QE 4 Eva

For a long time, I’ve been complaining that the proponents of more money printing won’t specify how they want the money to be printed. What else is left for the Fed to buy at this point? They won’t say.

Yglesias finally touches on the issue a bit here.

“One key point is that the Fed staff puts much more emphasis on the literal mechanics of asset purchases and much less on the expectations channel than I think is warranted.”

Funny that Fed staff would care about how to accomplish the task they need to accomplish.

The Fed prints money by buying stuff. The Fed’s major constraint in this area is that it’s only allowed to buy certain things. The article lists: Treasuries, agencies, agency MBS and foreign exchange. I’m pretty sure they can at least buy gold too (central banks like to talk about how gold is a “relic” but they also like to buy lots of it).

At this point, interest rates on Treasuries, agencies, and agency MBS are all incredibly low. Buying more of these assets is unlikely to be very stimulative, given the current super-low yields (thanks to the fact that the Fed has already bought so much of these things). Gold is at highs – also thanks to Fed activity. This basically leaves foreign exchange – in other words, the Fed would print dollars and buy foreign currencies, driving up the value of foreign currencies and down the value of the dollar.

Yglesias thinks the Fed should do this to stimulate the economy. I think so too, as it would increase the value of my gold holdings a lot.

The article notes that massive Fed purchases of FX would amount to economic warfare. Yglesias likes this, thinking that retaliation would force money printing in Europe. You can’t make this shit up. Yglesias apparently has no concern for the destabilizing consequences of rampant world-wide inflation. I guess you have to break a few eggs to make an omelette. Anyway, the fact that a policy maker who is taken seriously is arguing for this wildly irresponsible action is the best possible argument for buying gold that any goldbug could ever come up with.

7 Responses to QE 4 Eva

  1. James_G says:

    Obligatory Moldbug quote:

    So how can you tell the difference between a real economist and a quack economist? I’m afraid a bit more than $64,000 is riding on this question.

    Here is my answer. Please feel free to refute it in the comments section. I have an open mind, but it tends to close after a while when it doesn’t hear any good arguments.

    My test is that a real economist is an economist who believes that any quantity of money is adequate. A quack economist is an economist who believes that increasing prosperity – or even continuing prosperity – demands a continuously increasing quantity of money.

    There is a word which means “an increasing quantity of money.” The word starts with an I. However, in the 20th century this word started to be used in a new way, meaning “an aggregate increase in prices.” While the two phenomena are certainly related, using the same label for both doesn’t strike me as the ideal way to elucidate the relationship. And when you realize that the new meaning largely dominates in modern English usage, leaving no word at all for the old meaning, the needle on your quack detector may start to ‘pop’ a little.

  2. DW says:

    Sorry to say that if the fed did something like that properly, by using FX purchases as a fulfillment of its newly set expectations, gold will fall in value since a massive recovery will be priced into all assets.

    The gold trade is shorting fed efficacy and Yglesias’ ideas would mean its return.

    • Matthew C. says:

      Yes, gold will go down when trillions of dollars get printed. Which is exactly what happened when QE1, QE2 and the LTRO were announced. . .

  3. […] once watched John Paulson pretend he knew why the Gold price was going up. Now consider this example of the conventional wisdom: Gold is at highs – also thanks to Fed activity. This basically leaves […]

  4. Handle says:

    Treasury is issuing a net increase of debt of over $100 Billion per month. This completely swamps the previous QE’s and is expected to continue … indefinitely. And the giant trust funds are plateauing in aggregate, hardly making any net purchases at all anymore, so there’s plenty of public supply. Is this an entirely theoretical concern? Why would anyone even be worried about the Fed running out of things to buy?

  5. spandrell says:

    Can’t they buy Facebook stock? Zuck could use a hand there.

  6. Simon says:

    I thought this was going to be a pro-monarchy post.

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