Further to yesterday’s piece on the Five Money-Death Reasons, I thought it might be interesting to add some more to the empirical evidence of a flawed strategy. After roughly four years of QE in the United States, money velocity now stands at a 60-year low. A strengthening economy would have rising velocity. There is no appetite for credit among the squeezed middle of consumers, because they have wised up to the unaffordability of debt.
As the website sober look noted yesterday, “The Fed bought bonds off commercial banks in the hope that these banks would lend the said money to the public. Unfortunately, bank loan growth has been tepid, and trending down of late. That’s indicative of weak demand for debt from consumers.”
It certainly isn’t indicative of recovery….and nor were December’s employment-creation figures – which were half those expected. “Bad weather” said analysts, omitting to remember that December contains Christmas, when jobs are supposed to go up really rather a lot.
October’s Fed minutes show pretty clearly that even the hawks were starting to wonder whether the QE cost-benefit analysis made any kind of sense at all. Given the negligible effect on both lending and spending, they should really have had second thoughts after QE1. Many observers have in turn pointed out that yet more easy money went into commodity speculation that didn’t do anyone much good. And is there any benefit at all in the stock market being overvalued by at least 40%? Common sense says no: nice for the time being, but conducive to a broader panic when it inevitably corrects.
The notion that QE has worked and the US is in real recovery must be one of the madder assertions of economic history. In 2010, QE monetised the entire US deficit for the year. Little of any benefit happened. By the end of Summer 2012, the Fed held just over $2trillion in purchased bonds. Even less was happening. A third round of quantitative easing, “QE3”, was announced on 13 September 2012. In an 11–1 vote, the Federal Reserve decided to launch a new $40 billion per month bout, and this was then more than doubled to $85billion in December of that year. As a result of QEs, the Fed’s balance sheet has more than quadrupled, to $4 trillion. That’s equivalent to 80% of the entire world’s gold stock, and made it the most massive economic stimulus program in world history….but each time, the discernible effect has been reduced.
But if it is thus the maddest economic stimulus program in world history as well as the biggest, there’s plenty of other bits of news around to suggest our species is mad in multivariate ways.
Britain said on Monday it planned to give the United States specialist equipment and training to help it destroy Syria’s chemical weapons arsenal more quickly. Defence Minister Philip Hammond said in a written statement to Parliament today that the UK will gift equipment to the United States worth around £2.5m that would allow the chemicals to be processed at a higher rate. WhyTF does America need a gift from us? And has anyone actually seen these weapons?
The European Central Bank is concerned that national differences in how bad debt is classified could cripple its probe into the health of euro-area banks, according to an internal ECB document. Using a strict definition of bad debt, says the ECB, could threaten banks in countries hit hardest by Europe’s debt crisis. Call me wacky, but didn’t a patently lax method of defining bad debt play a featuring role in getting us to where we are today?
British Police have been forced to issue a statement stating that dialling 999 does not boost your mobile phone’s battery life, after the myth resulted in numerous nuisance calls. Said Bedfordshire Police in a statement to ITV: This myth has been circulating for some time now and we are not the only force to have suffered from these false calls. The only way to boost a mobile phone battery is to use a charger. Geddaway.
In America yesterday, the S&P 500 fell 1.3% to 1,818.97, the lowest level since Dec. 20. Companies from Microsoft to Exxon and Walt Disney dropped more than 2%, with all 10 main industries in the S&P 500 declining. “Sentiment is extremely optimistic and that’s a negative for stocks,” Bruce Bittles, chief investment strategist at RW Baird & Co. Is it just me, or do you get the feeling that Mr Bittles would see a collapse as a minor correction, and then a new rally as an unstoppable surge?
Euro banknotes will remain paper, the European Central Bank said yesterday, choosing to fight counterfeiting with new security measures, but resisting a move to plastic money. The ECB’s Executive Board member Yves Mersch told a press conference. “With 15 billion Euro banknotes in circulation, the number of fakes remains very low in percentage terms”. I couldn’t possibly comment on why that is, but questions like “Why counterfeit a fake?” spring to mind.
And finally (as news anchors used to say) Philadelphia police are hunting for a man who drives around without any trousers on and offers women money to watch him masturbate with slices of cheese. In the US they’re calling him the Swiss Cheese pervert.
I thought I’d heard of every pervy turn-on, but this dairy-based variant is new to me. I have but one questions: how do we know the Cheese is Swiss?