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Thread: Fed economist: 'No evidence that QE works' as central bank starts unwinding program

  1. #1

    Fed economist: 'No evidence that QE works' as central bank starts unwinding program

    I have said that QE is only potentially helpful in the very short term. Over time, any benefits are reduced and requires an exponentially higher level of stimulus to keep things going. I argued against more rounds of QE saying they wouldn't do much for the economy.

    7:25 AM ET Mon, 18 Sept 2017 | 02:12
    The Federal Reserve is on the cusp of reversing the most ambitious monetary stimulus program in world history amid questions over how much impact it really delivered.

    There's little question that the program, known as quantitative easing or "money printing," boosted the stock market. The three iterations of QE between November 2008 and October 2014 each saw big boosts to the market, with a cumulative S&P 500 gain from beginning to end, including the various down periods between each leg, of about 140 percent.

    The economic impacts, though, are less clear.

    For most of the period, GDP struggled to gain more than 2 percent. Wealth disparity grew, income gains were hard to come by and the Fed continually came up short on its inflation goal.

    With the U.S. central bank likely to announce this week that it will start unwinding its $4.5 trillion balance sheet of bonds and other securities, much of which accumulated in the QE era, the debate about the program's impact continues.

    In fact, one of the Fed's own economists recently penned a report indicating that QE has come up short of its goals.

    "Evaluating the effects of monetary policy is difficult, even in the case of conventional interest rate policy," St. Louis Fed economist Stephen D. Williamson wrote. "With respect to QE, there are good reasons to be skeptical that it works as advertised, and some economists have made a good case that QE is actually detrimental."

    Williamson examined the aggressive easing policy in the U.S. and compared it with other parts of the world, in particular Japan, where QE originated. The program saw asset prices climb while inflation remained elusive. Central bankers believe a certain level of inflation is good for the economy as it signifies growth and usually coincides with rising income levels.

    However, inflation has been scarce. The U.S. rate has remained stubbornly below 6 percent, despite an unemployment rate that has plunged from a 10 percent recession high to the current level of 4.4 percent, near a 16-year low.

    Comparing to Canada, finding a difference

    Williamson brought Canada into the comparison. In the time since the financial crisis when the Fed began QE, central banks in the U.S., Japan and Canada kept their benchmark rates near zero. Canada's balance sheet amounted to 5.1 percent of its GDP, while the Fed's balance sheet is now nearly 24 percent of GDP.

    While Canada did not engage in QE, there was little difference in economic conditions between the three countries.

    "[I]f QE were effective in stimulating aggregate economic activity, we should see a positive difference in economic performance in the U.S. relative to Canada since the financial crisis. ... There is little difference from 2007 to the fourth quarter of 2016 in real GDP performance in the two countries," Williamson wrote. "Indeed, relative to the first quarter of 2007, real GDP in Canada in the fourth quarter of 2016 was 2 percent higher than real GDP in the U.S., reflecting higher cumulative growth, in spite of supposedly less accommodative monetary policy.

    "Thus, in these two natural experiments, there appears to be no evidence that QE works either to increase inflation, if we look at the Japanese case, or to increase real GDP, if we compare Canada with the U.S."

    This isn't the first time Williamson has questioned QE's impacts.

    In a paper he filed in 2015, the economist argued that "there is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed — inflation and real economic activity."
    (though it should be noted that Canada was not hurt as much by the recession as the US and Japan).
    Last edited by Zippyjuan; 09-19-2017 at 08:31 PM.



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  3. #2
    So now what next? Will the Fed start to unwind their holdings? If so, how? I have suggested that they will let a portion of their maturing securities be redeemed rather than actually selling some off- also known as "rolling off". This seems to be what they intend to do. They are currently replacing maturing securities with new securities of the same value- keeping their total securities holdings the same (rolling "over" instead of "off"). From the same link:

    During the run-up to the balance sheet reduction, the Fed has been comparatively explicit. Multiple officials have indicated the unwind will start soon. Market participants expect a firm announcement when this week's meeting concludes Wednesday, with the actual roll-off likely to start in October.

