Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

QE2 Has Failed, Time To Move On

Interest-Rates / Quantitative Easing Jun 08, 2011 - 07:51 AM GMT

By: Mike_Whitney

Interest-Rates

Best Financial Markets Analysis ArticleWas Friday's job's report the final nail in the coffin for QE2?  

It should be. After all, how is Fed chairman Ben Bernanke going to convince people that his bond purchasing program is working when payrolls rose by a measly 54,000 and the unemployment rate climbed back to 9.1 percent?  It'll take a lot more than fast-talk to sell that load of horse-manure. The truth is,  QE2 has been a total bust and the BLS's report is just the icing on the cake. Just look at the data; it's as grim as anything we've seen in the last two years.  Here's a clip from an article titled "Disastrous US jobs report points to deepening slump" that will give the reader some idea of how bad things really are:


"The Economic Policy Institute (EPI), a liberal Washington think tank, explained Friday that the official unemployment figure masked an even grimmer reality. It pointed out that the labor force participation rate remained at its lowest point of the recession and that the labor force in May was smaller than it was a year ago, by about 500,000 workers, even though the working-age population grew by 1.9 million in that period.

“Consequently,” it noted, “the proportion of the population that is in the labor force is now 0.7 percentage points below where it was a year ago. If the labor force participation rate had held steady over the last year, there would be roughly 1.8 million more workers in the labor force right now. Instead, they are on the sideline. If these workers were in the labor force and were counted among the unemployed, the unemployment rate would be 10.1 percent right now instead of 9.1 percent. In other words, the improvement in the unemployment rate over the last year (from 9.6 percent to 9.1 percent) is due to would-be workers deciding to sit out the economic storm”. ("Disastrous US jobs report points to deepening slump", World Socialist Website)

 So, the only reason the stats look as good as they do (which isn't very good at all) is because people are throwing in the towel and calling it "quits" altogether. So much for the American dream, eh?

And there's an interesting twist to the BLS report that readers may not have noticed. The reason the jobs picture is so bleak, is because the "austerity crazed" government has been laying people off while the economy is still struggling which is making things even worse. This is from the Streetlight blog:

"The government sector of the economy continued to make the jobs picture worse. May was the seventh month in a row during which government layoffs undid some of the work of the private sector in creating jobs. Since January 2009, government employment has shrunk in 21 of 29 months -- and without temporary hiring for the Census, it would probably have shrunk in 25 of the last 29 months.

This steady reduction in government employment is a form of contractionary fiscal policy.....If government employment were simply keeping up with population growth in the US, we would expect to see about 17 to 18 thousand more state and local government jobs each month. Instead employment has shrunk by an average of 15 thousand jobs per month since the start of 2009....

In other words, in the absence of the sharp cutbacks in government spending that have been prevalent in the US over the past year or two, about 1.3 million additional people would be working now compared to 8 months ago, rather than the actual job growth we've experienced over that time of about 1 million - a 30% difference. That's a pretty tough headwind to fight, especially for an economy that's already struggling." ("Contractionary Fiscal Policy and the US Job Market", The Streetlight blog)

So, if the government hadn't been foolishly slashing jobs in the middle of a Depression, 1.3 million more people would still be working today. How's that for shooting yourself in the foot?   Remember, the easiest way to prime the pump is to make sure that people aren't fired during a slump. That's Rule #1. But, of course, the deficit hawks have already won that scrimmage, so it's probably pointless to even talk about it.

And this isn't just about employment either; it's about distribution, too. As economist David Rosenberg points out in a recent post at Zero Hedge "the labor share of national income has fallen to its lowest level in modern history - down to 57.5% in the first quarter from 57.6% in the fourth quarter of last year, 57.8% a year ago, and 59.8% when the recovery began."

What does that mean? It means all the gains in productivity are going to the fatcats in the front office while workers are scraping by on fewer and fewer crumbs. It means working people are getting reamed again bigtime.

But, then, Bernanke promises to level the playing field with QE2, right? Everyone who wants a job will be able to find one and it'll be Happytime in America again.  At least, that's what he intimated in his op-ed in the Washington Post before the program kicked off in November. Here's an excerpt:

"The Federal Reserve's objectives ---- are to promote a high level of employment and low, stable inflation.....Low and falling inflation indicate that the economy has considerable spare capacity, implying that there is scope for monetary policy to support further gains in employment without risking economic overheating.....the Federal Reserve has a particular obligation to help promote increased employment..... Steps taken this week should help us fulfill that obligation." ("What the Fed did and why: supporting the recovery and sustaining price stability", Ben Bernanke, Washington Post)

So, has QE2 lowered unemployment?

Nope.

Reduced spare capacity?

Not much.

Increased inflation?

Slightly.

So, it was all baloney; QE2 didn't really do anything except send gas and food prices skyrocketing. (which has further crimped consumption) 

  But that's not how Bernanke sees it. According to him the program has worked spectacularly.  Here's the Fed chief crowing about the miraculous effects of QE2:

“Equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation ...has risen to historically more normal levels.” (Bloomberg)

Yipee. Another freebie for the investor class! And we're supposed to be grateful for that? What about the jobs you promised? What about stimulating the economy and putting people back to work? Wasn't that how you sold QE2 to the American people in your op-ed, Mr. Bernanke?

It was all lies. Every word of it. Here's how Cullen Roche sums it up over at Pragmatic Capitalism: 

  "QE2 didn’t monetize anything. It didn’t cause the money supply to explode. It didn’t really do anything except cause a great deal of confusion and generate an enormous amount of speculation in financial markets that now appears to be contributing to turmoil and strife around the globe...... 

Where we saw a real impact was in commodity prices, general price speculation and the financing pyramid.....Rates have meandered up and down and up and down without a care in the world for the Fed’s $600B purchase program. In other words, the program had no impact on rates." ("The QE3 conundrum", Pragmatic Capitalism)

  QE2 has been a total flop. The rise in stock prices was a reaction to the temporary increase in corporate earnings which fueled investor optimism. That was a one-time deal caused by trimming expenses and laying off workers. Now production costs are rising at the worst possible time, when all the other economic indicators are beginning to sag.  Current data shows weakness throughout the economy, which is why stocks are falling. Expect the worst.

Bad ideas have a way of outlasting their shelf-life. (Especially when people in positions of power have ulterior motives.) Quantitative easing should be put to rest once and for all. It hasn't lowered interest rates, increased GDP, boosted employment, or sparked another credit expansion.  The plan has failed. Time to move on.

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2011 Copyright Mike Whitney - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis.
Individuals should consult with their personal financial advisors.

Mike Whitney Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules