[Diggity]

I want to tack on this comment by adding that everyone seems to ignore the fact that QE is essentially just printing money.

Historically this is usually coupled with run-away inflation, however since it was isolated to the wealthy sectors of the economy (rather than the typical economy as a whole) there is only inflation among goods in that sector (housing etc). The big red flag is that stocks and VC are in that pool as well.

So while there was 20 trillion dollars of growth over the last 10 years, there was also 21 trillion dollars of debt generated.

The way I see it, QE successfully generated economic growth, however none of that economic growth was "real" growth. There were new innovations, particularly in the tech space, but a huge swath of them have no method to generate real sustainable profit.

All this means we should see a MASSIVE correction in markets. Due to financial rules, banks likely won't exit the market like 2008, but the massive number of companies that took out cheap debt will be at risk.

Basically we have a potential repeat of 2008, but swap out sub-prime homeowners with corporations.

[AnthonyMouse]

> I want to tack on this comment by adding that everyone seems to ignore the fact that QE is essentially just printing money.

This is actually inherently necessary and the fact that the government hasn't been doing it more has been the cause of the debt crisis.

Money is created both by the government (directly) and by banks (whenever they make loans with less than 100% reserves, i.e. whenever they make loans). As the economy expands, the money supply needs to increase with the demand for currency to use for transactions, or there would be deflation (very bad).

When that money is created by banks, it necessarily leads to an increase in outstanding debt. And paying the debt back destroys the money that was created by borrowing it, so the only way to maintain the money supply at that level without the government creating any is for the amount of outstanding debt to never go down. Which, of course, means that it only goes up.

If you print unlimited money at some point it causes inflation, especially when people use it to buy stuff. But if, instead, they use it to pay down debt -- which is what happens when people have a high debt load -- all it does is replace the bank/debt money with the government money.

Which is actually really healthy, because it it gives people the few bucks back in interest-not-paid on the debt they no longer have. That has a much smaller immediate effect on prices (interest-not-paid per year is only a fraction of the principal paid down), but a very beneficial long-term effect because it leads to more wealth in the hands of people rather than lenders.

It also has immediate positive knock-on effects because with less debt, people are more financially stable. If you're leveraged to the hilt and an emergency comes up, no one will lend you anything more. You also pay lower interest rates if you can e.g. make a bigger down payment, which reduces the lender's risk (the asset is worth the whole loan amount even if it depreciates some), enhancing the positive outcome of people paying less in interest.

[marcosdumay]

The US QE consisted of printing money in a moment of deflation (reducing of the money supply), so the country would experience something close to a monetary stability.

It did create inflation, and basically offset the natural tendency of the market. The fact that the money was inserted directly into the capital markets, instead of the consumer market probably caused a huge loss of efficiency on the deflation containing goal, a bubble at the capital markets and the requirement of collecting the money back once it starts flowing in a non-controlled fashion into the goods. All that probably caused some instability down the line, but the US seems to be dealing with it just fine.

[Diggity]

> but the US seems to be dealing with it just fine

I don't think we have seen the full consequences as of yet.

[TuringNYC]

This comment is spot on. We never actually "solved" the consumer crisis of 2008. We only solved the acute corporate crisis (money market funds breaking the buck, under-capitalized/insolvent investment banks, bond liquidity leading to a markdown death spiral.)

The problem we didn't solve IMHO is the massive housing bubble. To be fair, solving the housing bubble involves lots of winners and losers, so the government would rather kick this can down the road. Obama was able to keep kicking this can for 8yrs.

While there were pops in many places, the steady state price has become whatever a two-earner household can afford with massive debt living paycheck-to-paycheck on a 4% mortgage. That isnt sustainable and causes numerous problems:

- Everyone not already in "the game" loses (youngsters)

- Moving is difficult due to transaction costs (poor job mobility)

- Selling will be impossible (underwater) once rates go up

- Disposable income for spending is reduced, causing people to borrow further.

On top of that, Fannie Mae and Freddie Mac continue to stay in an uncertain state: https://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae...

On the other side of the fence, low rates are horrible for pension funds, pensioners relying on fixed incomes, etc. Pension funds and asset managers with return expectations struggle and reach for riskier assets yielding more. (Tech, to some extent has been a winner here as one result of this has been diversification of pension assets into VC.)

[marcosdumay]

That's likely. The question is how much the future consequences will be like the past ones.

Honestly I didn't look at your numbers for a couple of years, so I don't even know if you got out of that deflation already.

[tomatocracy]

All easing central bank monetary operations involve "printing money" in that sense. What's more, when you have central banks operating an inflation-targeting regime, the entire purpose of easing operations is to stimulate higher inflation. This wasn't new with QE.

Before QE, central banks mostly influenced the market via interest rate targets. If the "market" rate is higher than the "target" rate, that means printing money to buy debt in the market). (And before interest rate based policy, some central banks explicitly targeted money supply measures).

QE extended that from short rates (overnight secured) to long rates (long-dated government bonds at first, then other high quality collateral), because once short rates were near-zero all they could do was to target long rates (well, some central banks have experimented with negative rates but I think the jury's still out on whether that's really worth trying or not).

The thing is, that's not what people (at least used to) mean when they talk/talked about "printing money".

"Printing money" is normally shorthand for "printing money to give to the government to spend". This is generally viewed as "bad" because if government simply prints money to finance itself then it suffers none of the short term negative political or practical consequences of doing so via taxation. This means it also faces comparatively little pressure to spend efficiently, which results in serious misallocation of resources over time.

It is only a short step from QE to "printing money" in the "government spends it" sense though, and some central banks have gone at least some way down that path. If the central bank provides a significant bid into auctions of government bonds, either directly or because market participants know the central bank will immediately purchase bonds in the secondary market at a known, or fairly easy-to-guess price, then the government is really financing itself by selling to the central bank who is printing money.

It still has to pay interest, but it's no longer worried about being unable to raise the money, or the impact raising too much money will have on the rate of interest it pays.

But it can also absolve itself of responsibility for paying the interest bill, by giving the government a claim over the "profits" made by the central bank, including interest income on its government bond portfolio. So the government pays interest to itself on bonds it sold to the central bank. Some governments/central banks have done this.

That only leaves the government concerned about principal repayment, and the theoretical view that QE is temporary and will be wound down still constrains behaviour here.

As a separate point though, I don't think QE is the sole cause of the asset bubble we're arguably experiencing. I'd put much more blame on the ultra-low short rates of "conventional" policy personally. QE being withdrawn is much less of a problem than short rates going up for that.

[Diggity]

> This is generally viewed as "bad" because if government simply prints money to finance itself then it suffers none of the short term negative political or practical consequences of doing so via taxation. This means it also faces comparatively little pressure to spend efficiently, which results in serious misallocation of resources over time.

If you proxy government for companies in this sentence I would argue that is what is happening now. A large number of companies borrowed as much money as they possibly could during QE because they viewed it as "free money" with the low interest rate.

The impact being "money is cheap" and a large number of ventures have been engaged in that do not have real value.

Ultimately the "price of money" is always going to have a counter-balance of inelastic goods aka raw assets. While I agree that QE is not the sole cause (low interest rates are also to blame), I do believe it has had a net negative impact, particularly by inflating the price of assets among those who had access to excess (often times QE involved) funds to acquire them.