    Under the announced plan, the Fed will allow a portion of the proceeds it receives each month to roll off. The monetary level will start at $10 billion then increase that much quarterly until it reaches $50 billion. Ultimately, economists expect the balance sheet to stabilize between $2 trillion and $3 trillion.

    Fed Chair Janet Yellen, and most economists, expect the balance sheet operation to carry minimal market impact. However, history shows that central bank balance sheet reductions are often bumpy and lead to recessions.

    "Clearly, there is a risk of a policy error which could trigger a sell-off in global financial markets,
    but this week's confirmation that the Fed will begin reducing its balance sheet should pass off smoothly," Andrew Kenningham, chief global economist at Capital Economics, said in a note.
    At the slow rates they are suggesting, it could take five years to reduce their current balance sheet by half which is their stated target. That is about the same amount of time they spent accumulating it. They started with about $1 trillion in assets so they won't be unwinding everything. Slowly rolling off assets will have a smaller impact on the economy and markets.
    Last edited by Zippyjuan; 09-19-2017 at 08:03 PM.

  4. #3
    http://www.marketwatch.com/story/why...eet-2017-09-19

    Why stock market investors shouldn’t sweat a shrinking Fed balance sheet

    Corporate earnings, not central banks, are the real driver of the global equity rally, so there’s no point losing sleep over the imminently expected unwinding of the Federal Reserve’s balance sheet, according to Jeffrey Kleintop, chief global investment strategist at Charles Schwab.

    The Fed is widely expected to begin slowly unwinding the $4.5 trillion portfolio of bonds and other assets it accumulated via its asset purchase program in the wake of the financial crisis. The aggressive purchasing program was the centerpiece of the Fed’s quantitative easing program, which was designed to drive down long-term interest rates, boost investor appetite for risky assets, promote investment and boost the economy.

    The Fed ended the bond-buying program in 2014, but continued to reinvest maturing bonds to keep the balance sheet from shrinking.
    Kleintop agrees that the Fed’s quantitative easing program boosted stocks, but he argued that the relationship “ended about a year ago as earnings lifted stock prices while the Fed’s balance sheet growth stalled.”

    “This divergence reveals that it is more likely to have been the rise in earnings, rather than Fed easing, that supported the rise in stocks,” Kleintop said in a note to investors.

  5. #4
    Lol
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  6. #5
    Quote Originally Posted by Zippyjuan View Post
    I argued against more rounds of QE saying they wouldn't do much for the economy.

    Argued to who? Soros?
    Quote Originally Posted by TheCount View Post
    ...I believe that when the government is capable of doing a thing, it will.
    Quote Originally Posted by Influenza View Post
    which one of yall fuckers wrote the "ron paul" racist news letters
    Quote Originally Posted by Dforkus View Post
    Zippy's posts are a great contribution.




    Disrupt, Deny, Deflate. Read the RPF trolls' playbook here (post #3): http://www.ronpaulforums.com/showthr...eptive-members

  7. #6
    Quote Originally Posted by NorthCarolinaLiberty View Post
    Argued to who? Soros?
    Maybe an alien took over Zippy's mind?

  8. #7
    Quote Originally Posted by Zippyjuan View Post
    I have said that QE is only potentially helpful in the very short term. Over time, any benefits are reduced and requires an exponentially higher level of stimulus to keep things going. I argued against more rounds of QE saying they wouldn't do much for the economy.
    Do you have a link to that?

    Actually now that I think abut it, you may have said the benefits of additional QE are reduced, however I don't remember you arguing against more rounds. The more important point, however, is that you continuously claimed there was no downside to QE. That's where you are wrong.
    Last edited by Madison320; 09-20-2017 at 09:50 AM.

  9. #8
    Good luck on the upcoming performance review, @Zippyjuan Do not forget to review the conditions under which agents at your level are required to identify themselves. I hope we don't need to file a FOIA request in order to find out what agency your are working for.



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  11. #9
    Quote Originally Posted by Madison320 View Post
    Do you have a link to that?

    Actually now that I think abut it, you may have said the benefits of additional QE are reduced, however I don't remember you arguing against more rounds. The more important point, however, is that you continuously claimed there was no downside to QE. That's where you are wrong.
    Too many posts to sort through but yeah, that was my position.

