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With the BoE considering a 2nd round of QE, Dhaval Joshi of BCA Research argues the policy of...

With the BoE considering a 2nd round of QE, Dhaval Joshi of BCA Research argues the policy of creating money to lift asset prices and bank earnings is a perverse attempt at trickle-down economics that only exacerbates income inequality - maybe not the cause, but surely a factor in the recent rioting.
Comments (26)
  • I believe millions of the "little people" in Western societies who have learned to count on crumbs and "compassion" from their bloated governments and who have voted accordingly to drive out fiscally sane candidates, are learning the hard way that when push comes to shove, these governments will only placate the wishes of the winners of the game of influence peddling. Mainly, TBTF banks and multinational corporations. Sorry.
    14 Aug 2011, 11:01 AM Reply Like
  • www.zerohedge.com/news...
    14 Aug 2011, 09:45 PM Reply Like
  • Yeah, way to go BoE, WHY NOT JUST GIVE THE POOR MISERABLE CLASS MORE GASOLINE for the fires? This QE bull crap needs to end period! Maybe the Queen can take back Greenspan's knighthood! Will that get the message through? I doubt it,but we have to try something.
    Hey Europe,how's the whole"Fabian Society" thing working out for you? Burning down the accepted for some b.s. promise of "We can remold the world more to our liking" is not all its cracked up to be,hey?
    A big lesson for this progressive / socialist administration, we are the greatest country on the planet for a reason you fools! Accept the responsibility and lets move forward. We have pain to take, one way or another,it will be administered. The progressives on both isles, they want to rip apart that which has worked so well for over 200 years. "We the people", we say no to your over reaching, in everything humanly possible. Get out of our lives already. We are Americans,we are exceptional! We will overcome all obstacles, God willing!

     

    May God watch over this wonderful little experiment in freedom we call America
    Jerry
    14 Aug 2011, 01:35 PM Reply Like
  • They hope to prime the pump. They go through the motions that have worked in the past, with no understanding of why they worked. Like witch doctors urging cargo cultists to build runways in the jungle, trying to entice the prosperity back.

     

    Ben Bernanke to Congress: "I don't understanding what's happening." The ignorance of these central bankers / economists is astounding and distressing - if they don't understand the underlying basis for the financial system they operate, how likely is it that they will perform correct actions?
    14 Aug 2011, 01:45 PM Reply Like
  • "- if they don't understand the underlying basis for the financial system they operate, how likely is it that they will perform correct actions?"

     

    They will continue to emulate St. Schultz, "I see nothing," until even The Real Housewives of Wall Street" share personally in the pain they have shifted to the less fortunate many of their societies. This doesn't seem worth holding your breath for, given Western governments' habit of shifting their losses onto the backs of taxpayers so they never lose.

     

    Heads, they win and tails, we lose is the system and they seem to understand it perfectly, whatever drivel they excuse it with to us.
    14 Aug 2011, 02:34 PM Reply Like
  • In much of the West a depraved and greedy ruling elites plunders the productive middle class with not only impunity but contempt.
    The swelling and equally degenerate lower class watches and learns and decides to emulate its masters and decides, in a rather small but bestial way to pillage the same middle class.
    Both the upper and lower classes now believe that the middle class can be coerced , humiliated and robbed at will because the middle is too fragmented, demoralized and deluded to fight back.

     

    However, this may well change soon in both the US and Europe . If there is indeed a successful middle class rebellion it will be both sustained and ferocious.....or the middle class will be extinguished as a social, moral and political factor in Western polities.
    14 Aug 2011, 02:47 PM Reply Like
  • That's right. And it's happening right now before our eyes, as we speak (i.e. Verizon).
    14 Aug 2011, 03:09 PM Reply Like
  • Can't agree with your sustained rebellion theory User. For the most part those you think are paying attention aren't. They're watching American Idol and Pawn Stars and Wrestling. As long as they have plenty of tv stations to choose from, there will be no rebellion. Unless Glee is cancelled. Then millions of wives and daughters may take to the streets.
    14 Aug 2011, 03:22 PM Reply Like
  • Ironically the middle classes are silent while the Austerians have gained the upper hand. The Tea Party is perhaps one of the most bizarre phenomenons in political history, that corporate puppet masters have convinced people a declining living standard for the middle class, dismantling the social safety net, and giving a blank check to the global financial oligarchs of corporate america is somehow an american tradition.

