QE2: Policymakers struggle in a world of strategic uncertainty

A very interesting post Paul - I am going to go away to digest your thoughts on my daily bike ride.

On a similar vein Moneyweek has a very interesting article on-line today about how QE2 could do more damage than good to the UK economy. It ties in nicely with what Paul has just written.

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The UK stock market is getting riskier by the day

https://www.moneyweek.com/investments/stock-markets/the-uk-stock-market-is-getting-riskier-by-the-day-04011.aspx

"In any case the outcome is clear: QE1 stabilised the situation but was not enough to re-start self-sustaining economic growth."

Surely self-sustaining economic growth is an oxymoron.

"To those who live and breathe this market it is beginning to feel very unlike capitalism,"

The end of true capitalism, as if it hasn't already ended.

"This means the state, ....getting its hands into the sticky business and consumption like a baker with a lump of dough."

The end of capitalism, but what is the veil of the new order? Statism, fascism, or what other command economic system?

WHY DON'T THEY ASK BROWN?

Self-evident perhaps?

1. At 12:34pm on 08 Oct 2010, tawse57 wrote:
The UK stock market is getting riskier by the day
------------------------------------------------------
Another view on equity madness, look at the graph here:

https://online.wsj.com/article/SB10001424052748704116004575521822940983434.html?mod=WSJ_Opinion_LEADTop

Your post confirms that the (Mervyn) King has no clothes on. Where is the analysis that QE1 did any good or even that it stabilised the financial markets. The Banking sector catastrophically failed the economy and yet a major component of recovery was channelled through them. What did they do with the cash? For the economy to recover people and organisations need to spend on useful things whether it is consumption or investment.
Cashiering thousands of civil servants and slashing public capital programmes will negate whatever questionable good QE did.

Mr Mason, consider the ASSERTION that the first 'round' of QE was inadequate for the previous 'hurt' inflicted on the US, UK, and Global Economies.

QE has been approached too gingerly, I would wager. Money, and prices, and inflation are only a dual to the real economy. The money-side of the economy suffered direct bombing through lack of REGULATION of the Banking SYSTEM . Perhaps, unwittingly, individual banks acted as individual banks, they did not act as a collective (statist or otherwise).[ But it seems to the public that the banks 'took advantage' against the common good.... and perhaps a few did. The Politicians and Regulators seem to have been criticized but not really blamed for the crisis: the Financial Industry generally has been.]

From 2005-ish, the unfolding monetary damage dripped and echoed its way into the real economy.

Using Occam's Razor: State INACTION lead to the crisis - State ACTION in the form of more QE may lead to a smoother medium-term solution. Well admittedly yes, a conjectured analysis rather like a black box .

And the hardest issue of all is that no one can be certain about QE. Maybe, just maybe, it is better to be an medium-term Inflationist than a short-term Recessionist.

The policymakers don't understand the capitalist law of value.

They don't see that the printing of money is just fictitious capital.
They are doing all they can to stop capital devaluation & to prop up profit rates, but they can't continue forever without debasing the worlds currencies. Which is just what QE is doing.

It's not just the last hurrah for the stockmarkets, it's the last hurrah for capitalism.

I've been wondering this for a while: if the purpose of QE is to get more money flowing through the economy by creating it artificially and thereby avoiding deflation, why does it have to be done through asset purchases? If the BoE wanted to avoid deflation, what would stop it artificially creating money and handing every British man, woman and child a £1,000 each (or £100 or £10,000, whatever)? Surely this would be much more likely to almost immediately get put back into the economy, rather than the current QE which, aside from ending up in bonus pools, is just sitting in banks' reserves.

(I realise there's probably a very simple reason why this wouldn't work, but I'd be grateful if somebody would explain why)

Before QE2 can be even considered how are we sure that QE1 actually worked? There was so much hype around it that one is unclear as to what was the precise measure of success.

There was an argument that the objective of QE1 was to replace the wholesale market for money which had disappeared overnight as it were. That the banks were able to rebuild their balance sheets was not the intended objective but a by-product of what I suspect was the principal intent, namely getting the money-markets functioning again so that borrowers and lenders had some stock in trade as it were. Otherwise interest rates would have gone up to the common detriment at the time. If anything it was a second leg of the zero interest rate equation.

Now, was the failure of QE1 to achieve its intended target a function of people in the real economy not wishing to borrow in unstable conditions? Possibly. But it did allow corporate business to restructure their own borrowing onto lower interest rates so there was some spin off. But how much of that spinned off abroad to sustain China's factories?

What I do know is that as soon as QE started in early 2009 within days our business unexpectedly became busy. We still don't really know why but that surge has continued to the present day. Our CEO is convinced the recession is over but he also is convinced that he is a genius. I doubt both convictions.

Given that we are unclear as to the outcomes of QE1 we need to be very cautious about a QE2. What we do know is that QE1 did not trigger self-sustaining growth so there is no indication that QE2 will perform in that way.

The question I have is the idea of QE2 being put about because there is fear of a double-dip to the recession? If there is to be another dip then I doubt if QE2 will resolve it. Indeed if QE1 did anything it just gave us a mini-boom between two severe recessions. But then there is always QE3 I suppose.

Nothing will improve until we restructure our economy. This will require the restructuring of debt and the restoration of value to money. This will take some time and a lot more pain.

Isn't it the case that QE has done two things.

Firstly restored liquidity to the market - which was the main cause of the crisis in the first place.

Secondly it has propped up asset prices (the money has to go somewhere) - which has prevented an asset crash.

The problem is that we are now looking at stagnation, and QE does nothing to address this. This is where the idea of giving money to people is not so stupid. Or do what Roosevelt in the US after the last crash - pay people to build infrastructure, which amounts to the same thing but has a more direct effect and a longer-term benefit.

I see nobody in the current government that has any idea about how to address stagnation. All they have is a fixed idea of the magical re-invigoration of the private sector.

11. At 1:58pm on 08 Oct 2010, gastrogeorge wrote:
... pay people to build infrastructure, which amounts to the same thing but has a more direct effect and a longer-term benefit.
---------------------------------------------
This would be a good thing in principle.
Nuclear power
Wave power
Tidal power
High Speed rail
Clean coal
National Grid upgrade
Electric vehicle charging network
Science and technology investment
....and many many more.