  12. #10
    Quote Originally Posted by Zippyjuan View Post
    Too many posts to sort through but yeah, that was my position.

    Uh--well-uh--what did I tell you yesterday? Uh--well, yeah, that's--uh--that's was position. Uh, yes--that also is my position. Uh, I think.


    LOL
    Quote Originally Posted by TheCount View Post
    ...I believe that when the government is capable of doing a thing, it will.
    Quote Originally Posted by Influenza View Post
    which one of yall fuckers wrote the "ron paul" racist news letters
    Quote Originally Posted by Dforkus View Post
    Zippy's posts are a great contribution.




    Disrupt, Deny, Deflate. Read the RPF trolls' playbook here (post #3): http://www.ronpaulforums.com/showthr...eptive-members

  13. #11
    Quote Originally Posted by Madison320 View Post
    Do you have a link to that?

    Actually now that I think abut it, you may have said the benefits of additional QE are reduced, however I don't remember you arguing against more rounds. The more important point, however, is that you continuously claimed there was no downside to QE. That's where you are wrong.
    Did find one related post so far. See #4 here: http://www.ronpaulforums.com/showthr...itative+easing

    The Feds frustration and what they will do this week
    As we prepare for the announcement of additional stimulus, the Fed must be frustrated. Additional QE can accomplish nothing at this point. Here is why: All QE can do is inject additional cash into the banking system. It can't force the banks to lend it out nor can it force borrowers to borrow it.
    The banking system is flooded to overflow with liquidity that is not being utilized. Further increases in that liquidity will not change a thing at this point. It would be like adding water to a glass that is already full to the brim. Adding water to the glass till it overflows will not make you drink if you are not thirsty.
    Exactly what I have been saying.

    I don't expect any QE3.
    They did QE3 anyways.

    Post #3 here: http://www.ronpaulforums.com/showthr...itative+easing

    Quote Originally Posted by Zippyjuan View Post
    They always say "will provide additional accomodation as needed" and "we will continue to monitor the situation."

    From the article above:


    What goods and services has the Federal Reserve siezed?

    As for Fed actions to try to improve the economy- there is really nothing they can do. They can't make consumers buy things. They can't make employers hire people. Keeping interest rates low won't change anything (not much room at all to make them any lower). Buying more securities won't do anything. This may have been an economic "pep talk" to try to encourage more economic activity- but people won't spend and companies won't hire more because of a pep talk. They want to see numbers- solid growth in sales or income.
    Last edited by Zippyjuan; 09-20-2017 at 12:29 PM.

  14. #12
    Quote Originally Posted by Madison320 View Post
    Maybe an alien took over Zippy's mind?
    Maybe Zippy's doing 180° turn?

  15. #13
    Quote Originally Posted by timosman View Post
    Maybe Zippy's doing 180° turn?
    Actually that kinda was his position and it actually makes sense when you think about it as a die hard supporter of the democratic party. The first round of QE was needed to repair the damage caused by Bush. After that additional QE was unnecessary because Obama's awesome economic policies made everything great. And since there's no downside to 15-20 trillion dollars in stimulus, when the economy crashes under Trump it will be all Trump's fault.

    If Zippy admitted that QE "works" in the short run but is a killer in the long run, he'd have to admit that the economic growth under Obama was phoney and at the expense of the future.

  16. #14
    Quote Originally Posted by Madison320 View Post
    Actually that kinda was his position and it actually makes sense when you think about it as a die hard supporter of the democratic party. The first round of QE was needed to repair the damage caused by Bush. After that additional QE was unnecessary because Obama's awesome economic policies made everything great. And since there's no downside to 15-20 trillion dollars in stimulus, when the economy crashes under Trump it will be all Trump's fault.

    If Zippy admitted that QE "works" in the short run but is a killer in the long run, he'd have to admit that the economic growth under Obama was phoney and at the expense of the future.
    Actually saying QE didn't really help means that the recovery was IN SPITE of the Fed. That would make it real- not phony. Progress continued (in jobs as well as stocks) after QE was ended almost three years ago.

