Let’s raise prices

Quantitative Easing is a confusing subject. Let’s make it simple. Quantitative easing means raising prices.

In the current economy, you can see the effect. Monetary stimulus has raised the price of gold from $800 to $1600, the DJIA from 7,000 to 13,000 without adding any actual value.

When you read that the Fed will attempt further monetary stimulus, know that all it means is the Fed will attempt to raise prices and hope that has some kind of positive effect on the real economy.

 



Discuss

20 Comments . Leave a comment below.
  1. Uh-huh...

    It also enables people to bring their mortgages back from underwater, spurs construction, gooses the economy by increasing currency circulation, eases credit, and generally improves things for everything except Ayn Rand’s philosophy.

    So I guess it depends on your priority.

    sabutai   @   Fri 31 Aug 8:09 PM
    • Great for the 1%

      … who own most of the stocks… bad for the homebuyer whose job doesn’t keep up with the artificially inflated price of housing.

      • Following your reasoning

        a severe deflation would be an absolute boon to working people. Right?

      • Noted

        Great for the 1%
        … who own most of the stocks… bad for the homebuyer whose job doesn’t keep up with the artificially inflated price of housing.
        seascraper

        I’m going to remember this for the next time I read that Wall Street’s interests are everybody’s interests because of mutual funds and blah blah blah.

  2. Not necessarily...

    Quantitative Easing is a confusing subject. Let’s make it simple. Quantitative easing means raising prices.

    Would you deny a man hit by a car the IV the doctors gave him on the grounds that it raises his blood pressure? Not if the blood pressure was dropping precipitously… That’s the analogy here. We are faced with prices falling, and, as is the case with many homes that are ‘under water’ the prices can become wildly mis-aligned with the actual worth. Sometimes a re-alignment means raising prices.

    In the context of a liquidity trap (the zero lower bound on interest rates) and the very real possibility of a deflationary spiral, monetary stimulus has the purpose of keeping prices stable. Rising prices means it is working: It is a signal. If we could, with any real precision, be exact and comprehensive, we would use quantitative easing to keep prices from neither rising or falling (outside the context of GDP growth and import/export balances…). Indeed, if we could be exact, we’d keep prices exactly and precisely in line with worth… just like the doctor who would like the trauma patient to be at a specific blood-pressure, but will accept a rising blood pressure as the price against a dangerously falllng one… but we cannot do this. In the cycle of imprecision and rough-shod confidence boosting rising prices are infinitely better than a deflationary spiral.

    The economy remains in serious condition and quantitative easing is the IV drip that helps to keep the vitals stable, even if it means raising the value of some of those vital signs… because they threaten to drop to dangerous levels.

    • Democrats: stocks are way up

      It doesn’t sound like you disagree, you just think this psychological experiment is a good idea. I have heard the Democrats arguing on TV that Obama is doing a great job because the DJIA is at 13,000. Do you agree that those gains are maybe 95% due to changing the price tag, and very little due to growth in the companies listed on the DJIA?

      • You are just pulling numbers from nowhere

        There has been plenty of actual growth in the various companies that make up the Dow. What is your evidence to the contrary?

        Having said that, I think the main reason for giving Obama credit for good stock market performance is that the Republicans were trying to use a sinking market to blame Obama. If you are going to play the “pin the falling stock market on the President” game, you can’t reasonably complain when it goes the other way.

        • i'm with kevin on the stock market

          Take a blue-chipper like XOM. Trading just 9 times earnings!

          Or an insurance company, like AFLAC. 8 times earnings.

          That’s not just some duck quacking. Those are real profits.

  3. If you have some money and would like to make some interest on it.

    This economy is not working out for you.

    If you want to borrow money, then things are great.

    There’s only so much borrowing that can be done though, and debt can’t be repaid without positive cash flow in your life, something many people do not have.

    Big crash coming up. Most likely post-election.

    • That big, upcoming crash

      I have no idea how you make this prediction and why it is even reasonable. Historical precedent?

      • It's technical analysis

        there is nothing (historical factors) supporting current stock prices. volume is at very low levels. two of many indicators.

    • Borrowing money not so easy

      The low rates are out there, but nobody is qualified to get them.

      • well that's a bit of a generalization

        housing seems to be moving somewhat.
        people are buying cars
        but yes, the easy qualifying days are in the past.

    • I'm with you on the crash.

      I think 2013 is going to be a terrible year, worse than the last few and maybe worse than 2008. Europe is going to crash badly and their possible options are evaporating daily. When Europe goes we will be right behind them.

      I really don’t think it will matter who wins in November. State and local governments will be taking a beating as well, some getting taken out completely, including far more bankrupt localities. There are hundreds on the brink right now so it won’ take much to send them spiraling.

      I’ve bounced very well with the market drops/rises and I’ve been getting very liquid lately because if I see a few more signals… I’m out. Start saving now!

      The sad news is the people with money will be moving it someplace safe and the people who can’t afford it will be getting slammed (401K, people on the edge, people over their heads…). Those thinking of buying a house might want to wait 6-9 months since there might be some great bargains out there. Maybe this will get Congress to work with whomever is POTUS since these guys only get things done during a crisis!

      • Europe

        I agree on the dangers of EU blowing up. On its current trajectory, the EU keeps offering stopgap measures, but nothing to keep Greece, Spain, and Italy from going off the rails. Greece may eventually be forced to leave the Euro just by the sheer ridiculous impossibility of the austerity demands placed upon it. Once one country leaves the Euro, debt in many other EU countries suddenly becomes much less secure. And boom! Bank runs, currency speculation, etc. So if Greece withdraws, Spain might not be far behind.

        Also the Chinese economy, which has been booming lately, has also slowed down.

        So yes, 2013 could be a quite bad year.

        • yes, and...

          So if Greece withdraws, Spain might not be far behind.

          Also the Chinese economy, which has been booming lately, has also slowed down.

          So yes, 2013 could be a quite bad year.

          That has nothing, whatsoever, to do with quantitative easing…

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