There would need to be big changes in planning laws. At present we would be lucky to start any major infrastructure that doesn't already have permission until well after the next crash (or the one after that).

Thanks, Paul. I took myself back to Mervyn's speech to Nottingham business men on 20 Jan 2009.QE was being readied then so I think there was little doubt it was being prepared by the time of his speech.In fact it was underway on 19 January. There, he set out the QE case.He said " Despite the existence of a range of unconventional instruments, monetary policy is likely to be more effective when the banking system is working normally. So the first priority for policy is to fix the banking system so that it can resume its normal lending function."

The simple obvious fact is that the banking system aint fixed. Its questionnable to say policy-makers dont 'understand' what they are doing. What they are doing hasnt worked. Too-big-to-fails propped up, zombie-like, left to feed on the QE afterglow. Now, the BoE are financing their balance sheets through QE-balance sheet through SLS,Long term repos,gilt repos,discount windows etc ad nauseam swapping taxpayers' futures for the banks' past bad lending. By 2012 UK banks face refinancing of enormous proportions. Not a word from government ( or the press from what I can see) as to how they can achieve this.Just oblique remarkes from BoE reports that discussions 'continue'.

The bond markets now are hooked, bubbled,mesmerised and bloated by central banks and austerity-kings driving down the yield curve to finance the sovereign risk emanating from 08/09 interventions and recession.

No more of this ' they dont understand' stuff, please.If QE 2 is to be pursued, it must be elected politicians to authorise.

Kit Green

they could put together a new £15B project to rationalise the NHS IT systems.

Oh wait - they did. And they wasted nearly all the money. Still, let's give them some more and see if big state projects work better this time around. I am happy to keep on trying this indefinitely no matter how high my taxes go.

The end of capitalism - I'd say Labour ensuring 50% of GDP was government spending wasn't exactly capitalism. And did it enrich us?

yes the markets are broken. recovery cannot happen because of state privateerism designed to keep the money flowing to china that doesn't believe in the free market, human rights, national borders and all that.

so we get appeasement. 'nothing can be done' is the mantra. which in the end means war to unblock it all.

the west is leaking money. there is a hole in the bucket dear liza. And as the saying goes even a small leak can sink a big ship.

many in the usa think the NHS is communism. so easy to get a 'reaction' from them?

Money has value because we say it does - the days of it relating to how much gold we had in Threadneedle Street ended a long time ago.

Banks lend more money than they actually have - and they lend other peoples' money that is deposited with them - we accept the "lie" that they can lend us "their" money (which they don't really have), but limit the scale of lying we let them get away with.

The credit crunch, stockmarket falls and house price collapses not only reduced the notional values of assets, they destroyed money that was lent out to companies, organisations and homeowners when they couldn't pay it back, so you could argue that all we are doing is replacing what was lost - a bit like the Banker in Monopoly, who has run out of Monopoly Money creating some more by writing values on pieces of scrap paper and feeding them into the game.

So what effect does QE have? To answer this question we need to understand what has been happening to money since WWII. The USA has run the printing presses like there is no tomorrow - as have most of the other developed countries - huge borrowing, balance of payments deficits and massive corporate & private debts have built up as well as vast pools of currency.

Where did all this money go? A lot of it is stashed away in sovereign wealth funds and in the coffers of the rich - so you could say that there is already far too much money in existence - even if not available in the real economy - try getting a business loan right now!

Capital formation has run amok - there is too much capital out there looking for a return from the real economy - and there isn't a decent return to be made in the global competitive market - so all this capital is used to fund public and private debt.

So what happens if you print more money to replace these debts?

All this does is shut off the investment opportunity for this mountain of capital - this dead weight in the system - which then has even fewer places to go to get a return. And with negative real interest rates, it's not a good time to hold a lot of cash.

If I'm right about this, we should be seeing significant price inflation in capital assets that are in finite supply - are we?

Gold has rocketed in value, but so has farm land in the UK that has achieved a 300% rise in value in less than 10 years. Commercial property has also risen, but as new supply is always being built it's a less good indicator - sure gold is mined, but not that muc and good farm land is being lost all the time.

In their panic to prevent economic meltdown governments have grabbed at the QE straw, seeing it as a way to pump prime the economy, but it is inevitable that the underlying value we place on money must reduce as we create more of it, because we are accepting that capital assets are getting more valuable - i.e. we have to give more money for them - so it is a truism that money is getting worth less and less - indeed, there may come a point where it is literally worthless.

This process is known as "inflation" - and we think that messing about with our base lending rate in some magic way can choke it off. I'd say it is a very deepseated process of capitalism - and one that in the end
will rectify the current excess of capital in the system by downgrading its value to reflect its real worth.

So is QE a good or a bad thing? It depends on how long you want to continue to ascribe the current value to your currency - the less we pay for borrowing and the fewer places there are to invest capital, the sooner it will go down in value - and by redeeming government gilts and not issuing new ones, the market is starved of income.

14. At 3:01pm on 08 Oct 2010, Ben
------------------------------------------------
Specific IT projects would not be in my list as they are not infrastructure as I understand it.
I could have mentioned a national fibre network so that IT projects of all kinds can make use of it.
Labour spending was not directed towards things on my list. You obviously agree with me that most of the spending was little better than throwing money in the air.
Where is the market when it comes to infrastructure? Why do we need a special levy just to keep a private operators grid up to date? Where was the forward looking rolling investment plan that should have been in place from privatisation? Same with other utilities / transport / communications. It is all to easy to blame government interference of the wrong sort but would anything have been achieved, and will it be in the future, without the correct government intervention rather than government complacency?

History shows us that progress is not linear.

10 years of stagnation should be at the more optimistic of forecasts. Gold is on a rollercoaster ride these last few days. Not quite "the last hurrah for capitalism", but maybe the last hurrah for the dollar.

I cannot speak for the UK, but I'll bet things are quite similar to what is happening in the USA, my stomping grounds.