  17. #15
    Quote Originally Posted by Zippyjuan View Post
    Actually saying QE didn't really help means that the recovery was IN SPITE of the Fed. That would make it real- not phony. Progress continued (in jobs as well as stocks) after QE was ended almost three years ago.
    Yes I know. That's what I wrote. But you're wrong. The recovery was not in spite of the Fed, it was BECAUSE of the Fed (and fed govt borrowing). The "recovery" was only due to government stimulus in the form of 3.5 trillion in QE, 10 trillion in borrowing, and about 4 trillion in trade deficits. And 3 years is nowhere near long enough to somehow disprove that, especially since the Fed hasn't even unwound anything! Rates are still basically at zero. The balance sheet is at an all time high of 4.5 trillion. The debt is at an all time high of 20 trillion. What could possibly go wrong?

  18. #16
    Quote Originally Posted by Madison320 View Post
    Yes I know. That's what I wrote. But you're wrong. The recovery was not in spite of the Fed, it was BECAUSE of the Fed (and fed govt borrowing). The "recovery" was only due to government stimulus in the form of 3.5 trillion in QE, 10 trillion in borrowing, and about 4 trillion in trade deficits. And 3 years is nowhere near long enough to somehow disprove that, especially since the Fed hasn't even unwound anything! Rates are still basically at zero. The balance sheet is at an all time high of 4.5 trillion. The debt is at an all time high of 20 trillion. What could possibly go wrong?
    So you think QE worked.



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  20. #17
    Quote Originally Posted by timosman View Post
    Maybe Zippy's doing 180° turn?
    Quote Originally Posted by TheCount View Post
    ...I believe that when the government is capable of doing a thing, it will.
    Quote Originally Posted by Influenza View Post
    which one of yall fuckers wrote the "ron paul" racist news letters
    Quote Originally Posted by Dforkus View Post
    Zippy's posts are a great contribution.




    Disrupt, Deny, Deflate. Read the RPF trolls' playbook here (post #3): http://www.ronpaulforums.com/showthr...eptive-members

  21. #18
    Quote Originally Posted by Zippyjuan View Post
    So you think QE worked.
    Yes, depending on your definition of "worked". It artificially propped up stock prices and house prices among other things AS IT WAS DESIGNED TO DO. But the problem is that there was no REAL growth. We didn't start building factories, producing stuff, running surpluses, paying down debt. It was temporary and the next crash will be worse than the last one.

    Suppose you lose your job (recession). If you then borrow money (QE) to buy a new house and car, take an expensive vacation, did it work?

    Also if there's no downside to QE, as you claim, why are you against it?

  22. #19
    Quote Originally Posted by Madison320 View Post
    Yes, depending on your definition of "worked". It artificially propped up stock prices and house prices among other things AS IT WAS DESIGNED TO DO. But the problem is that there was no REAL growth. We didn't start building factories, producing stuff, running surpluses, paying down debt. It was temporary and the next crash will be worse than the last one.

    Suppose you lose your job (recession). If you then borrow money (QE) to buy a new house and car, take an expensive vacation, did it work?

    Also if there's no downside to QE, as you claim, why are you against it?
    If it was all due to QE, then the recovery should have ended when QE did- in 2014.

  23. #20
    Quote Originally Posted by Zippyjuan View Post
    If it was all due to QE, then the recovery should have ended when QE did- in 2014.
    Wrong. The effects of QE are not immediate and there's other forms of stimulus that are still ongoing like 1% rates, 1 trillion a year in borrowing, .5 trillion a year in trade deficits.

    I'll ask again. If QE has no downside, why were you against it? Or are you going to claim that the only effects of QE are immediate and negative? Therefore without the QE we would've had an even better recovery?

  24. #21
    The initial burst of Congress bailouts and QE did help- they stopped the then-free falling economy. Subsequent rounds of QE didn't add any benefit to the economy. Stimulus can work- but only for a very short period of time.

  25. #22
    Quote Originally Posted by Zippyjuan View Post
    The initial burst of Congress bailouts and QE did help- they stopped the then-free falling economy. Subsequent rounds of QE didn't add any benefit to the economy. Stimulus can work- but only for a very short period of time.
    So if there's no downside to QE why are you against it?

