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Alright, since you can't speak for yourself or rebuttal with anything more meaningful than "This is nonsense.", I'll respond to the article. 1.) Quantitative E

Alright, since you can't speak for yourself or rebuttal with anything more meaningful than "This is nonsense.", I'll respond to the article. 1.) Quantitative Easing is printing money -- "This is because when the Fed buys bonds from banks it does so by crediting those banks’ accounts at the Fed with reserves that didn’t exist before. But it’s misleading to call this process “money printing” because it doesn’t actually do anything to increase the amount of money in circulation. In fact, in our monetary system, most money is created by private banks and not the Federal Reserve. When a bank lends you money on your credit card, that’s “printing” money." They say it's misleading to call it "printing money" because all they do is increase the amount a private bank can lend out. Apparently it's not their fault for putting in the extra reserves, it's the private bank "printing the money." 2.) Quantitative Easing will eventually lead to inflation: "If the government literally began printing money and started mailing out new $100 bills to citizens, that would lead to price inflation." --- Apparently, using their own example above, people getting lent more money and using that lent money is not inflation. The author is purposefully evading the core argument and instead paints a ridiculous definition of inflation (direct inflation). It doesn't take a genius to see that more reserves = more money to lend = more money to spend = more money in circulation. 3.) Quantitative Easing is responsible for recent stock market highs --- Point isn't pertinent to the discussion and quite frankly, I don't care. The stock market is driven by people who decide to buy or sell. When more people buy, prices go up. ------ So, what are your thoughts?

jchrisa 13y ago
I'd prefer this to QE because it should cause a bigger increase in money velocity. http://en.m.wikipedia.org/wiki/Demurrage_(currency) http://en.m.wikipedia.org/wiki/Demurrage_(currency)
nerfhammer 13y ago
To say that all recent stock price increases, much less the one-day price of twitter's stock specifically, are caused by QE alone is an extreme claim and it is not my burden to disprove it. The simpler and more plausible explanation for stock market growth is coinciding GDP and earnings growth. QE should lead to a mild preference against (UST) bonds by lowering yields, but it is dubious that this alone could explain stock market indexes doubling over the same period. Twitter's one-day stock price specifically is idiosyncratic investor behavior and blaming that on QE is absurd nonsense.
nhaehnle 13y ago
It's a common misconception, but QE does not change the ability of private banks to make loans in any way. If you think I am wrong about this, please explain the mechanism by which you think QE increases the ability of private banks to make loans. In fact, there are almost no serious arguments for why QE should stimulate the economy in any way, except for a small straw, which is that QE might reduce long-term interest rates, and that this drop of long-term interest might induce more people to take out bank loans and increase their spending in this way. Also, yes, Quantitative Easing might lead to inflation, but this is exactly what people hope for in the first place :-) And no, Quantitative Easing will not lead to uncontrollable inflation. If loan-driven inflation gets too high, the central bank can simply decide to raise interest rates and stop QE again.
- foobarqux 13y ago
  > If you think I am wrong about this, please explain the mechanism by which you think QE increases the ability of private banks to make loans. Not the parent but I thought depository and possibly other types of loans were limited by the size of reserves.
  - nhaehnle 13y ago
    The rules say that amount of reserves held by a bank must be at least r * X, where r is the reserve ratio and X is the amount of deposits owed by the bank. That is, there is absolutely no link between loans and reserves in the rules (laws and regulations). As long as the amount of reserves is close to the legally required minimum amount, there is an indirect link between loans and reserves, but its causality goes in the other direction as traditionally believed. When the volume of loans increase, then deposits increase also. Then the banking system as a whole needs more reserves. If the amount of reserves available were fixed, this would lead to banks bidding up the overnight interbank interest rate. However, after some disastrous experiments in the 1970s and 80s with alternative policies, central bank policy is to keep that interest rate fixed. And that means: the central bank accommodates the banks' desire for more reserves by buying assets from the banking system. Conversely, banks bid down the overnight interbank interest rate towards zero if there are too many reserves in the system, unless the central bank pays interest on reserves. This is exactly what central banks in most of the Western world want to happen today. In any case, the story is that the amount of loans made by banks causally sets a lower bound on the amount of reserves in the system. The reverse direction does not hold. Again, anybody who believes the latter would have to exhibit an explicit mechanism that establishes a reverse causality. There is no such mechanism in the rules (i.e. laws or regulations). Oh, and if you are appalled because you believe that all this means that banks can just make loans as they please: they can't. However, the limits on loans are set by capital requirements, and for good reason: capital is a suitable buffer against defaulting loans, reserves aren't.

jchrisa 13y ago

I'd prefer this to QE because it should cause a bigger increase in money velocity. http://en.m.wikipedia.org/wiki/Demurrage_(currency) http://en.m.wikipedia.org/wiki/Demurrage_(currency)

nerfhammer 13y ago

To say that all recent stock price increases, much less the one-day price of twitter's stock specifically, are caused by QE alone is an extreme claim and it is not my burden to disprove it. The simpler and more plausible explanation for stock market growth is coinciding GDP and earnings growth. QE should lead to a mild preference against (UST) bonds by lowering yields, but it is dubious that this alone could explain stock market indexes doubling over the same period. Twitter's one-day stock price specifically is idiosyncratic investor behavior and blaming that on QE is absurd nonsense.

nhaehnle 13y ago

It's a common misconception, but QE does not change the ability of private banks to make loans in any way. If you think I am wrong about this, please explain the mechanism by which you think QE increases the ability of private banks to make loans. In fact, there are almost no serious arguments for why QE should stimulate the economy in any way, except for a small straw, which is that QE might reduce long-term interest rates, and that this drop of long-term interest might induce more people to take out bank loans and increase their spending in this way. Also, yes, Quantitative Easing might lead to inflation, but this is exactly what people hope for in the first place :-) And no, Quantitative Easing will not lead to uncontrollable inflation. If loan-driven inflation gets too high, the central bank can simply decide to raise interest rates and stop QE again.

foobarqux 13y ago
> If you think I am wrong about this, please explain the mechanism by which you think QE increases the ability of private banks to make loans. Not the parent but I thought depository and possibly other types of loans were limited by the size of reserves.
- nhaehnle 13y ago
  The rules say that amount of reserves held by a bank must be at least r * X, where r is the reserve ratio and X is the amount of deposits owed by the bank. That is, there is absolutely no link between loans and reserves in the rules (laws and regulations). As long as the amount of reserves is close to the legally required minimum amount, there is an indirect link between loans and reserves, but its causality goes in the other direction as traditionally believed. When the volume of loans increase, then deposits increase also. Then the banking system as a whole needs more reserves. If the amount of reserves available were fixed, this would lead to banks bidding up the overnight interbank interest rate. However, after some disastrous experiments in the 1970s and 80s with alternative policies, central bank policy is to keep that interest rate fixed. And that means: the central bank accommodates the banks' desire for more reserves by buying assets from the banking system. Conversely, banks bid down the overnight interbank interest rate towards zero if there are too many reserves in the system, unless the central bank pays interest on reserves. This is exactly what central banks in most of the Western world want to happen today. In any case, the story is that the amount of loans made by banks causally sets a lower bound on the amount of reserves in the system. The reverse direction does not hold. Again, anybody who believes the latter would have to exhibit an explicit mechanism that establishes a reverse causality. There is no such mechanism in the rules (i.e. laws or regulations). Oh, and if you are appalled because you believe that all this means that banks can just make loans as they please: they can't. However, the limits on loans are set by capital requirements, and for good reason: capital is a suitable buffer against defaulting loans, reserves aren't.