There’s been no QE
December 28, 2012, 7:34 am
Filed under: Uncategorized

Sober Look points out that, technically, there’s been no QE.

Yes, the Fed has bought up a bunch of stuff and swelled its balance sheet – i.e. engaged in the policies that QE supporters pushed for the sake of ‘QE’ – but that apparently hasn’t much affected bank reserves or the money supply or therefore the velocity of money. Since pushing those things upward is routinely pitched as the ‘benefit’ of the QE-intended purchases in question, this would seem to immediately raise the question, have any of these non-QE “QEs” been worth it? Even by the standards of their defenders they should be considered a failure right?

Furthermore, since they’re a failure, and in practice have not done the supposedly-beneficial thing their supporters anticipated and hoped for, shouldn’t the Reality-Based neo-Keynesians change their position? Something about ‘when the facts change what do you do sir’?


6 Comments so far
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They will change their minds, sir, and come to the harsh, inconvienent realization that the earlier QE’s were not enough. The null (QEn = “enough”), consider yourself rejected

Comment by ssh

Perhaps I’m obtuse on this point, but isn’t the fact that the Fed’s buying spree is not showing up as excess reserves evidence that QE *is* having its intended effect?

Step One: The Fed prints dollars and buys things from Primary Dealers
Step Two: Primary Dealers receive dollars from the Fed and decide to make loans with the new money rather than earn the .25% IOER (thus changing that money’s status from base to m1/m2).

And so the new money doesn’t show up as an increase in the monetary base. But m2 grows. Which it has. As have commercial and industrial loans.

I’m perfectly willing to grant that something has flown clear over my head, but what am I missing?

Comment by Redd Kross Matt

You might be right. I wonder if this is a semantic point re: what ‘easing’ means.

Comment by Sonic Charmer

Yes, it probably is just a semantic issue wherein ‘easing’ for Sober Look means manipulating base money. That said for all we know without QEs three and four base money may have fallen precipitously.

But let’s put the shoe on the other foot for a second. Say the Fed buys $85 billion/month worth of assets from the Primary Dealers but the PD’s instantly turn around and hoard all of that new money, adding to their accounts at the Fed and thus growing the monetary base by $85 billion monthly. That, apparently, would be evidence of 100% successful ‘easing’ for Sober Look? I don’t know. I do know that for neo-Keynesians it would be evidence of the policy’s failure and Krugman et al would seize the opportunity to blather about liquidity traps and the ineffectiveness of monetary policy at the ZLB and animal spirits and blah blah blah.

Of course the upshot of all of this is that if 1) the Fed is printing like crazy; 2) base money is not growing; and 3) velocity hasn’t taken a dive then we ought to see price inflation pick up soon.

Comment by Redd Kross Matt

Now that I think about it, intuitively I would have thought that an ‘easer’ would want bank reserves to go *down* – not just not-increase, but also decrease significantly. (Which of course is at schizo odds with the goals of the regulators, but I digress.) Hence bank reserves being flat instead of going down is what is meant to be the evidence of no-easing? I may have to go re-read the SL post.

Comment by Sonic Charmer

Mind, depository institutions are already WAY beyond their 10% reserve requirements; they could sell some asset to the Fed and simultaneously lend out 100% of that hot money. The base never needs to be touched.

Comment by Redd Kross Matt

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