True confessions

Yet another wild story of American economic management. It is from the Wall Street Journal and titled, “Confessions of a Quantitative Easer”:

Having been at the Fed for seven years, until early 2008, I was working on Wall Street in spring 2009 when I got an unexpected phone call. Would I come back to work on the Fed’s trading floor? The job: managing what was at the heart of QE’s bond-buying spree—a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months. Incredibly, the Fed was calling to ask if I wanted to quarterback the largest economic stimulus in U.S. history.

You and I have, of course, never heard of this guy till now but he has quite a story to tell. If you are interested in knowing how the economic world you live in is “managed” this is one port of call you might make. This is just included as a teaser:

Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.

As he says:

We were working feverishly to preserve the impression that the Fed knew what it was doing.

What they are doing is riding on the back of a tiger. All those idiots who voted for Obama to help the poor and the disadvantaged, what a bad joke that is. If Goldman Sachs is your favourite charity then maybe you have a point. Otherwise, if you are dumb enough to work you can help repay this debt while they drive off to the Hamptons.

[Picked up from Powerline.]

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24 Responses to True confessions

  1. GeorgeMitchell

    So millions of Americans who didn’t want the Republicans – or the Tea Party – running the show are idiots? You’re kidding, right.

  2. JC

    I’m sorry Steve, but I disagree.

    If the Fed was wrong in buying up all this paper the TIPS market wouldn’t be indicating the US inflation rate for the next decade at around 1.5%, which is actually lower than the 2% target they have set themselves.

    The aggregate purchase shows just how powerful are the deflationary forces in the economy.’
    And by the way, if the dude was a crack bond trader he would have refused to 80K a year job on the Fed’s trading desk and went out and bought bonds with his ears pinned back…possibly becoming a very rich person.

  3. caveman

    Reminds me of Gillards imaginary John who borrows money to retain his lifestyle even though he doesnt have a job normally leads to bankruptcy unless John can print his own money.
    QE is a bubble its a good sugar hit until the printing press stops, the market should have been allowed to find its own way during/after GFC. Low interest rates high assets no jobs just know when to fold em. Keep the powder dry.

  4. 2dogs

    I don’t quarrel that Fed should buy back these bonds, except to say that the need to do so would never have arisen if so many of them had never been issued in the first place.

    Fiscal “looseness” is monetary “tightness” in that way. Capital that might have been used to increase production instead gets used to increase the future burden of taxpayers.

    QE gives the real investment that did not happen a second chance.

    Yes, there will be inflation problems down the road, leading to a whole host of problems in itself. But even then, how else will the US ever be able to repay its debt?

  5. Alfonso

    Hee, hee….more evidence that gold is but a “barbarous relic”.
    $2500 / oz not if but when.

  6. Token

    I don’t quarrel that Fed should buy back these bonds, except to say that the need to do so would never have arisen if so many of them had never been issued in the first place.

    What crazy thinking. Haven’t you guys been reading M0nty’s posts?

    If old lady had not to swollowed the fly, how else would the economy of her town be stimulated?

    Private investors looking for value? Bah, humbug.

  7. TerjeP

    Gold is back where it was three years ago. The inflation outlook is steady. There is a lot wrong with US economic policy but I don’t think quantitative easing is the problem child many imply. That said the central bankers ought to stay on their toes.

  8. Andrew

    Have a look at the extent of fiscal consolidation the US has had.

    Deficit as % of GDP was 12%, and the raving loons Kruglitz and Stigman were telling us the only problem holding back recovery was too LITTLE fiscal stimulus. Then it dribbled down to 10%, but will jump to 4.3% this year according to CBO after the sequester of Dec 2012 imposed a much larger consolidation.

    That is basically without precedent other than possibly after WWII. And unprecedented monetary stimulus provides some support for removing the vastly more harmful fiscal.

    Have a look at US unemployment during the Gillard term, where we employed extremely tight monetary policy and extremely loose (and deteriorating) fiscal policy. Now look at ours.

