emordnilap wrote:frank_begbie wrote:Might be a daft question, but why let this chaos happen?
Because it benefits the 1% in the short term.
It's the other way round. QE benefits the 1% in the short term. That's why the rate they have been getting richer compared to everybody else has increased since 2008. While
some of the money that's been printed has gone towards creating illusory growth and keeping the western economies from collapsing, most of it has just ended up in the hands of the 1%.
frank_begbie wrote:What are the consequences of the US continuing with QE?
In the long term, the consequences are so severe that even the 1% will suffer (otherwise it would indeed continue).
If it were possible to avoid financial crises, permanently, by printing money or debasing currencies, then this solution would have worked as a long-term solution on all the previous occasions when the issuers turned to it as a short-term solution. What actually happened, every time, was that people eventually lost faith in the currency in question and started using some other system instead - either a foreign currency, or commodities, or a straight barter system. Currencies are only viable so long as people continue to have faith in them. If the US were to come out and state "it is our policy to continue QE forever" then there would be an immediate flight from the dollar - all over the world, everyone from the biggest countries to the smallest individual trader would start dumping dollars and dollar-denominated assets such as US treasuries (bonds). It would lead to a meltdown in the bond market and a massive rise in the price of gold. The US would then be forced to buy up all those bonds that would be coming onto the market, using even more newly-printed dollars. Eventually they would have to monetise the entire national debt, unleashing hyperinflation.
At least that would be the inevitable outcome if it was
just the US in this position, but that is not the case. There's also some people who think that there is going to be a bond market meltdown if the US
stops printing money, so they maybe damned if they do and damned if they don't:
http://www.nakedcapitalism.com/2013/05/ ... tdown.html
So while Krasting argued that the vortex risk might not be as severe as imagined because the Fed would resume QE if the bond markets became unhinged, you may see the Fed resume QE (assuming it does wind it down sooner rather than later) because it realizes it has misread the real economy. The central bank seems to be suffering of a combination of confirmation bias (needing to believe its patent medicine is actually working) and concerned about political blowback if it does not seem keen to unwind QE (even though Audit the Fed was cut back from its original scope, it still got further than the Fed liked, for instance). Of course, it is also possible that the Fed is playing the same game that Penelope played with her suitors, pretending action is imminent and keeping them drunk in the meantime. And perhaps nervous investors are channeling this myth, since her paramour-wannabes got slaughtered for taking advantage of her hospitality for so long.
The situation of an entire global fiat currency system all debasing at the same time has never happened before. IMO the only place it can lead is a global race-to-the-bottom, as each nation tries to make sure that its own currency remains relatively weak compared to all the others. This is why Japan is currently printing money with the explicit intention of
causing inflation (rather than servicing its gigantic debts), and why Switzerland is printing money with the explicit intention of supporting its export capacity.
IMO it all ends with the 1% owning most of the land, property and other hard assets, leading to revolutions as the majority find themselves dispossessed and without any hope of their standard of living ever doing anything but plummet. Quite possibly the response of the 1% to this threat of revolution will be to try to start wars with other nations, thus creating an external enemy to distract the 99% from the reality that the real enemy is within. After that, I don't think it is possible to predict the outcome.
) do as you both say as it benefits, solely, the financial markets. If the government invested that QE in capital projects it would benefit the whole nation and take the burden/benefit of creating new money away from the *ankers.
