It Was Not Effective, But We'll Do It Again

Mish

Boston Fed President Eric Rosengren has some interesting comments about QE today.

The Bond Buyer reports Rosengren Expects Fed to Again Resort to Asset Purchases.

Although large scale asset purchase programs may not be as effective as previously believed, Federal Reserve Bank of Boston President Eric Rosengren said Friday, “it is quite likely” that the programs will be needed in the future.

Crisis-Era Failures

The Wall Street Journal reports Fed’s Crisis-Era, Bond-Buying Plan Was Largely Ineffective, Economists Say.

The Federal Reserve’s signature bond buying stimulus program undertaken during and in the wake of the financial crisis was largely a dud for the economy, argues a new paper authored by a group of prominent economists.

The paper, which was to be presented Friday at a conference held in New York by the University of Chicago Booth School of Business, takes aim at the central bank’s controversial purchases of long-term Treasury and mortgage debt.

Given the unorthodox nature of the stimulus, arriving in an economy undergoing huge stress, central bankers and academics have long struggled to understand what the Fed got for a policy that took its portfolio of cash and bonds from a pre-crisis level of just over $800 billion in 2007 to a peak of $4.5 trillion.

“We find that Fed actions and announcements were not a dominant determinant of 10-year yields and that whatever the initial impact of some Fed actions or announcements, the effects tended not to persist,” the paper’s authors wrote. Their findings were based on a study of Fed policy announcements referenced against market reactions.

William Dudley of the Federal Reserve Bank of New York and Eric Rosengren of the Federal Reserve Bank of Boston both said on a panel discussing the paper’s findings that they agree it’s hard to understand the exact impact of the bond buying. But they said there’s nevertheless evidence the effort was helpful, and that the strategy should remain a part of the Fed’s policy toolkit going forward.

Mr. Rosengren agreed and said bond buying is important as a “last resort” when short-term rates can be cut no further. He added there’s a good chance the Fed will again have to use asset buying should another recession arise.

Ready and Willing

The Fed does not understand the impact, and Rosengren outright admits QE was not as effective as they thought. Yet he fully expects it will be used again.

So do I. It's a given.

The only thing the Fed knows how to do is blow bubbles. They remain clueless how destructive bubbles are. The last three rounds of QE stimulated stocks. Will the next one?

I suggest it will stimulate gold.

Mike "Mish" Shedlock

Comments (22)
No. 1-22
Hooligan
Hooligan

whether einstein said ""Insanity is repeating the same mistakes and expecting different results" or not - the statement is true as one defintion of insanity. the japanese started, the americans copied it and the ecb doubled it. who is the more insane? as far as unlimited QE is concerned for perpetually monetizing government debt, this quote is a propos "Only two things are infinite, the universe and human stupidity, and I'm not sure about the former."

lol
lol

In other words tens of trillions in cash (QE4),printed fresh daily is on tap,signaling first time in history world wide hyperinflation default domino style ending in WW3

MorrisWR
MorrisWR

Hyperinflation would mean actual distribution of cash and that is not and likely will not happen. As far as printing, not much true printing occurs anymore. I’ll take the deflation side of the argument before we have global hyperinflation.

Greggg
Greggg

... and boing, long bonds drop 5 basis points today.

killben
killben

Is there no way to stop the Fed?

JonSellers
JonSellers

My take: the wealth effect was really meant to give confidence to the very wealthy. That confidence would translate into investing in Main Street. But Main Street was flat on its back making any investments a dead end. So the money went to safety blowing our current bubbles. Of course the fed will do it again. It can't let the banks fail, and its the only tool in the box.

Snow_Dog
Snow_Dog

Main Street is trying to keep its head above the waterline while not being swept away with the rising costs of healthcare, tuition and mortgage. The wealthy did what was seen as prudent when they embarked on massive stock buy backs. Automation upgrade will sop up a lot of remaining investment capital (as central banks pour out more new liquidity) and further impose hardship on new Main Street

Snow_Dog
Snow_Dog

Apologies for sloppy posts as the posting system is difficult and prohibits any editing. Would love a user friendly system to replace the user hostile setup we’ve got now at the maven.

