Patterico's Pontifications

What happens when you take the crack away suddenly?

Patterico (9c670f) — 10/29/2014 @ 9:13 pm

Let’s see what happens if the stock market takes a real nose dive — as it has hinted at doing lately.

October is the cruelest month.

Patterico (9c670f) — 10/29/2014 @ 9:15 pm

If it’s really over, hold on. Time for interest rates to start rising.

We’ll revisit this post in about a year. Sound good?

Patterico (9c670f) — 10/29/2014 @ 10:01 pm

Is this thing on?

Patterico (9c670f) — 10/29/2014 @ 10:02 pm

You were the one who put serious economics up at almost the same time as the low rent seductive girl and catcall thread. You have to pace your commenters, Patterico! Are you new? 🙂

elissa (193d7b) — 10/29/2014 @ 10:10 pm

QE4 will start when energy prices start to go up.

The left calls this masterful chessmaster thinking. I call it blind luck and market forces.

Ag80 (eb6ffa) — 10/29/2014 @ 10:11 pm

You have to pace your commenters, Patterico! Are you new?

Maybe I should be combining posts?

“Which will come first? QE4, or the release of the hidden and secret footage of whites and Asians catcalling way worse than anything you see here?”

Patterico (9c670f) — 10/29/2014 @ 10:15 pm

Well, as a famous musical comedy salesman advises, “you gotta know the territory”.

elissa (193d7b) — 10/29/2014 @ 10:23 pm

Way to capture both the lowbrow and highbrow readers! Masterful.

Dana (072751) — 10/29/2014 @ 10:23 pm

I’m not convinced the Fed won’t just continue QEin some other way.

ParisParamus (69f78a) — 10/29/2014 @ 10:37 pm

Why pretend this was some policy choice? Left to her druthers, Yellin would keep pumping away.

The sad truth is the banks in the FR system are already overloaded with the low-interest ‘assets’ of questionable value. Their balance sheets really can’t stand any more. The FR banks are audited like other banks, no matter what the nutters claim. And they can’t afford to be found to be destabilizing themselves.

Another truth we can’t avoid is interest rates MUST rise close to historical levels of at least 3% over nominal inflation. That’s the only way to attract the private capital investment that fuels real growth, and remains below 2007 levels.

–

QE’s easy money at near-zero rates has forced much of the money normally in the bond market into equities in search of some returns. Corporate profits are up, but as much due to efficiencies as growth in sales. The key, though, is that those profits aren’t being reinvested in capital or workforce expansion. To an unprecedented extent, they are being used to repurchase their own stock. This reduces the number of shares outstanding and increases the EPS without selling an extra widget.

Estragon (ada867) — 10/29/2014 @ 11:25 pm

http://www.zerohedge.com/news/2014-10-29/peak-empire-20

DNF (384f70) — 10/29/2014 @ 11:54 pm

QE’s easy money at near-zero rates has forced much of the money normally in the bond market into equities in search of some returns. Corporate profits are up, but as much due to efficiencies as growth in sales. The key, though, is that those profits aren’t being reinvested in capital or workforce expansion.

Are you sure? Austrian economic theory says easy money leads to excessive capital expansion because the cheap money makes it attractive to take out long-term loans to accomplish capital investment. The problem is that all businessmen want to do this and end up in bidding wars for the raw materials, and the capital investment ends up being more expensive than planned.

Meanwhile, there is also a misallocation of resources away from the production of consumer goods. Normally, low interest rates are a signal that consumers have lowered their demand for consumer goods, because the low interest rates result from consumers putting more money into savings and less into consumption. However, when the central bank artificially depresses interest rates, it interferes with these signals and causes a misallocation of resources.

That’s the theory, anyway. I would be interested in exploring further your assumption that the part of it dealing with expansion in capital investment is inaccurate.

Patterico (cdb9bc) — 10/30/2014 @ 6:41 am

Has there been a time where QE# wasn’t propping up the failed Obama economy?