     

    I am starting to be very scared it is 1937 all over again.
    14 Aug 2011, 04:48 PM Reply Like
  • The tea partys mantra is that the working people should keep as much of their own money as possible

     

    via a flat tax which would fund the feds for military and courts AND THATS IT

     

    The rest of the money stays LOCAL

     

    cause who knows better than the locals what they need

     

    DC???
    14 Aug 2011, 06:57 PM Reply Like
  • By that logic, the government should not exist, if people know best. But of course, the recent meltdown taught us people don't know best and cannot be trusted to make decisions properly. Hence why Obama is introducing better regulation, to protect people from making poor choices for themselves.
    14 Aug 2011, 07:39 PM Reply Like
  • Ah yes, good King Obama will tell each of us what decisions to make for our diet, our career, our clothing and everything else from cradle (if we're not aborted) to grave. Who knows more what you need than him? Watch out for that kool-aid; you don't know what it's spiked with.
    14 Aug 2011, 08:17 PM Reply Like
  • "cause who knows better than the locals what they need"

     

    If that philosophy were followed then in Mississippi where I live my children and my neighbor's children would not be allowed to drink from the same water fountain or attend the same school.

     

    Locals often do not know their heads from their asses, and the General Welfare - the conditions upon which freedom can be exercised in a meaningful way - is the responsibility and province of the Federal government.
    14 Aug 2011, 09:04 PM Reply Like
  • All the choices are bad.

     

    A President who a) prays for rain or b) say God told her to go to law school or c) is the ultimate manchurian candidate??

     

    Last time I was in the US someone told me they didn't believe in dinosaurs because there aren't any in the Bible.

     

    The US education system doesn't seem to exist anymore. Does it ?
    14 Aug 2011, 09:06 PM Reply Like
  • Straw man bullshit. You are free to wear dumbass hats and eat all the fried crap you want, Poor Texan.

     

    Your party lost in 2008. It is supposed to taste like a shit sandwich.
    14 Aug 2011, 09:06 PM Reply Like
  • Well said, very true.
    15 Aug 2011, 07:07 AM Reply Like
  • 1) "income inequality" is a NATURAL ACT AND WE NEED TO STOP CODDLING THIS NOTION THAT ALL HAVE TO BE RICH, OR POOR FOR THEIR NOT TO BE AN UNFAIR ADVANTAGE

     

    2) having screamed that, this QE process is in fact a trade off for all the $$$ given to the poor

     

    And like those starving in Africa who get $$$/food aid, but it always ends up in the hands of the wrong people ( military / politicians) WE, THE US OF A ARE NO DIFFERENT

     

    3) Thats why it is the middle class who always gets shat upon

     

    the poor ( and in reality their "leaders" who will funnel the $ back to those who hand it out to them, ACORN/UNIONS send it right back to Dems) get barely the crumbs

     

    And so in the "WORLD ACCORDING TO KARMA, the bankers ( who ALSO FUNNEL IT BACK) need to be given THEIR WELFARE FOR DOING THE DIRTY WORK that the pols need to keep the poor from rioting

     

    Or at least rioting "too often"

     

    YOU DONT LIKE THE WEALTHY GETTING THOSE BAILOUTS?

     

    I am with you

     

    The DIFFERENCE BETWEEN YOU AND ME ( might be) that you think the poor should get "bailouts"

     

    Well, if you do then "karma's world" DEMANDS that the other end get the bailouts too

     

    ITS ALL OR NOTHING FOLKS

     

    EITHER NO ONE GETS BAILOUTS OR CONTINUE ON THIS PATH of DESTRUCTION
    14 Aug 2011, 06:53 PM Reply Like
  • Either way there will be destruction - yet it can be destructive, or it can lead to a more rational system less prone to distortions.

     

    This could have been done in 2008/09, but the series of quick fixes just masked the symptoms, now the problems have to be dealt with all over again. I'm fed up, leave me out of the system alltogether.
    14 Aug 2011, 07:01 PM Reply Like
  • I am no longer afraid when I read SA commenters completely misunderstanding what QE is and what its aim is, but I am afraid when our so called financial elite doesn't even understand what QE is.

     

    QE is not trying to raise asset prices. Its trying to establish looser monetary expectations. Those happen to foster growth in our current environment. And the result of higher economic growth expectations reveals itself in higher asset prices and higher bank earnings. Higher economic growth doesn't only help bank earnings though, but all of our earnings. Why is this so hard to understand?
    14 Aug 2011, 09:58 PM Reply Like
  • Wrong. QE is a deliberate attempt to create growth by lowering rates, raising asset prices (as money is increasingly worthless- see gold) to create a "wealth effect" through greater spending, and offset deflation. QE CANNOT SOLVE THE PROBLEM OF A LIQUIDITY TRAP.