Snow_Dog
Snow_Dog

Yes, and it took a lot of guts too, but they have finally stopped themselves. They have no power to stop what is coming, but only to paste various labels on what we are seeing. A mishmash of academic hyperbole to make it sound like the Fed has some idea of what is going on.

https://www.google.com/search?tbm=isch&q=The%20courage%20to%20act&hl=en-us&imgrc=iXpaO07HsZUtEM

Bam_Man
Bam_Man

They will stop when their charter is revoked by the US Congress, due to a combination of hyperinflation, deflation and economic depression (not necessarily in that order), and not a minute before.

RonJ
RonJ

"They remain clueless how destructive bubbles are." I'm sure they know how destructive bubble are, which is why they create new ones to paper over the destruction of the previous one. Every economic expansion is destructive as it results in a recession. It is the way cycles operate.

Ambrose_Bierce
Ambrose_Bierce

Their goal is to find even greater powers with which to buy assets.

SweetKenny
SweetKenny

The world is playing beggar thy neighbour. The US was the king in that it was able to use debt to live above its means but the Chinese have surpassed them in the game. The Chinese don’t need a military force, they are buying the world. Unfortunately, the future is dark because if the US doesn’t follow a similar collapse of the USSR we will see a very destructive world war.

abend237-04
abend237-04

I wonder how an interview with a drug pusher would differ from this if he were asked about plans leading to weaning his local clients...

Stuki
Stuki

@JohnSellers

Touche!

Being a child of the progressive movement, the Fed has institutionally internalized the nonsense that there are some people, recognizable a priori, who are “experts.” And if you only redistribute purchasing power and economic influence to them, they will “expertly” “invest.” And, by doing so, make all the rest, whose purchasing power is, by arithmetic necessity, hence distributed away, better off than they would have been if they were simply left to manage their own money as they saw fit.

No different from the belief that the Politburo would make people better off by confiscating their market earnings and “expertly” spend it according to five-year plans.

It’s why The Fed believe robing others by debasement to the tune of trillions, in order to hand the loot to repeatedly failing banksters instead of letting them fail, is somehow “good” for anyone aside from the banksters receiving the loot: Fed officials genuinely believe the idiocy that because banksters are rich, and vain, enough to host conferences praising themselves, they must be “experts” on “the economy.” Hence must be coddled, lest regular people stuck doing boring old productive stuff get hold of a buck, and spend it less “expertly.”

Rayner-Hilles
Rayner-Hilles

There are two central axioms you need to keep in mind regarding the FED:

  1. It will under no circumstances allow contraction in the credit-money supply.
  2. It only cares about inflation of real goods and services, not financial assets.

With these two facts, everything the FED does is predictable.

Six000mileyear
Six000mileyear

The FED, like everyone else is America, is playing for dollars. It would be suicidal to destroy the US dollar. Letting a deflationary solvency crisis occur would actually give the FED more wealth as the dollar strengthens.

Blurtman
Blurtman

Recall that the Fed paid face value for garbage securities that the big banks owned when “the music stopped.”

philbq
philbq

The bailout of the large banks was a gigantic act of corporate socialism. They should have been allowed to fail. That is what free market capitalism preaches. It is called creative destruction. Badly run businesses collapse, and are replaced by better businesses. Instead we have a system where large corporations are supported by the federal govt. and not allowed to fail. That is corporate socialism

clovisdad
clovisdad

Amazing how the self-correcting mechanisms of the free market can be ignored by the "intelligentsia." But you cannot benefit the investment banks with the carry trade without a "Fed" of some kind, nor can you keep interest rates low enough to allow the Treasury to service its massive debt. All the rest is kabuki. Any reading of the texts of Fed speeches will display to anyone the complete bankruptcy of its analytic skills and expose the corruption of its activities.


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