Economists, and economic writers, have still not grasped the full implications of globalization. In the old days, printing money worked because the economy and job market were joined at the hip: stimulate the economy and local companies hired local workers, with those workers returning the favor by buying local products.

Today, stimulating the economy allows multinational corporations to build new factories and/or expand old ones in foreign countries. And those workers lucky enough to remain employed often buy foreign products, further exacerbating the situation. This is why my country's unemployment rate will not budge regardless of what the Federal Reserve does.

The only solution is an FDR-esque plan to stimulate specific industries, with Wall Street being intentionally left out. Obama allocated money for construction projects, which is wonderful if one is a construction worker. But what about other industries?

It is also time to admit that bankers have just about completed their coup of Western governments. If the UK and USA do not immediately separate commercial banking from the investment business, we will never escape the cycle of Wall Street and the City of London failing and bringing the rest of the economy with them, with governments then being forced to rescue drowning bankers to save the banking system. If a commercial bank fails, nationalize it, repudiate contracts for obscene salaries and bonuses, and allow the FDIC (in the USA) to intervene and convert it into a manageable business once again. If an investment business fails, bid good riddance to them as they jump from the steeples rising above their temples of greed.

https://saucymugwump.blogspot.com/

When will the previaling political and economic viewpoint accept that growth (in the traditional economic meaning of the word)is no longer possible in the developed world.

That is what the markets are beginning to tell us.

Most people who post on here realised that a long time ago.

Why does nobody else recognise the increasingly tangible body of evidence which supports that. Not that you need any evidence, it is pretty bleedin obvious really that you can simultaneously eternally grow and become ever more efficient in an environment with limited resources.

Doh.

What are the chances that the Treasury-Federal Reserve Accord makes it to 60?
See: https://www.richmondfed.org/publications/research/special_reports/treasury_fed_accord/background/

So it's inflationary (for consumers) QE2 on one hand and deflationary welfare and benefit cuts on the other, all adding up to a nice dose of Gresham's Law in favour of the Zombie Banking Class !

Hurrah, trebles all round !!

https://en.wikipedia.org/wiki/Gresham%27s_law

How the Financial World Sees Itself

https://www.ritholtz.com/blog/2010/09/how-the-finacial-world-sees-itself/

Athletes who inject themselves with performance enhancing drugs will tell you that the first time is the hardest, and its not so much the drug itself but the idea of sticking the needle in that causes the problems. Once they overcome that one psychological barrier it becomes easy.
I feel it is a bit like that with central bank economists and QE.
When the entire world banking system had collapsed there was an understandable fear that we might fall into a spiral of deflation, and QE was deployed, so we were told, to prevent this from happening. I remember Mervyn King telling us all that even with £200bn of QE he was certian inflation would only be at the worst 1% this year! No body ever seems to go back and revisit these predictions and forecasts in order to gauge the competence of those calling for further QE now....strange really, you'd think it would be in the public interest.
The thing is, we are not in the position we were in 18 months ago, the banks have been bailed out and we're not even in recession any more. The world economy is not staring over the edge of a cliff and yet we seem about to fire up the printing press again because our recovery is not 'strong enough' or 'quick enough' for the MPC...it seems that once you break the economic taboo of printing money, second time round it is easier.
A few days ago Andrew Lilico a member of the shadow MPC gave a speech advocating more QE and he thought as a result RPI inflation in 2012-13 could be 10%, he called this level of inflation 'modest'.
I don't know where all this is heading but the average Joe trying to get by on £20-£25k a year is not going to be able to cope with 10% inflation squeezing him from one end, and cuts in public spending at the other.
I agree there is zero political questioning of this, maybe they just don't want to draw public attention to it. On the face of it you would think that the opposition would jump at it as a way of reinforcing their argument that cutting the deficit slower would cushion the economy until it was strong enough to survive on its own without the need for extra stimulus, and that cutting quicker leads to more QE and devalues the money in peoples pockets. They could tar the coalition as the government of inflation, it counters the argument that cutting slower could lead to higher interest rates.
I also think that when the MPC talk of deflation what they really mean is falling house prices.

_______________________________________

I am inviting you today to

Vote for Your Economy, Now.
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When was the last time you were given that opportunity?

We don't intend to replace the prevalent system but to offer you an additional option.

We will add a significant amount of jobs, income and investment.

This is the only election in which the law of the majority is not binding on the minority.

If you don't participate you are still be making a choice:
the choice of relying exclusively on the prevalent system.
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Vote Now for the Credit Free, Free Market Economy
Add Jobs, Revenues & Investments.
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At the present moment people are unusually expectant of a more fundamental diagnosis; more particularly ready to receive it; eager to try it out, if it should be even plausible. But apart from this contemporary mood, the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else.

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.

#25

'On September 10th at 10:10:10 AM EST
I will post a video on that site describing the voting process.'
_______________________________________

I think you've just missed the boat!

It is all now getting a little bit more SCARY.

US job losses drive markets higher on stimulus hopes
https://www.telegraph.co.uk/finance/economics/8051918/US-job-losses-drive-markets-higher-on-stimulus-hopes.html
The US economy lost far more jobs than feared last month as sweeping cuts across the public sector overwhelmed hiring by private companies.

'The 95,000 jobs shed in September were almost 20 times Wall Street's expectations of just 5,000 losses, and capped a third quarter that has seen the US recovery slow sharply.

Bonds, gold and shares all rallied as the Labor Department's widely watched monthly report hardened investors' conviction that the Federal Reserve will embark on more quantitative easing next month.'

House prices are going to fall in real terms. It's the end of a ponzi scheme that kept the political class on a very easy ride. The general population must bear the brunt for refusing to question the validity of these valuations in real terms.

If you find yourself thinking: "this asset is worth £N because asset X sold for £N and it's similar" catch yourself and ask, is this actually +worth+ £N. Justify it in absolute terms. eg would I work all year every year for 35 years to acquire this asset? I'd suggest more people could do with asking this question.

T-11. And counting.

ps Kit Green - sure government has a place in big infra. It's not going to happen in the short term as any Truman-like spending would see borrowing costs rise, mopping up any increased spending capacity. To participate in the counter-cyclical spending Keynes prescribes one must save during the good times. Britain didn't do that and we cannot say "Dad - I promise I will next time" as this is real life, not kids games. It's the human race and we had a bad leg in a relay race. All one can do in such circumstances is to put your head down and dig deep.