     

    Fact is, it has done nothing for employment, or housing, due to USA uncompetitiveness and the continued lack of demand. It has also hurt growth by creating asset bubbles in Oil and other commodities, and punishing savers over debtors.

     

    It is a total economic failure, and the balance sheet recession continues, and continues. THE PROBLEM IS AGGREGATE DEMAND, NOT INTEREST RATES IN A LIQUIDITY TRAP.
    14 Aug 2011, 10:12 PM Reply Like
  • The problem is the low demand for loans, due to the low aggregate demand. Usually those who are looking for loans are incapable of borrowing more due to poor credit quality.

     

    QE has failed to raise housing prices or employment, and has seemingly created bubbles in the stock, commodities and bond market which are gyrating (unwinding), and has helped recapitalize the banks, but the bank's business is suffering, even with QE.

     

    It's only helped the US Govt to destroy the real value of its debt, while impoverishing workers and savers. It is financial repression or terrorism at its worst.
    14 Aug 2011, 10:37 PM Reply Like
  • Perhaps the rich irony of "capitalism for the masses through cheap credit and runaway spending" is finally sinking in. In the end, only the politically well-connected win, through bailouts and dedicated discount windows at the Fed. The rest live with declining assets, zero percent on savings, and inflation in the everyday cost of living.
    14 Aug 2011, 10:42 PM Reply Like
  • you get it !
    14 Aug 2011, 10:45 PM Reply Like
  • @fxmaven,

     

    You are correct. The problem is lack of aggregate demand. But higher inflation expectations can solve this problem. That is what the Fed is trying to establish with QE. If you look at QE2, it was IMO successful, but its immediate effect was in fact HIGHER longer term interest rates. Go back and look at the charts. In the environment we have right now, expansionary events actually RAISE, not LOWER, interest rates. For 3 years now this relationship has held. Every relatively good economic report has been met with an equity rally and treasury fall and rate rise.

     

    Paul Krugman is the father of the modern liquidity trap argument, but he even acknolwedges that the Fed is not technically powerless. What he says is that it's very hard for the Fed to commit itself higher inflation expectations in a "liquidity trap". And I guess that's technically true, but that's only because of politics not because of any real reason. It is true that if Helicopter Ben actually acted like Helicopter Ben, he would face large political backlash and it would hard for him to credibly commit to an expansionary monetary policy. But that doesn't mean he shouldn't do it and it doesn't mean it shouldn't be done.

     

    Also, as expansionary as fiscal policy maybe (and I don't think it really is that expansionary), history has shown that it is always neutralized by a tightening Fed. Meaning whenever any meaninful economic improvement comes about from fiscal expansion, the Fed simply tightens monetary policy and neutralizes its effect.

     

    The thing is, reading through your arguments, it seems like you never see any reason for monetary stimulus. Even in non-liquidity trap environments. And the "loose monetary policy causes asset bubbles" view is just so stupid. Japan has had zero % interest rates for TWENTY YEARS and its asset prices are still falling.
    14 Aug 2011, 11:11 PM Reply Like
  • We have lower rates because the bond market is anticipating a recession. QE2 caused rates to go up on higher growth and inflation expectations. So we agree.

     

    finance.yahoo.com/echa...;range=2y

     

    Loose monetary policy caused the japanese housing bubble, Nikkei bubble, US housing bubble, Dot.com bubble, the latest S&P bubble.

     

    The economic consequences have been horrific, and I'm pretty insulted - even Greenspan admitted he did nothing but cause asset bubbles.

     

    Monetary stimulus of course play a role, but when a private bank is actively destroying the wealth of private persons it's a frakking crime.

     

    seekingalpha.com/artic...
    14 Aug 2011, 11:24 PM Reply Like
  • Loose monetary policy and ZIRP in a deflationary environment plus government policies that direct enough "liquidity" to satisfy their often uneconomic, wealth-destroying friends and allies that the Fed might have missed on Wall Street and elsewhere while adding to the burdens on the productive, is like stepping on the brake and the throttle at the same time.

     

    You might not go anywhere, but it makes for a lot of noise, damage and waste. And I don't expect the US is capable of emulating Japan's "success" of maintaining an orderly depression for 20 years.
    15 Aug 2011, 07:23 AM Reply Like
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