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Did you hear about the Fed?
did they announce another round of the quantitative easing?
they said they are ready to do more quantitative easing down the road
they still call it quantitative easing?
yes
but we exposed that as a fancy way of saying printing money
quantitative easing still sounds better at coctail parties
why would they want to print more money?
unemployment is still too high
isn’t that what the first round of quantitative easing was supposed to fix?
yes, but it didn’t, and that’s why we had the second round
so round 2 was supposed to fix round 1?
right
then why would we need a round 3?
to fix round 2
what if that doesn’t work?
there is always round 4.
this is starting to sound like an abbot and costello routine
except the outcome is more tragedy than comedy
why?
each round does certain kinds of damage to the economy that needs to be fixed by the next round.
what kind of damage?
artificially low interest rates hurt those that rely on interest income like the elderly and pension funds, and printing money hurts consumers by making things cost more
has the fed announced any other policies?
they announced they will keep short term rates at zero for years
have rates already been at zero for a long time?
how did you know?
I have figured out the formula for predicting all the feds actions
what is it?
first, you take a past policy by the fed that has been a complete bust
then what?
then you double the size of it, and do it for twice as long
you would make an excellent economist
does the Fed still think inflation is too low?
yes
have prices fallen since the last time we had this conversation?
no, the prices of necessities have gone even higher
so how could the Fed claim we don’t have an inflation problem?
because the new Ipad costs the same as the old ipad, but runs faster
you must be joking
no, someone asked a fed official what he thought about rising grocery prices, and he said they are offset by better i-pads
isn’t all this money printing supposed to help the unemployed?
yes
but if you are unemployed, you probably aren’t buying a new i-pad
no
and you certainly aren’t buying one every year to appreciate how the new i-pads are faster but cost the same
definitely not
but the unemployed still have to eat food, and pay for gasoline
of course
so how is all this money printing that drives up food and gas prices but doesn’t impact i-padd prices supposed to help unemployment?
it doesn’t. last year as prices surged some companies had layoffs to offset higher raw material costs.
but there must be some benefit to all this money printing for the fed
it makes the stock market go up
really?
yes, when asked about the accomplishments of the quantitative easing, the bernank often points to rising stocks
do unemployed people own a lot of stocks?
no. most stocks are owned by the wealthy
what does the fed think these wealthy people will do now that their stocks are higher?
maybe they’ll buy more i-pads.
have higher stocks resulted in significant hiring?
not really
why not?
because you can put lipstick on a pig, but you cannot make it create economic value
what does that mean?
it means it matters why a stock is going up
so if stock prices go up because the Fed is printing, its not as beneficial as if they go up because the economy is better
exactly.
is there a downside to fed actions driving stock prices?
the stock market has become more unstable, and many individual investors refuse to participate
why?
because they would rather make investment decisions based on business factors, not which way the wind blows in washington
but you said stocks have been going up
they have also been having wild fluctuations, so even when they end a year flat most people lose money
that sounds just like a casino
except there are no pretty women serving free drinks
are big institutions still investing in stocks?
some like the big pension funds have no choice
why not
they have to make a minimum return each year
can’t they just buy safe treasury bonds?
no. thanks to the quantitative easing treasury bonds don’t pay enough interest
so what can they do?
they have to buy stocks and other risky investments
does the Fed say it will do the quantitative easing forever?
no. they say eventually they will reverse the quantitative easing
then what happens to the stock market?
it might crash
so the quantitative easing is doing both harm and good, but the Fed interprets the harm as a need for more quantitative easing
right
and its also driving people to buy stocks
yes
at the same time, the quantitative easing is also making stocks more dangerous
yes
and after everyone has bought a lot of stocks, the fed might crash the stock market
exactly
are you sure this isn’t some episode of the twilight zone?
I am starting to wonder myself
—–
you are about to enter another dimension
a dimension of policies and effects
a dimension of dollars and cents
you are moving into a land where those that have failed the most in the past get the most power in the future
you just crossed over into, the bernankee zone