    Here's another question for you to ignore. What economic policies did Obama implement that created the "recovery"?
    Last edited by Madison320; 09-20-2017 at 02:44 PM.

  26. #23
    Quote Originally Posted by Madison320 View Post
    So if there's no downside to QE why are you against it?

    Here's another question for you to ignore. What economic policies did Obama implement that created the "recovery"?
    I was against more QE because it wouldn't do anything to improve the economy.

    The bailouts like TARP were passed before Obama took office.

  27. #24
    Quote Originally Posted by Madison320 View Post
    Do you have a link to that?
    That would be...a no.
    Pfizer Macht Frei!

    Openly Straight Man, Danke, Awarded Top Rated Influencer. Community Standards Enforcer.


    Quiz: Test Your "Income" Tax IQ!

    Short Income Tax Video

    The Income Tax Is An Excise, And Excise Taxes Are Privilege Taxes

    The Federalist Papers, No. 15:

    Except as to the rule of appointment, the United States have an indefinite discretion to make requisitions for men and money; but they have no authority to raise either by regulations extending to the individual citizens of America.



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  29. #25
    Quote Originally Posted by Zippyjuan View Post
    I was against more QE because it wouldn't do anything to improve the economy.
    What economic policies did Obama implement that created the "recovery"?

    Quote Originally Posted by Zippyjuan View Post
    The bailouts like TARP were passed before Obama took office.
    What was the point of that comment?
    Last edited by Madison320; 09-21-2017 at 09:25 AM.

  30. #26
    Zippy for Fed Chairman 2018
    It's all about taking action and not being lazy. So you do the work, whether it's fitness or whatever. It's about getting up, motivating yourself and just doing it.
    - Kim Kardashian

    Donald Trump / Crenshaw 2024!!!!

    My pronouns are he/him/his

  31. #27
    Quote Originally Posted by Zippyjuan View Post
    Actually saying QE didn't really help means that the recovery was IN SPITE of the Fed. That would make it real- not phony. Progress continued (in jobs as well as stocks) after QE was ended almost three years ago.
    I'm sure stocks going up has nothing to do with excess reserves going down, right zippy?

    https://fred.stlouisfed.org/series/EXCSRESNS
    It's all about taking action and not being lazy. So you do the work, whether it's fitness or whatever. It's about getting up, motivating yourself and just doing it.
    - Kim Kardashian

    Donald Trump / Crenshaw 2024!!!!

    My pronouns are he/him/his

  32. #28
    You'd think you people would have learned by now that the Zipsters seldom lie about themselves...

    Quote Originally Posted by Zippyjuan View Post
    OK- check back in May. But actually, when it started I had said that I did not think we needed QE3 and that it wouldn't really make much difference in the economy. Greenspan has since confirmed that. I am glad they finally ended it.
    ...though lying about whether QE has ended or not is obviously another matter. They lied about that three years ago, and might just be lying about it now. After all, when the Fed does QE, it makes money the old fashioned way--it prints it. And no one suffers but wage earners and people who have savings. So his bosses at the Fed have no incentive to stop it. And when he says he doesn't approve on this site, it actually seems to have the effect of causing libertarians to cheer the Fed making the working folks' wages effectively go down and making old folks' savings worthless.
    Last edited by acptulsa; 09-21-2017 at 09:42 AM.
    Quote Originally Posted by Swordsmyth View Post
    We believe our lying eyes...

  33. #29
    Quote Originally Posted by acptulsa View Post
    And no one suffers but wage earners and people who have savings.
    Luckily for us these groups are quickly becoming minorities.

  34. #30
    Quote Originally Posted by timosman View Post
    Luckily for us these groups are quickly becoming minorities.
    Who says Quantitative Easing doesn't work? Obviously it doesn't work as advertised. We all knew that before Zippy started agreeing with us, and made us doubt ourselves. But it clearly does achieve its intended purpose. If it didn't, we'd still make a living wage and have hope to avoid starvation in our retirement. The rich can't get richer that way.
    Quote Originally Posted by Swordsmyth View Post
    We believe our lying eyes...

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