Well we now know what George Osborne and by association David Cameron really think about more QE...just once it would be nice if a politician would maintain a consistent position on something, as despite your Cameron quote warning about printing money when in opposition he now seems to have changed his mind now that he is in no 10...As I said, it is really all about the housing market, nothing else. The truth is that the printing presses will be turned on each and every time there is a slowdown in the ever upward inflation of the housing bubble...

https://www.guardian.co.uk/business/2010/oct/09/george-osborne-imf-world-bank

Publics vs private debt - what are the classes 'public' and 'private'
and how does one quantify into these classes, i.e what are people referring to (aka talking about)? When one reads about all this private debt, what do you assume private debt refers to?

How many private businesses have debts like this below which they routinely try to 'roll-over', and do so successfully? How much of our Public Sector (state) is now at risk because of this profligate free-market libertarian, Private Sector economic anarchism, and how much of that risk has been set up in order to prey upon (liquidate) assets which are in public 'ownership'? if you can't answer these questions with certainty, can you honestly say you understand what you are being told by politicians? Remember the recent Hazel Blears interview with Andrew Neil? Remember the Expenses Scandal, Iraq and WMDs? How much do we believe that we were told by New Labour, or the Con-Libs today?

"Speaking from Washington, he talked candidly about the threat of administration on Liverpool. With the Royal Bank of Scotland's deadline for the repayment of £237 million looming on October 15, a Liverpool civil war will take place in the High Court just days before the banks can foreclose on Tom Hicks and George Gillett with the option of taking control of the club or putting it into administration. "

https://soccernet.espn.go.com/news/story?id=830852&sec=england&cc=5739

"They fear we are approaching a kind of global state capitalism whose laws operate, as it were, "behind the backs of its producers" (Karl Marx's phrase - he would have loved the irony)."

I remind readers that the term state capitalism is a woolly one, and was (and still is, used by entryist Trotskyites and Libertarian free-market anarchists) to pejoratively vilify statism as Stalinism (cf. the GOSBANK Central Bank as practised in the USSR up to 1953) and other Democratic-Centralist socialist states which put the means of production, communication and EXCHANGE (i.e.
banking) in pubic ownership/control. It was even tried up to a point here as Old Labour after the war up to the 70s). It's just Fabian statism as I see it. Trotsky claimed to be a Marxist too, but I suggest socialism is better seen as Communitarianism, which is very British and free of the Marxist mystique and unwitting feminized muddles/subterfuge.

How about doing a piece on the composition of Private Debt? How much of that is in fact Corporate Debt (which includes the private banks) and how much is really explained by mortgages (14 million homes at average of about £200K) and credit cards? How much of that corporate debt is highly geared commercial property debt and business loans?

How much are we being misled by words i.e. woolly/fuzzy class/set terms because of our low (child-like) mean literacy/numeracy levels?

"However, if you don't buy this, the alternative is quite unpalatable
also: the bond market has ceased to be a market at all.

Its prices are simply the product of decisions taken by six or seven unelected central bankers."

Which would not be state capitalism, it would just be international capitalism. If the central banks were all regulated under state control like GOSBANK, that would be 'state capitalism' , but these central banks are more or less independent.

The reality is that this is all out of control given the number of variables and amount of deregulation. It's a Dynamical System in the mathematical sense, 'chaotic', and only manageable in the language of that, i.e probabilities, hence the short-termism, and wide margins of error in the fan charts. It's great for journalists to speculate though, like the horses etc.

All you now have to ask is how the PRC does it better than the EU and USA, and where we are headed as they have a population bigger than the EU and USA combined, and it's managed too. Our Lisbon Treaty and the USA's Constitution all but proscribes that, the Chinese Constitution doesn't. They are happily watching us anarchistically self-destruct is my analysis, it's good for their economy.

"Alistair Darling once told me that if Britain did QE it would be his decision - a political decision not one outsourced to the central bank.
And indeed the BoE's ability to do QE depends on a letter of guarantee from the Treasury."

In other words, guaranteed by he tax payer and Public Sector assets?
Where has the money gone? 0.5% interest rates, but what is the interest rates on mortgages, credit cards and small business loans? Was this not just a good way to cut the Public Sector in favour of the corporates?.

Anyone who has been watching the global markets, especially the DOW and the FTSE since March 2009, will have have noticed something very odd about them.

Whenever bad news about the US or global economy comes out - i.e. such as the US unemployment figures this week - the markets actually go up. This is precisely the opposite thing that the markets should be doing and what they have been doing for 50 or 60 years.

Something is more than a tad fishy.

This has led numerous commentators to suggest that the DOW and FTSE are being rigged by their respective central banks and possibly also by a small circle of the usual banking suspects in New York and London.

The US unemployment figures this week being a case in point - it was bad news. Bad news worse than the bad news that was expected. What was the result? The DOW flew through the 11,000 ceiling. Onwards and upwards.

Historically low volumes of shares are being traded but we continue to have this upwards climb in London and on Wall Street. No wonder so many experienced financial commentators, analysts and investors are now saying that this is a suckers' rally which could just as easily collapse if and when those pulling the strings decide that it is in their best interests to do so.

The DOW and the FTSE should fall on bad news. Since March 2009 there has been plenty of bad news in unemployment, in company reporting, in a slow-down in consumer spending, in a collapse or stagnation in housing, etc, etc. The markets should not be where they are now.

You do indeed get the impression that it is being rigged.

But if it is being rigged then it is being rigged not just by certain organisations but by the very same organisations who will not just profit enormously from such manipulation but, perhaps, owe their very survival to it. So much for free-market Capitalism. So much for democracy and freedom.

No wonder many in the US are increasingly angry about this. They have been fooled into believing Obama's healthcare plans is Socialism with a hard 'C' Communism. Truth is, the real reds under the bed control of the US is being directed from the US Fed and a few on Wall Street... with a bit of help from the BOE.

