The guys who did this clearly don't understand macro-economics. And yet many people will be convinced that QE2 "is bad" because "deflation is good, I can buy more stuff for less money" or "Bernanke didn't see the subprime crisis coming, therefor is incompetent".
QE2 might not be the right thing to do. But this movie doesn't educate people or make them understand why QE2 might be a bad idea (hyper-inflation is the main risk). It just make people angry and suspicious, while keeping them ignorant.
Given the amount of uncertainty central banks create with arbitrary changes to monetary policy (or non-changes under Greenspan), cooperating/competing with other central banks, differing objectives, etc., and all the politics involved in stimulus, TARP and our current situation, do macro-economists get macro-economics? And is that supposed understanding used by politicians for their own gain?
I'm no macro-economist (although I do have an economics degree), but I believe deflation and inflation are acceptable as long as they are gradual changes and don't enrich or impoverish one segment of the economy over another. I think a lot of people are wary of the Fed (and Congress for that matter) overreacting to current economic conditions in order to stabilize prices AND maximize employment, messing up one or the other in the process, as Greenspan & the GSA-induced malinvestment in housing did.
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
I work on Wall St (but not at the Goldman Sachs). The cartoon is very funny (and will be spreading quickly here too), in the same way Sarah Palin is funny. Good thing no one will take it seriously - oh, wait...
QE2 is just bad, the same way like QE0,1 or 3,4...
The government gives money to guys like Goldman which buy treasuries using these cheap money (call it "QE1" or low interest window or whatever). After that the government buys these papers back making a good profit for Goldman.
"Trickle down" here is that somebody would get paid washing Ferrari and Lambo of Goldman's people.
QE2 might be bad, but the government doesn't just give money to "guys like Goldman". The Federal Reserve buys lots of government bonds off the market to raise its price with fake money. If you were holding lots of bonds when the Federal Reserve started QE, you'd earn capital gain by selling the bond because the price of the bond rose. The trade-off is the bond's yield will decrease correspondingly by paying less interest per dollar you can sell for, swapping your long term gain into short term gain (if you sell the bond now). Instead of holding onto the bond and earn the same interest you'd sell it and buy other stuff, like stocks, properties, or as the Federal Reserve would like, more cars.
As a consequence the price of stocks, properties and cars will theoretically rise because bond holders sell their bonds to the government and invest money in other things; The yields of those things, i.e. stocks, properties, commodities would also decrease corresponding, too.
Bond holders do really suddenly have gotten a short term gain, but after selling the bonds they hold to take the short term gain they aren't going to be trading bonds anymore. Not quite equal to giving money. Imagine if the government had a new policy to all software engineers: "We will pay $200,000 to each software engineer who stops working as an engineer for 5 years". It's something like that.
Disclaimer: I've studied only one year of commerce.
"only one year of commerce" and you already lost the ability to see things as a system. In all your big and detailed post you missed one small detail - where the bondholders got the money from to buy bonds.
All kinds of people invest in bonds, even when the government isn't enacting QE. My retirement investment account consist of government bonds, too. Investment banks earn money through IPO fees, merger fees, etc. They also can borrow money from depositors and have raised their initial capital from shareholders. As they're 'investment banks', their primary business is to select the best assets to invest their cash. These assets include other companies (aka stocks), properties and bonds. If you're in Australia and you have a superannuation account (i.e. government enforced savings), you're likely a bondholder too, unless you told your superannuation fund (the entity responsible for investing the forced savings) explicitly not to invest in bonds.
Well he might have a different view on the topic which is different than not understanding it.
Credit contraction is happening but prices are rising. This is not the time to be telling people they need to sick it up and pay more for things. I'd imagine that credit expansion in China is the culprit on that front though.
QE has never worked. This will fail and we're going to continue to muddle along until someone allows the money supply to fall and the banks to fail. The banks are already insolvent anyway so we might as well face reality and face a few very tough years. Given our recent behavior we have it coming to us.
Well he might have a different view on the topic which is different than not understanding it.
Nonsense. As Nobel Prize Winner Paul Krugman said, anyone who disagrees is either stupid and doesn't understand anything, or they are evil republicans who want to destroy the world or something.
If they bought the bonds from the treasury instead of the market, the newly printed money would be in the hands of the treasury. They want it in the hands of the private sector - which makes sense.
Treasury bonds finance Federal spending which ends up in the hands of the private sector--a much broader swathe of the private sector. Buying them from the private sector just means a select group of banks get to slice off a chunk before it gets to the rest of the economy.
Comments
1M people viewed this cartoon ... This is scary.
The guys who did this clearly don't understand macro-economics. And yet many people will be convinced that QE2 "is bad" because "deflation is good, I can buy more stuff for less money" or "Bernanke didn't see the subprime crisis coming, therefor is incompetent".
QE2 might not be the right thing to do. But this movie doesn't educate people or make them understand why QE2 might be a bad idea (hyper-inflation is the main risk). It just make people angry and suspicious, while keeping them ignorant.
