didn't https://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/ https://www.usinflationcalculator.com/inflation/consumer-pri...
- roenxi 7y ago
  No, I specifically said the gold price change suggested the consumer price inflation rate wasn't measuring real inflation; so obviously I don't think changes in the gold price are having an immediate reflection in consumer prices. And I think in the timeframe you indicate they stopped QE and people noticed the gold price had risen much faster than new money had been created so scaled back. Picking 2010-2015 is cherry picking the date substantially more than 2007-early 2019 when we're talking about QE spurred inflation. If I were cherry picking I'd go 2000 to late 2019 and get 19%. I'm just going a little pre-QE and then the lowest rate of return post-QE so people can't accuse me of cherry picking in favour of my argument. If you pick practically any pre-financial crisis to basically any post-crisis date it looks like a real rate of return. 4-5% real inflation lines up pretty well with what we'd expect inflation to be if we assumed doubling the money supply halved the value for money. So if asset inflation is a little high and consumer price inflation is a little low the theory seems reasonable.
  - esoterica 7y ago
    What exactly is your definition of “real inflation”? If you’re including the prices of financial assets then you are using a nonstandard definition of inflation.
    - roenxi 7y ago
      Persistent decline in the purchasing power of money. I forget the technical definition of a 'good', but I count assets as part of 'goods and services' that people want to purchase. Anyway, if the technical definition of inflation is only consumer goods, that shouldn't be the focus when talking about QE. If we are creating money we should focus on what that money is being used to purchase. If inflation is only going to be consumer goods then the main threat of QE obviously isn't inflation because it isn't being used to buy consumer goods. The risk is nobody being able to afford non-consumer goods like houses and other financial assets needed for retirement. My motivation is knowing how much my salary is worth in assets, because I don't spend most of what I earn and I think the political situation would be a lot more stable if everyone got to retire into their own home without having to spend years paying for a banks endorsement that they are worthy to own a home. I dunno, what do you want to call the steady erosion of purchasing power? We have to adjust asset prices by something to account for expected change caused by creation of new money. My understanding is people use CPI, which is not a good choice for reasons under discussion - the CPI isn't capturing the effects of QE.