I have no doubt that in the coming years we will be having this same debate about the imminent annoucement of QE3.

I have to say a final word for Bill Bonner, of the Daily Reckoning and Moneyweek, who refers to an FT article this week about Japan announcing more QE and stating that 'Japan has found its mojo' again.

Bonner comments that in fact all Japan has done is repeat the mistakes of the 1930s - when their Chinese 'adventure' was failing they went and bombed Pearl Harbour. Having pumped billions of QE in the Japanese economy over 20 years, with nothing to show for it, they are going to pump in more QE now because every other country is repeating their original QE mistake.

Bonner comments that what Japan has done is not find its mojo again but, rather, it has rediscovered Tojo.

I thought it was clever.


https://dailyreckoning.com/a-tojo-moment/

In #27, DebtJuggler wrote: "The 95,000 jobs shed in September were almost 20 times Wall Street's expectations of just 5,000 losses"

I have finally realized that the Telegraph is full of bovine by-products. I wrote about their North Korea pablum in "North Korea, the Telegraph UK, and sloppy journalism." I have to wonder if the Telegraph has resorted to making things up.

On the subject of the September jobs report, Reuters was close. They wrote that private-sector hiring would be 75,000, while the actual figure was 64,000.

In #34, tawse57 wrote: "Something is more than a tad fishy . . . get the impression that it is being rigged"

You are barking up the wrong tree, or to use your fishing analogies, you are using the wrong type of fishing pole.

You believe that the DOW and the FTSE should fall on bad news. Yes, but to paraphrase Bill Clinton, that all depends on the definition of bad news.

As I wrote in #19, Wall Street and main street (or high street) used to be joined at the hip. The American consumer, American worker, and Wall Street were equally important parts of the equation. Now that most factories have moved to China and India, there is only a partial connection between the aforementioned three parts.

It's not that a poor jobs report is good news, it is that it is of only minor importance. Other factors, e.g. Chinese manufacturing and consumption, are much more important now. Wall Street knows that it is in control.

Yes, many people in the USA are increasingly angry about this, but most of them simply do not understand what is going on. Republicans believe that returning to the days of robber barons will solve everything. This is only true for the top 1%; the rest will live much worse. Democrats refuse to accept that lawyers have doubled the cost of everything; tort reform is essential. Fox News viewers believe that Obama is a Kenyan interloper with a heart of Lenin. MSNBC viewers / NYT readers insult everyone outside their social circle and then wonder why everyone else hates them. Republicans have Sarah Palin, John Boehner, and Christine O'Donnell, while Democrats have Charlie Rangel, Barbara Boxer, and Luis Gutierrez. It used to be that California was the land of fruits, nuts, and flakes; now the entire country is one big cereal bowl.

tabble, I think you may be onto something wrt where the debt has been transferred and where it should actually reside.

Up to October of 2007 the total capital value of PFI contracts signed throughout the UK was £68bn...committing UK taxpayers to projected future spending of £215bn over the life-time of these contracts.

The global financial crisis has presented PFI with difficulties as most of the sources of ‘private’ capital have disappeared, however, PFI remains the UK govt's preferred method for public sector infrastructure investment. Last year the Labour gov’t reaffirmed its commitment to PFI.
Since the banks have been unwilling to lend money for PFI projects, the UK government has had to fund the so-called 'private' finance initiative itself. In April of last year, the Labour govt announced that the Treasury was to lend £2bn of public money to private firms building schools, hospitals and other projects under PFI.

Vince Cable has recently argued that govt should return to more traditional public financing structures rather than propping up PFI with public money. He stated...

“The whole thing has become terribly opaque and dishonest and it's a way of hiding obligations. PFI has now largely broken down and we are in the ludicrous situation where the government is having to provide the funds for the private finance initiative”

It looks like it will be 'all hands to the printing presses' soon!

To add to my post of #35:

Another thing the Telegraph got wrong -- though so do most media outlets -- is taking the number of jobs created at face value. Putting aside the loss of 159,000 government jobs for the moment and only looking at the 64,000 jobs created in the private sector, the data is still misleading. According to EPI (URL below), 127,000 people are added to the work force each month merely due to population growth. So in September, we actually fell backwards to the tune of 63,000 jobs.

https://www.epi.org/analysis_and_opinion/entry/signs_of_healing_in_the_labor_market_though_unemployment_remains_in_double_/

Anyone care to explain to a Yank how the UK's unemployment figures are generated and do they take into account population growth?

tabblenabble01 - Liverpool are in a tight spot. I feel sorry for the fans. At least they are a genuinely big club, so once fundamentals return to UK football they may be sitting pretty.

tawse57 - markets were reacting to an increase in the likelihood of more QE, which it appears boosts equities.

DebtJuggler - for once I agree with Mr Cable. PFI is the perfect illustration of the morals of the current generation.

Ben - the markets have been going up at every sign, report or news of, um, bad news since QE1.

It is only in recent months that talk of QE2 has been going around but, in the time between QE1 and then, the markets went up on virtually every bit of bad news.

That is odd.

That is suspicious.

That is not normal - normal is bad news and markets fall.

The markets have been moving up on bad news over several months when QE2 was not even a glint in the mind of those now considering it.

I am not alone in having realised this - it is all over the numerous financial blogs, websites, etc, etc, online. Volumes of shares traded are also at historic lows which, again, is not what you have in an upward market.

The paranoid, or the brilliant, believe that is all a giant plan to re-capitalise the banks.

Sucker in the savings of the last savers by punishing and scaring them with zero interest rates on savings, throw in some inflation and hopefully they will all panic and run to buy into shares again.

Then all you need is massive shorting of the DOW and FTSE by the big banks who, allegedly, are the ones pushing up the markets now, pull the rug out from underneath the poor savers looking to keep ahead of inflation and, voila, the banks are rolling in dosh again!

Nah, that can't be it - surely?

Ben @14

they could put together a new £15B project to rationalise the NHS IT systems.

Oh wait - they did. And they wasted nearly all the money.

Ben, the State paid private firms to fulfil the contracts in NPfIT. It is the private firms that failed the taxpayer not the State. Ironically, I'm sure that the NHS already had/have the talent in their IT depts to do the NPfIT themselves. But, I forgot, that's 'crowding out' the private sector!