Given the amount of uncertainty central banks create with arbitrary changes to monetary policy (or non-changes under Greenspan), cooperating/competing with other central banks, differing objectives, etc., and all the politics involved in stimulus, TARP and our current situation, do macro-economists get macro-economics? And is that supposed understanding used by politicians for their own gain?
I'm no macro-economist (although I do have an economics degree), but I believe deflation and inflation are acceptable as long as they are gradual changes and don't enrich or impoverish one segment of the economy over another. I think a lot of people are wary of the Fed (and Congress for that matter) overreacting to current economic conditions in order to stabilize prices AND maximize employment, messing up one or the other in the process, as Greenspan & the GSA-induced malinvestment in housing did.
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
-F.A. Hayek, The Fatal Conceit
I agree that the Fed is probably doing too much. I'm glad to live in Canada where central bankers act like robots and not like cowboys :)
We'll probably never know for sure if QE2 was worth it or not. It's a trade-off, let's hope that the upsides justify the downsides.
Maybe macro-economists don't really get macro-economics, but who else do we have?
I work on Wall St (but not at the Goldman Sachs). The cartoon is very funny (and will be spreading quickly here too), in the same way Sarah Palin is funny. Good thing no one will take it seriously - oh, wait...
QE2 is just bad, the same way like QE0,1 or 3,4...
The government gives money to guys like Goldman which buy treasuries using these cheap money (call it "QE1" or low interest window or whatever). After that the government buys these papers back making a good profit for Goldman. "Trickle down" here is that somebody would get paid washing Ferrari and Lambo of Goldman's people.
QE2 might be bad, but the government doesn't just give money to "guys like Goldman". The Federal Reserve buys lots of government bonds off the market to raise its price with fake money. If you were holding lots of bonds when the Federal Reserve started QE, you'd earn capital gain by selling the bond because the price of the bond rose. The trade-off is the bond's yield will decrease correspondingly by paying less interest per dollar you can sell for, swapping your long term gain into short term gain (if you sell the bond now). Instead of holding onto the bond and earn the same interest you'd sell it and buy other stuff, like stocks, properties, or as the Federal Reserve would like, more cars.
As a consequence the price of stocks, properties and cars will theoretically rise because bond holders sell their bonds to the government and invest money in other things; The yields of those things, i.e. stocks, properties, commodities would also decrease corresponding, too.
Bond holders do really suddenly have gotten a short term gain, but after selling the bonds they hold to take the short term gain they aren't going to be trading bonds anymore. Not quite equal to giving money. Imagine if the government had a new policy to all software engineers: "We will pay $200,000 to each software engineer who stops working as an engineer for 5 years". It's something like that.
Disclaimer: I've studied only one year of commerce.
"only one year of commerce" and you already lost the ability to see things as a system. In all your big and detailed post you missed one small detail - where the bondholders got the money from to buy bonds.
All kinds of people invest in bonds, even when the government isn't enacting QE. My retirement investment account consist of government bonds, too. Investment banks earn money through IPO fees, merger fees, etc. They also can borrow money from depositors and have raised their initial capital from shareholders. As they're 'investment banks', their primary business is to select the best assets to invest their cash. These assets include other companies (aka stocks), properties and bonds. If you're in Australia and you have a superannuation account (i.e. government enforced savings), you're likely a bondholder too, unless you told your superannuation fund (the entity responsible for investing the forced savings) explicitly not to invest in bonds.
Well he might have a different view on the topic which is different than not understanding it.
Credit contraction is happening but prices are rising. This is not the time to be telling people they need to sick it up and pay more for things. I'd imagine that credit expansion in China is the culprit on that front though.
QE has never worked. This will fail and we're going to continue to muddle along until someone allows the money supply to fall and the banks to fail. The banks are already insolvent anyway so we might as well face reality and face a few very tough years. Given our recent behavior we have it coming to us.
Well he might have a different view on the topic which is different than not understanding it.
Nonsense. As Nobel Prize Winner Paul Krugman said, anyone who disagrees is either stupid and doesn't understand anything, or they are evil republicans who want to destroy the world or something.
You're right about the macro-economics, but the Goldman Sachs angle is still a wtf.
There's nothing fishy about it. They buy treasury bonds from primary dealers, which include Goldman Sachs.
http://en.wikipedia.org/wiki/Primary_dealers
How about the part where Bush's Treasury Secretary (http://en.wikipedia.org/wiki/Henry_Paulson), and Clinton's Treasury Secretary (http://en.wikipedia.org/wiki/Robert_Rubin), and the NY Fed Chairman (http://en.wikipedia.org/wiki/William_C._Dudley) are all ex-Goldman Sachs. Doesn't that sound a little fishy?
If they bought the bonds from the treasury instead of the market, the newly printed money would be in the hands of the treasury. They want it in the hands of the private sector - which makes sense.
Treasury bonds finance Federal spending which ends up in the hands of the private sector--a much broader swathe of the private sector. Buying them from the private sector just means a select group of banks get to slice off a chunk before it gets to the rest of the economy.