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« QE3 Misconceptions and How to Profit | Main | Weighing the Week Ahead: Entering a Season of Fear? »

October 04, 2012



Heat Rate -- For starters, let me agree that no one really knows what will happen. Most of the skeptics don't know Econ 101 and they don't bother to study the research.

The concepts involved are explicitly designed to avoid a Japan-like situation. In my annual visit to the Kauffman Conference I have had the good fortune to meet David Beckworth and Scott Sumner. Their work has been influential. The key idea is that the need is for policymakers to change expectations in order to change behavior. We need to accept that the Fed is going to tolerate a higher rate of inflation, defined by their measures.

If we want to make money as investors, we need to accept that as the new reality.

Japan did not do anything like this, and Jim Grant has not addressed it -- at least not where I can see it without paying for his publication.

As to the zombie argument -- well -- if you were President and I was your advisor (or vice versa) we would not have let this happen either. Look back at George W and Paulson. No one with real responsibility thinks this way.

Nice questions.



Thanks, Paul.

Bean counters everywhere should enjoy! I finally had some fun while writing about employment:)


Heat Rate

I like your style and the way you think.

That said, I would like to drop in the idea that perhaps people have bought in to the idea of QE way too much. The year is 2012 and the Fed is still engaging in QE 4 years after the fact. What does that tell you? Clearly, the problem is not liquidity. A marginal decline in the mortgage rate isn't going to solve a problem of leverage in household, government and corporate balance sheets. Japan has been dropping Yen notes for 20 years. Go take a look at their equity market. Moreover, has anyone taken a look at mortgages rates lately? They have retraced all of QE3s losses and at the end customer front mortgage yields have been rising.

People buy in to the idea that QE will kick start the economy. On what grounds are they making this claim? What are the facts? But of course the pundits will say "well if the Fed did not engage in QE then where would the markets be now?". My answer to that is the economy would be in a robust recovery for the simple reason that markets would have cleared and purged the zombie investments in the system. the reader can refer to Jim Grant's research as it is more grounded in fact than the *experiment* that Fed officials are currently engaged in.

Economics 101 - QE doesn't solve or help a debt problem.

Paul Nunes

This is one I am printing and sharing with my political friends. Your teaching of this particular subject deserves way more recognition!

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