Posts filed under “Federal Reserve”
click for larger graphic
Source: Political Calculations
Earlier this morning, I suggested that when we consider the results of QE on NFP, we also consider what the world might look like in its absence. (Long term readers might recall I suggested we do the same thing with the bailouts as well, with the results being deeper selloff, more early pain, but a stronger and healthier recovery).
As it turns out, Political Calculations already did imagine what that might look like last month — the results being the chart above:
“The difference between the nominal GDP that was and the counterfactual of the nominal GDP that otherwise would have been is all due to the Fed’s quantitative easing programs, as measured by the cumulative change in total assets held by the Federal Reserve since the end of 2012-Q3. How we measured the relative impact of government spending cuts and tax hikes is explained here and their applicability is explained here.”
If QE never came into existence, the world might look different in a variety of ways:
1) Rates would be higher;
2) Home sales would likely be at both lower prices and lower volumes;
3) Auto Sales would either be weaker or skewed towards less expensive cars (or both);
My assumptions that follow this is that without QE:
1) employment would be softer, perhaps considerably so;
2) The normal clearing process for Housing would be occurring;
3) The economy would be significantly worse;
4) There would be an increasing number of foreclosures;
5) The TBTF bailed out banks would once again be in trouble;
The last assumption is that as things got appreciably worse, Congress would be forced to act with a major stimulus. I fthey failed to do so, there might be a signifciant change November 2014.
There is some irony in that the people who hate the Fed the most are potentially the biggest beneficiaries of their policies . . .
One of the analytical errors I seem to constantly come across is what I call the non-result result. It goes something like this: If you do X, and there is no measurable change, X is therefore ineffective. The problem with this analysis is the lack of a control group, If you are testing a new…Read More
Greenspan discusses many of the ideas he had reversed himself on regarding the financial requirement.
Note he has adopted my Partner’s Joint & Thesis Liability explanation (from BN) that states the move to Corporate structure from a Partnership radically reduced the focus on risk management.
Capital Flight inside the Euro Area: Cooling Off a Fire Sale Matthew Higgins and Thomas Klitgaard Liberty Street Economics, October 02, 2013 Countries in the euro area periphery such as Greece, Italy, Portugal, and Spain saw large-scale capital flight in 2011 and the first half of 2012. While events unfolded much like a…Read More
Click to enlarge The chart above illustrates the potential relationship between the Federal Reserve’s QE programs and the S&P500. With the seemingly endless supply of free money, the drastic correlation between printing and pumping, how would this all end? What will the FED do with its balance sheet once it is all over? Will…Read More
A Time of Testing Narayana Kocherlakota – President, Federal Reserve Bank of Minneapolis September 26, 2013 Thank you for that generous introduction, and thanks to the Rotary Club of Houghton for hosting this event, and especially to Michigan Technological University for inviting me here today. Also, a thank you to the members of…Read More
Source: WSJ The short answer is because their Expectations are what drive policy, and Fed Forecasts are what drives their expectations . . . Thus, despite their terrible forecasting track record, Fed forecast matter to policy implementation.