JD (f897a0) — 10/30/2014 @ 6:44 am

“The problem is that all businessmen want to do this and end up in bidding wars for the raw materials, and the capital investment ends up being more expensive than planned.”

But if money is tight, capital investment is expensive because money is expensive.

butlerj (8df702) — 10/30/2014 @ 5:54 pm

But if money is tight, capital investment is expensive because money is expensive.

Well, yeah — but if it’s tight because the market conditions make it tight, rather than tight because the Fed artificially made it tight, then that just reflects a lower level of savings (since savings are what provide the money for credit), which means consumer demand is spiking. At such a time, the market is calling for less capital expenditure and more provision of consumer goods.

So the market helps businesses allocate their resources correctly by setting interest rates. The Fed interferes with this signal by jacking with the interest rates.

Patterico (9c670f) — 10/30/2014 @ 6:13 pm

But the interest rates that consumers face, both for savings and spending, will also vary depending on whether money is tight or easy. Both consumers and investors would be seeking the same money, whether interst rates are endogenous or exogenous.

In any case, there’s more that goes into the rate that investors see than savings. Credit got really tight in 2008, without a change in savings.

butlerj (8df702) — 10/30/2014 @ 6:23 pm

For what its worth, I think the QE policies aren’t completely wrong to deal with a lack of liquidity in the market.

I mean, it’s a terrible system, so you get terrible solutions.

I credit this knowledge to you Patterico when you pointed out how banks lend money for mortgages. Debt naturally outgrows cash supply it seems. Only way to compensate is to allow loans to fail (which this admin won’t do) or print more cash to balance things a little.

DejectedHead (532aac) — 10/30/2014 @ 6:25 pm

I would also say that the very low Fed rate has spurned the wealth gap. Rich people take out mortgages below the rate of inflation (Sub 1%). They make money by taking out a loan.

DejectedHead (532aac) — 10/30/2014 @ 6:30 pm

http://globaleconomicanalysis.blogspot.com/2014/10/looking-for-good-education-at-low-price.html

DNF (384f70) — 10/31/2014 @ 7:23 am

http://globaleconomicanalysis.blogspot.com/2014/10/hillary-clinton-dont-let-anyone-tell.html

DNF (384f70) — 10/31/2014 @ 7:42 am

http://www.zerohedge.com/news/2014-10-31/nikkei-futures-halted-limit-1100-usdjpy-tops-112

DNF (384f70) — 10/31/2014 @ 8:03 am

Paul Krugman in his column today claims that we maybe should apologize to Japan, because instead of lost decade in the 1990s being a cautionary tale, it looks more like a role model now.

He says the United States has not stimulated enough, but Europe was really bad, especially Sweden. Sweden’s Riksbank actually raised interest rates in 2011!!

http://www.nytimes.com/2014/10/31/opinion/paul-krugman-apologizing-to-japan.html?_r=0

Sammy Finkelman (d22d64) — 10/31/2014 @ 9:30 am

2. Patterico (9c670f) — 10/29/2014 @ 9:15 pm

Let’s see what happens if the stock market takes a real nose dive — as it has hinted at doing lately.

That was because of ebola. I think the fall was related to ebola.

There was a poll that said that 66% or so of the people felt there could be an epidemic in the United States and 40% thought it was posisble someone they knew could get ebola.

That kind of thinking must have affected people who buy and sell stock, too.

I mean if that’s going to happen, something bad is going to happen to the economy, too.

So it droppped two weeks ago.

But last week and this week other people went into the market. And the situation also became clearer to many. The fears were really extreme. The stock market started to recover even before news of Dr. Craig Spencer having ebola broke.

Sammy Finkelman (d22d64) — 10/31/2014 @ 9:45 am

http://globaleconomicanalysis.blogspot.com/2014/10/durable-goods-decline-second-month-key.html

DNF (384f70) — 10/31/2014 @ 8:23 pm

10/29/2014

QE3 Ends

25 Responses to “QE3 Ends”

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