"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen

"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister

"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont

"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister

"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Tuesday, October 29, 2013

QE2, Baker on bubbles

Joe Gagnon on Quantitative Easing: Noted by DeLong
[QE2] did work. I think QE2 had two elements. One element was of moderate importance, one element was of minor importance. The moderate one is that QE2 convinced markets that the Federal Reserve would not allow deflation or a double dip recession to happen. This is good because it inspired confidence and kept inflation expectations from falling any further. That was the most important step, because it convinced financial markets that the United States wouldn’t turn into Japan, which they were worried about. The element of minor importance was that it lowered long-term bond rates a little bit. It takes a lot of purchases to move these interest rates even a little bit, and QE2 wasn’t big enough to move them dramatically. It’s not nothing, but it is small in the scheme of things.

The Fed Really Needs Someone Who Can Think Clearly on Bubbles by Dean Baker
The issue that the Fed should concern itself with is a bubble that actually moves the economy as the stock bubble did in the 1990s and the housing bubble did in the last decade. It wasn't necessary to have complex computer programs and super-sophisticated economic knowledge to see the impact of these bubbles on the economy. Intro econ and third grade arithmetic were pretty much adequate for the job.

In both cases the wealth generated by the bubbles led consumption to soar and savings rates to plummet. In the former case, the ability to sell shares of stock in Garbage.com for billions of dollars led to a boom in investment by nonsense Internet based companies. In the latter case we got a clearly unsustainable construction boom. Both of these booms predictably collapsed when the bubbles burst.

There is no comparable story in the economy today as should be readable apparent to anyone who reads the data. The Fed's hawks are looking to crack down on phantom bubbles and to keep millions of people out of work as the cost of their war.

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