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.
Comments
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.