QE From Here to Eternity?

Halloween was last week. We saw hobgoblins and scarecrows… 6ft tall rodents… and at least one crow that weighed 200 lbs.

A few days ago, investors were sure it was QE (quantitative easing) from Here to Eternity. Now, they’re not so sure. The US Federal Reserve seemed to leave some uncertainty on the matter when it made its remarks on Wednesday.

However, we have little doubt. The Fed will undertake no serious program of tapering off. It is determined to increase ‘demand.’ And the only kind of demand it knows is the kind you get from cash and credit.

As to real demand – what you get from actual increases in real wealth and real prosperity – the Fed knows nothing, except that it can’t help.

The US Federal Reserve is not really stimulating a recovery. But it is simulating one…with phony demand coming from phony asset prices based on phony low interest rates. And now it can’t take off the mask.

Because then, all the disguises, false beards, and fraudulent get-ups will have to come off – like the day after Halloween. When we see things for what they really are.

Then we realise that much of our stock values, our standards of living, our earnings, our balance sheets are all based on a lie – the lie of constantly expanding credit.

Credit has been increasing roughly twice as fast as the real economy was growing since the early ‘80s. That’s when everyone came to believe that ‘deficits don’t matter.’

But they do matter. Because when you increase your debt faster than your income for 30 years you end up with a lot more debt than income. You also find yourself in a dead end.

Because your whole economy has come to depend on something that can’t continue. You can’t run up your debt levels forever. Eventually forever comes. And then, the masks drop… the beards fall to the ground… and the costumes come off.

In short, the US economy is living on borrowed money and borrowed time. And when the Fed stops adding new credit, its time will be up.

Regards,

Bill Bonner
for Markets and Money

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Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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3 Comments on "QE From Here to Eternity?"

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dutchie
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The markets already adapted to the non-tapering. It’s already calculated in the prices of all assets. The FED has lost credibility and you can’t expect markets to go insane every time they give us information on yes or no for tapering. It has now become a game of “actions speak louder than words.” Because we all know QE is not going to end any time soon.

slewie the pi-rat
Guest

this simple Lighthouse Mgmt. chart explains interest-rate policy since Reagan:

http://htmlimg4.scribdassets.com/8kdc4po5q832cws4/images/10-5fa237bf0c.jpg

Able
Guest

Plenty of analysis Bill, but no prescriptions.

So what do you see as a viable way forward?
Should we ditch fractional reserve banking with its attendant requirement for constantly increasing debt(so as to create the addition currency to pay off the interest). Isn’t that the heart of the matter.

Again, plenty of analysis Bill, but no prescriptions from you.

wpDiscuz
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