U.S. Financial World War: Bernanke defends QE2

I thought that this story may have a bit of life in it! Particularly if you subscribe to the view contained in the original article (Why (and how) the U.S. Has Launched a New Financial World War ) rather than naively go along with what is pushed out from Bernanke and the usual media channels.

Below is the word from the Beeb but I was also very interested to read this piece

The truth is, Quantitative Easing will not reduce unemployment, narrow the output gap, or increase aggregate demand. At best, it will lower long-term interest rates (slightly) and buoy asset prices. That may be good for the stock market, but it won’t lay the groundwork for a strong recovery. In fact, it might not even be enough to keep the economy from slipping back into recession.

BBC News:

Germany, China, Brazil and South Africa have criticised the US plan, with the German Finance Minister Wolfgang Schaeuble saying it was “clueless” and would create “extra problems for the world”.

China’s Central Bank head Zhou Xiaochuan has urged global currency reforms, while South Africa said developing countries would suffer most.

South Africa’s finance minister Pravin Gordhan warned that “developing countries, including South Africa, would bear the brunt of the US decision to open its flood gates without due consideration of the consequences for other nations.”

The US policy “undermines the spirit of multilateral co-operation that G20 leaders have fought so hard to maintain during the current crisis,” he said.

The heads of state and government of the G20 group of the world’s leading nations is due to meet in a week in South Korea, with currencies and trade imbalances high on the agenda.

via BBC News – Fed\’s Bernanke defends new economic recovery plan.

U.S. Financial World War Phase 2: The ‘Wall Of Money’: A guide to QE2


I don’t claim any great expertise but I do, at least, understand the “publicised” intention of QE2. When I refer to the publicised version I mean the one for general [public] consumption. But, by now, we should all be vey well aware that when it comes to Governments and economic policy there tends to be a hidden agenda!

I can’t help but think that this is more about the once mighty dollar trying to fix debt with debt whilst putting pressure on other major currencies and adding further “energy” into the bubble that has been institutionally inflated since the effective collapse of global banking. Surely “market value” is a bit of a sick joke that only supports the balance sheets of those with the most amount of toxic debt on their books…

Support for “the market” rather than for US or global citizens.

Why do I have the feeling that the outcome will be lots of “I’m alright Jack” short term winners in the financial sector with even more long term losers amongst the rest of us!?

What does success look like for QE2? What’s the exit strategy? Who believes that this is the correct course of action and what is their justification for such a belief?

The US Federal Reserve is set to launch a second round of quantitative easing, known as QE2, on 3 November 2010. It is probably the US policy community’s last shot at averting a double-dip recession and it may work. But there is an argument raging among economists over the dangers. Here is a brief outline of what they are doing and why, and the arguments for and against. If you can improve on it, fire away and suggest changes; ditto if you disagree. I’ve talked to a number of financial sector economists to try to get this right, but it’s still a think-piece rather than definitive.Oh, and the whole future of the world economy depends on who’s right.

via BBC – Newsnight: Paul Mason: The ‘Wall Of Money’: A guide to QE2.

“Is seeing believing?”: Not when it comes to the deficit

I watched a very interesting programme on BBC2 last night. Horizon: Is seeing believing? It dealt with a variety of optical illusions and investigated how our brain and senses work. Available on BBC iplayer for 7 days. Definitely worth a look.

But, what they didn’t explore is the need for a 6th, maybe even 7th sense to help us see the truth through the smoke and mirrors created by our Political leaders and their “brother bankers”!

When I woke up yesterday I did so to this news:

In a letter in tomorrow’s Daily Telegraph, 35 business leaders say they “would encourage George Osborne and the Government to press ahead with his plans to reduce the deficit”. They add that it would be a “mistake” to water down or delay the deficit reduction plan.

Well they would wouldn’t they! That way WE carry the can and they get some “insulation”.

NOW I am not blind to the fact that we are in a hole. Nor the pressing need to take pretty drastic steps to tackle it. What I have a problem with is how many times do the ordinary citizens of UK have to pay?

(1) The banks had our money. Leveraged it, gambled it and lost it.

(2) So WE bailed them out. We kept our debt, paid theirs and got what?

Now they are returning to profit -. Nice big bonuses all round “HURRAH”…

…but how?

(3)CITIZENS: That’s right, by overcharging the (already, two time losers) to continue to use their facilities. I hesitate to call them services as this in some way infers that we are viewed as customers when really all that we are is a series of numbers whose indebtedness is a satisfactory substitute for loyalty (which is much more costly!)

SME (the backbone of our economy): Even the BBA have admitted that they haven’t been fulfilling the commitments they gave to, lend to and support , British business. That is FAILING BRITISH BUSINESS to you and me!

