Seeking Alpha

Richard Koo says the WH understood the U.S. balance sheet recession, but preferred Paul...

Richard Koo says the WH understood the U.S. balance sheet recession, but preferred Paul Krugman's easy money cure instead of more spending. Nearly one year on, all QEII has done is shift money out of Treasurys and into stocks, with higher commodities hampering economic activity. Thanks for the inside baseball account, but when has Krugman ever shied from more government spending?
Comments (21)
  • This is completely wrong. First of all, Krugman was sceptical that easy money could get us out of this recession. He said we were up against a "zero-bound" on interest rates and there was little monetary policy could do. Hence, he was pushing and still is pushing for more fiscal stimulus.

     

    But he is wrong. So is Richard Koo. Monetary policy can do quite a lot. Even know. Look at what happened since the crash of 2008. TARP was passed. Did it turn the economy immediately around? No. Stimulus was passed. Did it turn the economy around? No. Only when QE1 was announced did the stock market pick up in April.

     

    Then in early 2010, talks of exit strategy began from Bernanke & Co. And right on cue the market tanked and talks of double-dip began. In August, Bernanke signaled QE2 and began QE2 in September. Right on cue, the market rebounded to new highs.

     

    Again in early 2011, talks of exit strategy began. It took longer than I expected, but a month ago the market finally took the Fed's tightening tone seriously and right on cue it began to fall.

     

    So, here we are. Another couple of Fed speeches that were pretty hawkish today from both Bernanke and especially Fisher. I expect the market to continue to slide lower & lower. Until, at a certain point, Bernanke will not be able to escape the obvious, QE3 is needed. Once it's in place (probably sometime this Fall), I expect the market to rebound to new highs yet again.

     

    What the last couple of years have proven is not only that monetary policy is still very powerful, even at the "zero-bound", but that fiscal stimulus is very powerLESS.
    7 Jun 2011, 06:06 PM Reply Like
  • Yeah but this time it's gonna work
    7 Jun 2011, 08:40 PM Reply Like
  • Did he say it shifted money ""out" of Treasuries ? I guess he hasn't looked at the 10 year note yield lately..he should actually look at the data instead of reading the back of the Bill Gross Fixed Income cereal box.
    7 Jun 2011, 06:10 PM Reply Like
  • "....shift money out of Treasurys and into stocks..."

     

    Huh? How did that happen? Last time I looked Treasuries are selling near their all-time low yields, i.e., relative high prices.

     

    Money isn't flooding into equities despite the lather of anti-business, anti-stock-market blather that gets all worked up. Money is sitting in a rather barbell-like distribution between commodities and gold way out on one side (inflation fear) and Treasuries and some other bonds (deflation fear) on the other. The only thing that's not pumped up are equities, which are selling almost 20% below their old pre-crisis highs, even though they are now producing profits per share at all-time record levels.
    7 Jun 2011, 06:17 PM Reply Like
  • Tack,

     

    Yes,

     

    Printed money rushing into treasuries can have a way of doing that.

     

    Any others buying, are buying, knowing there will be a buyer behind them.

     

    It's called POMO.

     

    As in "Prime Stealers"

     

    www.thestreet.com/stor...
    7 Jun 2011, 06:25 PM Reply Like
  • 1980:

     

    My point was simply that it ain't going into equities.
    7 Jun 2011, 06:45 PM Reply Like
  • Having thought about this and read alternative views, end of QE2 and at this stage no QE3, implies less demand for treasury issues, since some of that govt debt has been flipped back to the Fed via the QE2 programme and its mopping up of excess liquidity.

     

    Post QE2, the treasury auctions will return to "normal" lending conditions, and a small steady increase in rates in line with economic growth. Also, "normal growth" in money supply related to economic growth. To this end, today's growth in credit looks encouraging.
    7 Jun 2011, 06:22 PM Reply Like
  • "Post QE2, the treasury auctions will return to "normal" lending conditions, and a small steady increase in rates in line with economic growth. Also, "normal growth" in money supply related to economic growth. To this end, today's growth in credit looks encouraging."