We have to ask what is best: getting value for money for the taxpayer, or supporting the private sector.

Hi tawse57.

Whenever I'm confronted by a conspiracy theory I always ask:

could this also be the product of greed / fear / incompetence?

I've yet to have this question fail me. I don't think it fails this scenario either.

Think of all the conspiracy theories during the cold war. Massive plans, global in scale, glacial in duration and fiendishly complex. AFAIK, all were utter rubbish. History has revealed that to us, but it didn't stop some crazy theories at the time.

Are the banks really meeting and agreeing to block credit lines? Wouldn't Paulson have some inkling of this? Is he in on it too? You've got to draw the line somewhere on trust, otherwise you might as well check your cereal bowl for cameras in case you are in "The Truman Show".

QE2 has been on the cards since QE1 was being considered. If not before! Why? Because it didn't even attempt to fix the root causes of the problem, because of greed, fear and incompetence.

I'm sure there will be government input to boost markets, and cross-fertilization of QE money between the US and the UK, but that is desperate governments trying to prop up their failing economies. It's not some kind of intra-banking cartel exacting a coordinated play over several years.

#28 Ben wrote

'To participate in the counter-cyclical spending Keynes prescribes one must save during the good times.'

------------------------------

But if we HAD done that, they wouldn't have been the good times! ;o)

dceilar - sure - it takes two to tango.

I've worked in a public sector job where a consultancy was chosen to create a new system to integrate / replace existing systems, with a budget of over £1M.

It was a failure (to be fair most IT projects are). They didn't know how to choose who to do the project. They had nobody informed to make a call, so were beholden to the consultancy (never good). Because they were such a soft touch the consultancy put some kid with no experience as the architecture lead. For him it was a good learning experience! You may argue this is not ethical, but they weren't trying to con anyone, they just were not pushed hard by the nice chaps on the public sector side probably because they didn't understand the domain at all.

The public sector side didn't identify the requirements fully, then once the first cut had been delivered they suddenly remembered loads of other stuff it had to do, and retrofitting such requirements is never optimal. Result: over time, over budget and sub-optimal.

By the end of it you had a big mess and £1M spent, with nothing much to show for it.

I'd say the public sector side in the above were heavily culpable.

I'm not saying all projects are like this, but the NHS one was clearly far worse and the buck has to stop with those responsible for delivering the project, which is ultimately the government. Again nobody seemed to really swing for the NHS project mess, which is a key "motivator" that works wonders in the private sector.

Outsourcing may be more expensive for daily support, but for specialized projects it's never efficient for an organisation whose core business is not IT to try to maintain such staff. I would be really surprised if the NHS had the right staff for such a large task on their books already. I'm baffled that you see such specialized outsourcing as somehow subsidising the private sector.

#43 Ben

'By the end of it you had a big mess and £1M spent, with nothing much to show for it.'

'I'm baffled that you see such specialized outsourcing as somehow subsidising the private sector.'

surely you can see it now.

Ben @43

There are many examples of systems being setup by local Trusts who then offer the product to other Trusts for a small fee, but you don't hear about it in the media. Most of these small scale systems use the Summary Care Record via the NHS Spine (which was set-up by BT a few years ago) - a good example of the private sector enabling the public sector.

However, you may be right about the job being too big for acute hospitals. The NHS hospital trusts should have all agreed to what they wanted before outsourcing to the private sector.

they just were not pushed hard by the nice chaps on the public sector side probably because they didn't understand the domain at all.

They were pushed by the ones who were going to use the system (ie the clinical staff), just not the ones at the very top.

'By the end of it you had a big mess and £1M spent, with nothing much to show for it.'

'I'm baffled that you see such specialized outsourcing as somehow subsidising the private sector.'

surely you can see it now.

Bobrocket - that's like the selective editing of movie quotes.

"See it now" Bobrocket, 4 stars

duvinrouge @8

It's not just the last hurrah for the stockmarkets, it's the last hurrah for capitalism.

Hurrah for that. However, if what ever replaces Capitalism continues to use the Earth's resources as an income instead of capital it will be the last hurrah for all of us.

This should be an opportunity for us all to finally treat Nature as capital - so as to value it and conserve it. We insanely see ourselves as outside Nature, so we try to conqueror and dominate it as if it is a battle. If we win we will quickly discover that we are on the losing side. Dr Schumacher was right when he wrote Small Is Beautiful in 1973, now his ideas are more important then ever.

45 - decliar - glad to hear they are sharing smaller systems. Good, as it should be.

We are agreed they need outside help for one of the biggest IT projects in the UK. I think the root cause is that the project was a bad idea. Often ministers choose projects ridiculous in scale to satisfy their own egos.

I heard about an MOD project the other day on radio 4 that sounded like insane, complete with wall size screens with real-time updates on troop positions etc. Much more important to see your troops die in real time because you haven't got enough kit on the ground.

I understand your point about only government can do big infra, but I just think we should limit this to the minimum necessary because I think they nearly always make a total mess of it. I guess the Boris bikes is a good counter-example...

Ben

The problem with people who worry about conspiracy theories is that they end up convinced that everything is a conspiracy theory. It is also a snide way to tell someone else that you think they are a crack-pot whilst ignoring the facts.

I have no agenda. I don't care if the markets go up, down, sideways or turn into a giant pink elephant. Too many financial gurus, reporters and others, all far more experienced than I, are asking the same question - how can the markets constantly rise on the back of bad news?

The facts speak for themselves.

The volumes of shares currently traded are consistently lower than any other time in history not seen since the Great Crash and the early 1930s.

You can make out that people who talk about such things are deluding themselves with some conspiracy theory but that is the fact. Despite these almost century long lows in trading volumes the DOW and FTSE are roaring ahead.

That is illogical... Captain...

OK, you can argue that in the case of the FTSE that Commodities are perhaps a factor in the rise of the London market. But look to the DOW and all those companies that make and sell things, or just sell things, which are seeing their shares race upwards despite almost weekly reports of rising unemployment, of consumers having stopped spending, of house prices crashing and not selling.