  9. Theory has a tendency to get smacked in the face by the cold fish of reality.

    Helicopter Ben is firmly in Krugman’s corner, so I put the Fed’s inflation forecast right up there with the IPCC’s alarmist predictions.

  10. stackja

    We were working feverishly to preserve the impression that the Fed knew what it was doing.”

    Like the ALP were working feverishly to preserve the impression that the Fed they knew what it was they were doing.
    George Mitchell writes like a USA Democrat.

  11. Tinta

    Theory has a tendency to get smacked in the face by the cold fish of reality.

    Beer Whisperer this is a keeper, can I pinch it? Lovely

  12. TerjeP

    I put the Fed’s inflation forecast right up there with the IPCC’s alarmist predictions.

    Be cynical about the Feds inflation forecast if you wish. However the market is also predicting inflation will run low and steady. Of course the market gets things wrong and you’re free to try and beat it but it’s a bit hard to argue that monetary policy should simply yield to your whim.

  13. JamesK

    However the market is also predicting inflation will run low and steady

    The same market that benefits from Obummer’s money/bond printing largesse presumably.

    Quel surpris!

  14. JC

    James

    It’s not the fed’s long term inflation estimate but the market predicting inflation will remain well behaved. These are bonds with an inflation component built in. This market is showing no concern for inflation.

    I reckon the fed funds rare won’t trade above 3.5% for the next decade.

  15. JamesK

    JC, they’ve printed $4 trillion in 4 years.

    Who benefits?

    There’s someways to go before the music stops is all I reckon.

  16. Watching It Unfold

    “Sorry America” (and the rest of the world) – I can see the legions saying ‘sorry’ about wasting trillions, so many in fact that a lot will just ‘mouth’ their mandatory apology.

  17. banz

    “JC, they’ve printed $4 trillion in 4 years.”

    Thats just the start. QE should end when you can no longer divide by zero. it wont.

    Did someone actually ask “how are they going to pay it back” – you
    actually think they are going to pay it back?

    What % of treasuries et al do you think the Fed will own in 5 years?
    What is debt monetisation?

    No inflation? Fuck me, really? So when they change the methodolgy of CPI
    calculation, you know, allow for hedonics etc, have you noticed that the inflation
    seems to always show a lower number? Sort of how they change the way they calculate
    unemployment, its always produces a lower number. Now if you want to find a new
    way to calculate GDP..guess what happens, amazing, a higher number.

    Do you guys keep an eye on shadow stats? if you want to determine what inflation
    or unemployment is, use the same methods they used 10+ years ago, amzing things
    happens to these numbers 🙂

    You will see gold @ $650 before $2500, does not make sense at all I know, nevertheless 🙂

  18. Quanntitative Easing (a euphemism if ever there was one) is the monetary equivalent of lipstick on a pig.

    Improve the pig, dipshits!!

  19. Alfonso

    Gold @ $650 while currency debasement by the $4 trill / 4 years is looking just like the next 4 years and the next 4 years after that….just to keeep treading water? Hee, hee. The vast paper market controls the physical and is shamelessly manipulated, it will break down with even a slight demand to settle in bullion.

  20. Louis Hissink

    Unless they are purposefully trashing gold and silver and ready to replace it with a global version of the EU?

    What did the Germans do during 1923 with the Rentenmark?

  21. Alfonso

    What, repudiate OS US dollar debt by replacing it with a less than a 1:1 convertible global EU or something?
    And you thought you’d seen FX and int rate derivatives melt down before ……there are US $450 trillion in derivatives out there, guessing 90% from pork bellies to gold to oil swaps have US$ involvement.
    Screw with Goldman’s like that and you’re likely to be swimming with the fishes.

  22. banz

    @ Alfonso

    “The vast paper market controls the physical and is shamelessly manipulated, it will break down with even a slight demand to settle in bullion.”

    Controls the price you mean. When that market collapses Gold will plummet to circa $650.00.

    You wont be able to buy any mind you 🙂

  23. Alfonso

    What else but the price? The Chinese and Indians won’t leave it @ $650 , if you can’t buy the price will explode until you can, unless the IMF and Magic or Hillary outlaw possession.

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