     

    LOL! If that be the case, wouldn't you think in these last few days of QE2 the Fed wouldn't find much need for buying our own debt 2-3 times a week? But then I suppose it depends upon what "a small steady increase in rates" really is. I see the 10 year move 75-100 basis points inside of 9 months. I don't view that as a small steady increase.
    7 Jun 2011, 07:42 PM Reply Like
  • haha Tack, 1980XLS and I commented along the same lines at the same time :)
    7 Jun 2011, 06:29 PM Reply Like
  • I preferred Quantitative Easing instead of that 800B pork stimulus that only made the states more reckless in their spending...
    7 Jun 2011, 06:33 PM Reply Like
  • re: the Spendulous...well, they had to pay back all the unions and special interest groups who helped Obama get elected. It's not like they were going to do that with their *own* money, so congratulations Mr. Taxpayer, you get the bill again.

     

    As for my preferences, I'd prefer the federal government get the hell out of our economy and our lives.
    8 Jun 2011, 06:14 AM Reply Like
  • Bernank, 'Da man say:
    1) ZIRP forever, or until death do they part. (His, or the country's)
    2) High commodity prices not his fault. Direct demand from emerging markets and economies, not speculators. Get used to high commodity prices, and will all the emerging market bulls please stop the whining.
    3) There will always be some form of monetizeasing until the dollar is turned into fairy dust.
    4) Buy commodities, like the rest of congress, and again, please stop the whining.

     

    That is all, until the next meeting when we will tell you the exact same thing, and expect a different result.
    7 Jun 2011, 06:35 PM Reply Like
  • Rumour has it, oil is shorted every day, every time it goes over $100 per barrel....

     

    There's always someone around willing to push it back up the hill.
    7 Jun 2011, 06:44 PM Reply Like
  • MP:
    The reason oil doesn't crash is because world economies aren't about to tumble off any cliff, but that's conveniently overlooked by the doomster crowd. Heck, it's not even crashing while OPEC is ramping up production.

     

    The irony is that if the economy were really about to go around a bend, oil and other commodities would be plunging by double digits per day, but they're not.

     

    There's a message in there for anybody who stops and ponders it.
    7 Jun 2011, 06:50 PM Reply Like
  • Tack, you nailed...oil is a very sensitive commodity towards global growth....oil prices have been very resilient and that tells me economy growth should accelerate in the 3Q...

     

    Euro Retail sales were huge up 0.9% and this despite Brent prices at $115....
    7 Jun 2011, 06:57 PM Reply Like
  • Sorry guys (Tack and Joe) maybe I don't understand like you, but my view is the consumption of oil reacts very little to price ( price inelastic). I think that people, businesses, economies, etc are probably (picking a number) 95% fixed in their consumption of oil. Global growth in large population countries is exerting upward pressure on demand and despite efforts to increase fuel economy, etc, demand changes very little. My suspicion is that if the US were to go into negative growth mode, there would be very little change in consumption. Thus (to get to the point) I don't view oil prices as an indicator of future economic performance.
    7 Jun 2011, 11:06 PM Reply Like
  • To demonstrate how obviously incorrect this view is and how oil is and can be bid up on speculation and otherwise altered by economic events, one only needs glance at the following chart, which clearly demonstrates no consistent pattern between oil price and any gradually-rising demand pattern you reference:

     

    en.wikipedia.org/wiki/...
    8 Jun 2011, 03:04 AM Reply Like
  • Perhaps you mis understood my comment. I did not comment about what drives the price of oil - I don't think. I commented on what drives consumption of oil....because you suggested that oil consumption would decline dramatically if the economy were about to fall off a cliff.

     

    In fact what I said was that there is no relation to the price of oil and consumption. That evidence is supported by your chart. Namely, that OPEC can charge whatever they want and speculators can hop on board and it will hardly change consumption....which of course is not reflected at all on your chart.
    8 Jun 2011, 08:37 AM Reply Like
  • "Nearly one year on, all QEII has done is shift money out of Treasurys and into stocks"

     

    well yeah that's exactly the objective of QEII......is it working, not if we look at the recent bond yields......get ready for QEIII
    7 Jun 2011, 06:46 PM Reply Like
  • " Krugman was sceptical that easy money could get us out of this recession." That is true, but the reason he put forth to support a dream was that "it was to small". Reality, I can borrow myself out of debt. He does not understand reality outside of a campus or an opinion piece, dissing what he knows not of....
    7 Jun 2011, 10:24 PM Reply Like
  • Texas Redneck and have a truck. Work for a living and defended this country, a long time ago and am Proud of my service and this country.
    7 Jun 2011, 10:28 PM Reply Like
DJIA (DIA) S&P 500 (SPY)