QE2 was never on the cards when QE1 was announced. Heck, the Yanks didn't even want to do QE1 and once everyone started doing it the belief and hope was that it would work. The sums pumped into QE1 were so staggering that no one thought for a moment that it would not work - well, apart from those who knew that the money would simply end up in the hands of the bankers and no one else.

Oops, that is another conspiracy theory.

:-)

I don't think anyone scans Paul's blog for information that subsequently moves the market, so if you have an agenda you would do well to realise it via this blog. His last post was around the same time as non-farm payroll but correlation does not prove causation :-)

The DOW may be effected by the likelihood of more QE in the USA. Plus many companies listed in both markets are international and moving into expanding BRIC markets.

The volume information is true but that doesn't build into a conclusive demonstration of collusion. In a similar demonstration of counter intuitive behaviour, the UK housing market has seen rises (until recently) based solely off figures distorted by low volume.

If I knew how it was going to progress I'd be on a spread-betting site!

Ben - how many times do I have to tell you I have no agenda. I give up.

#47 dceilar

I agree.
Getting rid of capitalism only gives us the opportunity to deal with the ecological crisis.
We actually need to build an ecologically sustainable society.

Will never be able to live in harmony with nature under capitalism as capitalism is all about accumulation of capital - growth.
'Green growth' is just marketing bull$h!t.

I think you're on to something, Paul, with your observation that markets are being manipulated.

Back in the 1960s, a regular feature of the BBC news was a fresh political crisis over the size of Britain's monthly trade deficit. This was usually around 100 million pounds, and could be noticeably affected by the purchase of a new American airliner by BEA/BOAC.

In 1992 Sterling was ejected from the ERM, at a cost to the taxpayer of 3.4 billion pounds --- which then seemed a huge, unimaginable sum.

In 2010 the Bank of England could blithely print an extra 200 billion pounds and nobody notices.

So it seems that the size of the crisis, in pure monetary terms, increases by an order of magnitude (x10) per decade. In the USA they are throwing money around by the trillion, and I dare say we soon will be too.

What this all means I don't know, but given that the size of the sums now being debated is so much larger than any human mind can comprehend, it surely suggests that Western currencies --- the pound Sterling as a store of value --- will sooner or later collapse.

I have heard it mentioned that the reason why stock markets remain buoyant is because they are the only place to put your cash and get any sort of return on it at the moment.

I have also heard that developing nations are concerned that capital inflows from the developed world are unbalancing their economies.

This suggests to me that there is a lot of capital sloshing around the globe looking for a place where it could get a return. A limiting factor in this is that the investor, if I may use the term in this context, would prefer to be able to get a return on both his investment and the actual return of the investment once it has performed its required function. This might not happen in some developing economies.

On the other hand in the developed world we have a large debt-hole from which a lot of this globalised capital was created. We have over-priced assets and a crying need to restructure our economies. All that QE will achieve is a continuation of the overpriced assets whilst papering over the debt-hole.

So we either bite the bullet of adjusting our asset prices to reflect realities, deal with the debt hole, restructure our economies and start investing in a revived economy allowing a lot of the speculative money to be repatriated and put to beneficial use, or we allow this nonsense to continue through QE2, QE3 and so on until inflation destroys everything of value.

Alternatively, we could all agree that Karl Marx was right about surplus value and kick the entire capitalist concept into the waste-paper bin.

For me, the jury is still out on this latter point but really if policies are to be adopted that annihilate the responsible, the honest and the temperate then it is time for those to annihilate back.

"34. At 10:20am on 09 Oct 2010, tawse57 wrote:
Anyone who has been watching the global markets, especially the DOW and the FTSE since March 2009, will have have noticed something very odd about them.

Whenever bad news about the US or global economy comes out - i.e. such as the US unemployment figures this week - the markets actually go up.
This is precisely the opposite thing that the markets should be doing and what they have been doing for 50 or 60 years.

Something is more than a tad fishy."

Here's another logical possibility: 1) property prices are falling, 2) savings interest rates are near zero 3) bond yields are low so money flows into a) equities or b) commodities such as gold/silver etc.

Tell us what's wrong with that alternative suggestion.

tawse57 - read it again. I was joking - I don't really think you are trying to influence markets through Paul Mason's blog...

tabblenabble01 - sounds reasonable to me. Wait! Too reasonable! How do I know you aren't in on this too?

#9afcone

''I've been wondering this for a while: if the purpose of QE......''

''(I realise there's probably a very simple reason why this wouldn't work, but I'd be grateful if somebody would explain why)''


Most people don't get it, the truth is so extraordinary it is a bit like 'the elephant in the room' ..its like.. it cant possibly be true or there would be riots on the streets.. therefore there must be some other intellectual reason beyond my grasp....

ok, I am sure someone here will correct me if I am wrong but....

The initial bout of QE was worth £200 billion, I find it easier to visualise that number as 200 thousand million (200,000,000,000).


There are about 20 million families in the uk (20,000,000). Strike out the noughts and you get £20,000 per family in the UK or about £3000 per inhabitant of the country.

WOW!

Now thats what I call a stimulus.

Where is it?


Well the Bank of England did not buy anything tangible with it, they bought their own debt back. They bought back govenment bonds ( government IOU's)with cash they printed themselves (can you see the elephant yet?).

This, in effect gave the BANKS huge liquidity in cash reserves to assist with their own stupid bad debts and also to invest in say ... the stock market (noticed how well stocks are doing despite the companies that form the stocks well...barely surviving mostly).

Is the elephant getting bigger yet?


In plain english QE was sued to help further stabilise the banks, y'know those greed ridden nerds on power trips who caused all this in the first place.

I am sure they are very grateful.


So you ask yourself.. what is in it for the electorate. ...well this is less clear, but it ammounts to joe public get the scraps off the table once the banks have finished gorging themselves of QE cash in the form of (this is hiolarious if it were not so tragic) LOANS !!!!!.

Yes they are suppost to loan us this money (at a nice return - thank you very much) so we can get into more debt and in so doing ... stimulate the economy into growth.

If you are having to pick your chin off the floor at this point read on....

