copious.abundance wrote:MonteQuest wrote:Didn't say it did. I mentioned that, in the US, inflating assets via $4 trillion of QE has contributed to a rising GDP without needing a corresponding increase in energy use.
1. Since money just sitting in an account does not count towards GDP, any "asset inflation" cannot contribute towards GDP unless it is spent on goods or services, or on capital investments (the latter of which always involves spending on goods and services anyway). So ...
So, who says it sat there? I sure didn't. You assert I don't know what QE is or what it did. I am quite well read on the subject, so here goes.
In 2007, the Fed followed an expansionary monetary policy in an effort to stimulate economic growth. One key part of this effort was to buy short-term Treasury securities through its open-market operations. Through these asset purchases, the Fed adds reserves to the commercial banking system, thus allowing banks to lend more money.
These open-market operations failed to provide the stimulus needed due to unusually slow economic growth.
Quantitative easing then became an extension of TARP. (Troubled Asset Relief Program). I guess the theory was that by removing toxic assets from the bank's books they would have more liquidity to offer more credit, or to purchase more government debt. The Fed purchased troubled assets in exchange for base money rather than have the banks borrow money from the FED through the discount window.
Somehow this was supposed to trickle down and help improve unemployment; it did not.
Since the banking system was not prepared to immediately loan this new base money, the system's reserves increased dramatically. The Fed then started paying interest on these excess reserves to remove the incentive for them to be fully used and cause inflation (too much money in circulation). I still fail to see the sense that makes unless it was a ploy to make the FED look like inflation fighters while they bailed out the banks and investors, again.
These banks held a lot of mortgage-backed securities that, if sold, would make many banks insolvent. Why?
Take California subprime housing where loans were made on inflated prices. A house with, say a $500,000 mortgage, became worth only $175,000. The loan became upside down with the owner owing more than the house was worth if marked to market. Those types of loans were bundled together and bought by banks (mortgage-backed securities). The banks maintained the loan value on their books as an asset, even though it was no longer really worth that much.
So, QE effectively took these toxic assets off the books of the banks in exchange for cash. A liquidity swap. The unmarketable toxic assets became liquid; easily bought and sold. The FED’s purchase, in effect, inflated their value bailing out the banks and investors and pumping up the stock market.
Inflated assets have nothing to do with GDP? Why did this headline just pop up?
BOJ keeps QE intact in wake of shocking GDP
Or this chart? These numbers show the Fed's QE programs inflated GDP.
One thing all of this tells me is that economic growth like we have known it is over. After injecting all this stimulus economies are still going into recession and depression? Even the IMF has cut its global growth forecasts for 2014 and 2015 and warned that the world economy may never return to the pace of expansion seen before the financial crisis.