Tuesday, May 24, 2011

Mainstream Calls For More Quantitative Easing

As financial markets reveal some signs of exhaustion or possibly indications that the stimulative effects of inflationism could be waning, I see more calls for renewing or expanding existing Quantitative Easing (QE) programs.

From Oxford Analytica on the US(researchrecap.com)

The US Federal Reserve is underachieving both planks of its mandate to maximise employment consistent with price stability. The former amounts to an unemployment rate consistent with non-inflationary growth. The price-stability mandate translates into an informal 2% inflation target.

Although the Fed no longer tracks higher-level measures of the broadest conception of the supply of ‘money’ in the economy, private-sector and academic gauges of such notions indicate a collapse. This means that QE3 is positive for sustaining US and global equities valuations, because it maintains a channel of liquidity that otherwise would begin draining from the economy. This also makes it positive for global commodity prices, either sustaining their already lofty valuations or at least cushioning the extent of any broad downward correction.

From Moody’s on Japan (researchrecap.com)

Another uncertainty overshadowing Japan’s fiscal outlook is the extent to which the government will share the burden of Tokyo Electric Power’s rising earthquake-related liabilities. The Bank of Japan, for the time being, has refrained from further augmenting its post-quake liquidity and asset-purchase program. Should the rebound in Japan’s economy be weaker than forecast or delayed entirely, additional actions by both the Ministry of Finance and Bank of Japan may be needed.

In my view, all these signify part of the central bank policy called ‘signaling channel’ which are meant to manage inflation expectations. Remember central banks also work their policies through the private sector networks which they are allied with.

Of course the other terms for managing inflation expectation are mind control (psychology) or propaganda (politics) or psy war (military). Such addiction to inflationism will eventually end in tears.

As the great Ludwig von Mises wrote,

People still believe, however, that destroying the value of the monetary unit is something that does not hurt the masses. But it does hurt the masses. And it hurts them first. There is no better way to bring about a tremendous revolution than to destroy the savings of the masses that are invested in savings deposits, insurance policies, and so on.

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