''(I realise there's probably a very simple reason why this wouldn't work, but I'd be grateful if somebody would explain why)''

You are right, there is avery simple reason why they do not simply put £20,000 into every family bank account. The reason is that if they did that they would be empowering the people to take charge of their own nations future prosperity, sure many would waste the money, many more would pay off achunk of thier mortgage or set up that small business they had always dreamed of or invest it in an interesting overseas start up sustainable company.

We cant be trusted to do that, only learned financial institutions owned by shareholders can be trusted to manage all that cash in our best national interests.... I mean just look at thier track record.


Democracy 2010 is an illusion. With the suystainable technology we now have we should all be working no more than 3 days a week and have the rest of the time to spend with our families friends and communities.

So why dont we take advantage of the massive technological dividend?

We are in bondage to our own greed and those who control it to feed their own greed. They simply do not allow the people to see the underlying truth of what could and should be achievable in the modern world because it would cast them out of thier privileged ivory towers built on nothing of value to society yet they claim that they are the guardians of value itself (money).

Does this help?

...The world's foreign exchange markets bracing themselves for fresh turbulence after weekend talks at the International Monetary Fund failed to ease fears of a currency war.

"Excess reserve accumulation on a global scale is leading to serious distortions in the international monetary and financial system, and is inhibiting the international adjustment process,"

Finance ministers and central bank governors expressed concern about the deteriorating atmosphere,...

https://www.guardian.co.uk/business/2010/oct/10/imf-currency-row-foreign-exchange

are british people prepared to grow ever poorer to make china ever richer? the last financial crisis ended in a world war. whose to say this one won't?

#58 JC

A long holiday on Easter Island might be and idea!

Easter Island officially has the most remote airport in the world.
https://en.wikipedia.org/wiki/Easter_Island

Given the island's history...how ironic that it might just be the safest place on the planet!

Now who was it on here that was talking about the free-market anarchists (aka Libertarians) masterminding economic collapse just so that they can get's their grubby hands on the states assets?

David Cameron's secret plan to cut UK's £149bn debt by selling off property
https://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/8054350/David-Camerons-secret-plan-to-cut-UKs-149bn-debt-by-selling-off-property.html
'The Government is working on a secret plan to tackle Britain's £149bn deficit by hiving off state-owned property assets worth tens of billions of pounds and selling them to the private sector.'

It would appear that the red team completed the assist just for the blue/yellow team to score the goal.

Oh how the 'reds' hide their ulterior motives!

Jaunty.

Banks loaned the money out to people who couldn't repay it. The people they loaned it to have by now already spent the money, as you do with a loan that goes bad. The QE is to back-fill these bad loans.

Given QE is plugging a hole one wouldn't expect it to all be lent out. It is simply to get banks back on their feet so they don't implode.

Your post reads as though bankers just spent all the money on their books on booze and then asked for more and spent that too. I'm not defending the dire situation they helped create but if we are to avoid such a mess again we must recognize that it takes two parties to create a bad loan, and the public are involved too via the insanity that is the housing market and the widespread acceptance of debt in general.

If we have enough technology to work 3 days a week why would "the bankers" stop this? They could still cut the cake any way they please if they have such power. Reality is that technology is eroding menial tasks, making knowledge jobs ever more specialized and highly paid, and creating more and more unemployment. That's not quite the same thing.

This comment was removed because the moderators found it broke the house rules. Explain.

#43 Ben

"I'm baffled that you see such specialized outsourcing as somehow subsidising the private sector."

sorry to disillusion you but you should be aware of a number of well known software consultancies who have a significant presence in defence who are and have been in effect subsidised by government outsourcing contracts and other work over the years for reasons that they are "strategic" to the UK economy. Not difficult to work out who they are.

. . . and I thought the aim of QE1 was to inflate the economy to avoid deflation. With inflation over the target what is their excuse this time I wonder? Is it currency war - the 21st century's version of protectionism?

I was listening to the Today programme this morning and some banker was on there telling us it wasn't all the banks fault. He carped on about how the government and the regulators are also to blame because they didn't stop them!! The banks idea of 'financial innovation' is to think of ways to get round the government and regulators anyway.

The next time I break the law I going to argue that it wasn't my fault because the Police didn't stop me. I'll see what the Judge will say about that. I'll tell him not to stifle my innovation man.

tonyparksrun - I'm sure, as Philip Green says, there is loads of cash wasted. So stop wasting it! Outsourcing should save money. If the gov are spending it knowing it is costing more then that's just lame. How can they not sort this out? Could it be because one gets promoted on length of service and not results?

These companies should be cut loose if they fail to deliver, then go to the wall and let a better company fill the gap. Paying for rubbish is just dumb.

"as Philip Green says, there is loads of cash wasted. So stop wasting it! Outsourcing should save money. If the gov are spending it knowing it is costing more then that's just lame. How can they not sort this out?
Could it be because one gets promoted on length of service and not results?

These companies should be cut loose if they fail to deliver, then go to the wall and let a better company fill the gap. Paying for rubbish is just dumb."

Perhaps not.

There was a good series of programmes on BBC FOUR which covered the mining industry in Britain and how things dramatically changed in the 80s.
In one clip, someone speaking for Northern miners said that the mine was being closed simply for economic reasons. Today, most people can't understand what was meant by that statement. The chap was actually saying that economics was no reason to close the mine!. That is how far things have changed.

To understand what he was saying one has to understand something important about ideology. Back in 50s through 70s, Britain was essentially socialist. It was very like the USSR in that most of the means of production (coal, gas, oil etc) and industry (steel, manufacturing) and the means of getting the fuel to the factories and to the shops was in public ownership. Jobs were part of social community and national life. Jobs were not a means to make profits, jobs were a means to support a way of life.

Some people think something went radically wrong. A new ideology of selfishness came about. Individualism. Something attacked the collective. Much has been said on this so there is no need to repeat it here, but I think some people today have no idea of how things were, and what they have been induced to throw away. To many, modern life is no longer worth living as a consequence (he hence al the drug, alcohol and other forms of self-abuse). It's certainly not a way worth fighting for.
We're even cutting our armed forces.

One can't out old heads on young shoulders alas.