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Quantitative Easing Means Quantitative Failure of Monetary Policy

Politics / Credit Crisis 2009 Mar 06, 2009 - 04:12 AM GMT

By: Mike_Shedlock

Politics

Best Financial Markets Analysis ArticleThe Fiscal Insanity Virus has struck again. See if you can spot the occurrences in BOE's King ‘Groping in the Dark' as U.K. Expands Money Supply .

Bank of England Governor Mervyn King, criticized for his initial response to the credit crisis, is now embarking on one of the biggest risks in British economic history.


The central bank yesterday won authority to print as much as 150 billion pounds ($212 billion) and pump it into an economy facing its worst recession since World War II, after cutting interest rates close to zero. With markets clogged and economic activity shriveling, King can't be sure the gamble will work.

“We're groping in the dark,” said Willem Buiter, a former Bank of England policy maker and now a professor at the London School of Economics. “Ultimately, we'll know it works if the economy turns around, and that we won't know for a couple of years.”

“You have to ask what it would be like if they weren't doing anything and I suspect a lot worse,” said Amit Kara, an economist at UBS AG in London. “But the whole banking system has yet to be fixed, the economy has yet to deliver and credit is not available. It's all a shot in the dark.”

“We don't know whether quantitative easing works or not, but it's a good thing to try,” said Christopher Allsopp, a former U.K. policy maker. “The amount looks serious, and it needs to be to make sure it has a chance of working. They're doing what they can.”

With the U.K. slipping deeper into recession, some economists nevertheless say the Bank of England's policies are bold enough to help turns things around.

“Ultimately it has to have an effect,” said Matthew Sharratt, an economist at Bank of America Corp. in London. “It's going to bring an extraordinary amount of stimulus into the pipeline along with all the other measures that have already been taken.”

New FIV Victims

  • Willem Buiter, London School of Economics
  • Amit Kara, an economist at UBS AG in London
  • Christopher Allsopp, a former U.K. policy maker
  • Matthew Sharratt, an economist at Bank of America Corp. in London

Of course it has long been know that Bank of England Governor Mervyn King has a terminal case of FIV.

Of the new cases, Christopher Allsopp really stands out for his statement “ We don't know whether quantitative easing works or not, but it's a good thing to try. ”

Excuse me, if you don't know if it works, how the hell can you possibly suggest " it's a good thing to try. "

Quantitative Easing Does Not Work

But the point of fact is we know without a doubt quantitative easing does not work. Japan proved it in spades. Yet idiotic ideas like that expressed above are exactly How "Something For Nothing" Ideas Become Policy .

1) Those with money control policies in Congress. In return for sponsoring policies that make no economic sense, corporations pour massive amounts of money into campaign coffers of those who will support whatever legislation the corporations want. The first thing corporations want is government sponsorship at taxpayer expense. The last thing corporations want is a free market.

2) Inflation (expansion of money and credit) is a stealth tax (theft), demolishing the middle class over time. Inflation allows government to collect more every year in property taxes, sales taxes, income taxes, etc., typically to pay for war mongering and social redistribution activities sponsored by the corporations that benefit from war mongering and social redistribution activities. The expansion of credit scheme "works" until it all blows up in deflationary bust every few generations.

3) Academia is a breeding ground for socialists. I discussed this aspect at length in Fiscal Insanity Virus Rapidly Spreading The Globe (Part 1) and Fiscal Insanity Virus Rapidly Spreading The Globe (Part 2) . Academia likes to promote socialism and blame the free market for failures caused by excessive regulation.

4) People want to believe someone is in control. Even though it is crystal clear that the Fed is a huge part or the problem, people want to believe the Fed is in control. It is very discomforting to think the Fed has no idea what it is doing, so people simply refuse to accept the fact that the Fed has no idea what it is doing.

5) People want to trust the experts even though the experts screw them time and time again. The same thing exists in the stock market. People want to believe stocks will go up so they believe anyone who tells them stocks will go up.

6) There is an overwhelming propensity by everyone to seek something for nothing. People will listen to and vote for anyone promising something for nothing. Economic professors and members of Congress are both particularly adept at promoting something for nothing.

Groping In The Dark With Heavy Hands

Chinese central bank Governor Zhou Xiaochuan is groping in the dark as well. Please consider Zhou Pledges Fast, Heavy-handed Policies to Restore Confidence .

Chinese central bank Governor Zhou Xiaochuan pledged “fast and heavy-handed” policies to restore confidence and prevent the global financial crisis from deepening the nation's economic slump.

“If we act slowly and less decisively, we're likely to see what happened in other countries: a slide in confidence,” Zhou said at briefing in Beijing. The central bank has “ample room” to fine-tune monetary policy after a record surge in lending in January, he said.

“This isn't the time to be cautious with the measures you roll out, it's time to overdo it,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong. “The outlook for the global economy has deteriorated dramatically.”

Excuse me but has anyone looked at the success rate of Bernanke's quick slash of interest rates from 5.25 to 0 and the fast $trillions Congress, Paulson, Geithner and Obama have thrown down various black holes?


Of course the Keynesian clowns will always come back with "It would have worked if only we threw money away faster". They do every time. Krugman Still Wrong After All These Years is the perfect example.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

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