Vast amounts of money being printed (Quantitative Easing) to artificially maintain the market. Inflate, as in balloon or bubble so that “market value” has little or no meaning. Banks with multi billions of toxic assets that they cannot afford to see properly revalued (even spellchecker wants to replace this with devalued!) and nations whose currencies are shot.

Well at least that provides a great backdrop for “financial players” to make even greater killings on both stocks and currencies. Nice work if you have no moral fibre.

(4) Now we all have to prepare for further detail on Austerity measures. These will entail deep cuts to vital Public Services. We know that the Public sector grew “fat”  and inefficient during the Labour years – fed by the taxes created (I nearly said earned!), to a large extent by the spectacular – if ultimately unsustainable growth – of the UK Financial sector. Of course every one was happy to bask in the faux prosperity and to welcome the fact that the Public sector was better than it had been for a generation. Not much of a benchmark then!?

So the people who don’t have the luxury of one or two average salaries will feel the greatest impact and, effectively, pay some more for the greed and folly of “the elites” – I chose this phrase deliberately as it relates to other recent blogs covering COMPLEX SOCIETIES from history and “words of wisdom” from eminent Sociologist, Ulrich Beck.

Do yourself a favour and take a look at this video that, whilst I wouldn’t say I endorse every aspect of it, I think gives everyone the opportunity to understand about Austerity and be entertained in the process.

Best of all it’s not my fault – so I don’t have to say sorry – just point in the direction of somebody else. Like they, with all their City connections, didn’t know what was happening and were too weak to do what an opposition party is supposed to!!!

How long before the, justified, feelings of anger, disgust and injustice manifest themselves as strikes and civil unrest?

How much will that cost the economy?

Of course “they” don’t know because they haven’t thought that far ahead. It doesn’t fit with the culture that got us here in the first place. Results, quick return or early payoff. If I get it right I win…who cares who loses!

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Warren Buffett’s worried.

Postage stamps of Weimar Germany, hyperinflati...

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How do we know? Because he’s been reading a cult book on monetary disintegration from the seventies – and telling everyone else to read it too. The book went straight to number one in the business books chart the minute it was re-released.

It’s called ‘When Money Dies.’  It was written by a Brit, Adam Fergusson (former Conservative MEP and adviser to Geoffrey Howe) and is about the economic crisis and money-printing in 1920s Germany. During the seventies people feared money printing as a way of tackling the economic crisis, and were horribly fascinated by what had happened in Weimar Germany – coincidentally a regime that Noam Chomsky recently referred to (see link below).

Today it’s the same story and that’s why the book’s top of the pops again. Read more of this post

New bubble concerns voiced…at last: Can stimulus cure the ailing economy?

Quantitative easing is an experiment.

In some ways it is like using a new drug on a sick patient.

The treatment was started in March. It has not killed the patient. Nor has the patient been suddenly cured.

And the doctors of the Monetary Policy Committee have to decide whether to keep giving the drug.

They have opted to keep on with the treatment, but at a lower dosage.

Creating a further £25bn of new money over the last three months is a significant reduction in a programme that has been running at an average of £17bn per month.

So how will the bank know if the treatment is working?

The best proof would be a recovering economy. It has bearly returned to growth, according to the figures for the third quarter of 2009 from the Office for National Statistics.

But the Bank of England says that “a pickup in economic activity may soon be evident”.

Is it working?

Nonetheless, the Bank says it expects the recovery to be “slow”. Hence the decision to keep applying the stimulus of creating new money.

As the Bank freely acknowledges, economic recovery will not prove that quantitative easing (QE) has worked.

Economies are often resilient and bounce back after recessions.

There is no parallel universe with a UK economy that has not had the QE treatment with which we can make a comparison.

It is fairly clear that QE has had an impact in one area.

The Bank of England has used the newly created money to buy UK government bonds in huge amounts. That has helped to push down long-term interest rates in the financial markets.

Those lower long-term market rates should in in turn help keep down the cost of borrowing for businesses and home-owners.

But lenders are simultaneously trying to rebuild their profits and balance sheets.

So the benefits in terms of borrowing for many people are defined in terms of “think how much worse it might be without QE”.

New bubble?

The biggest concern about QE is that it may have nasty side-effects.

Because the Bank of England has been buying bonds from big investors they have money to spend on other assets.

Many observers believe that a lot of the money has gone into buying shares.

The concern that many people in the financial world, or City of London, express is that the summer rally in share prices was partly a consequence of QE.

A rally in share prices is usually welcome – not least to pension funds.

But if that rally is based not on fundamentals such as the prospect of better corporate profits, but on an experimental monetary policy, it begins to look suspiciously like a bubble.

And we are still clearing up from the bursting of the last bubble.