When All You Have Is A Hammer (QE3)

06-01-2011 • Market-ticker.org

The Fed's statements and the expectations of the "herd" are that when QE is going on bond yields will go down and price up (since The Fed "is the market.") But empirically, exactly the opposite has in fact happened - twice. The bigger problem is that we've bought nothing with these policies. The stock market has risen almost exactly as much as the dollar has declined during QE2 - that's a net zero. If you're a trader or investor the change is negative since you must pay taxes on your gains. That is, economics follow the thermodynamics principles that state that there's no such thing as a free lunch; all economic processes involve "loss" (from your point of view anyway.) If you're not a trader it's even worse as the impact on the price of everyday necessities has been extreme, while incomes have not risen materially at all. This has transferred more and more of the common man's "needs" to the Federal Government, which has responded by writing more and more checks into a deteriorating balance sheet. In short this is a negative sum game for The Fed and so-called "economists." The gambit that has been run since 2008 is to believe that if we just "stimulate" for a while the private sector will pick back up and it will all be ok, as the government and Fed will be able to step back. But the expected "transfer back" to the private economy hasn't happened. There comes a point where you have to admit you have failed. Bernanke and The Federal Government have, I suspect, known full well that their program had a high risk of failure and that mathematically it could not work except by lying, exactly as was true in 2003, because we entered this recession as a direct consequence of reaching the leverage limit among the public. Therefore, "transferring the baton back" was never something that was going to happen unless you can sell another lie to the public. But the public has been lied to twice in the last decade, and lost their accumulated fortunes twice. We're a nation of idiots on balance and are numerically illiterate but after being financially gang*****d twice in ten years most people get the point: Wall Street and Washington are interested in exactly one thing - stealing from you.