The US needs more QE, despite growth

Graham_Devon

Says Bernanke. They had already done $2.5tn of QE and continue to buy $85bn a month.

However, Bernanke want's more QE, the fiscal cliff to be averted, and an avoidance of cuts.

He states "as time passes, larger and larger doses of stimulus are required".

http://www.telegraph.co.uk/finance/economics/9896100/US-unemployment-merits-third-round-of-money-printing-says-Ben-Bernanke.html

Is there no end?

Meanwhile Paul Fisher has said in Japan that more QE for the UK will increase total domestic spending at home, therefore this will increase demand for imports from those emerging economies.

I thought they were trying to increase exports, not increase imports? What does he mean by increase domestic spending through QE? Literally everything get's more expensive?

HAMISH_MCTAVISH

It's the stimulus creating the growth.

At some point, it becomes a virtuous cycle and the growth becomes self sustaining.

Or as Carney has frequently said, economies need to achieve "escape velocity".

The US has registered surprisingly strong economic data, suggesting the recovery may be gathering steam.

New home sales, a lead component of past recoveries, surged 16% in January to the highest rate since July 2008.

It suggested Americans had recovered from the shock of a sharp rise in payroll taxes over the New Year

And of course the housing market is now playing a leading role in economic recovery, thanks to the Fed pumping effectively unlimited QE into mortgage securities.

The jump in sales of newly-built homes is of particular note, as housing construction has typically played a lead role in past US economic recoveries.

But in this recession, the US housing construction industry - which largely collapsed between 2006 and 2010 - has failed until now to recover, in large part due the difficulty in obtaining a mortgage, and a glut of cheap repossessed homes dumped on the market by the banks.

However, this picture has steadily improved over recent months - the overhang of unsold properties has fallen to a 13-year low, while the average interest rate on new mortgages has fallen to an all-time low thanks to interventions by the US Federal Reserve.

Prices are also rising strongly as a result, which is helping consumer confidence, which feeds back into the 'virtuous cycle'.

The Conference Board index of consumer attitudes rebounded to 69.6 in February - the highest since November - from an upwardly revised 58.6 in January

http://www.bbc.co.uk/news/business-21594275

Hopefully Carney will be brave enough to chart a similar path here.

Graham_Devon

Interesting that you use the words "brave enough".

Why would this be? Are you suggesting there are potential problems and therefore the need to be brave is required?

HAMISH_MCTAVISH

Graham_Devon wrote: »

Interesting that you use the words "brave enough".

Why would this be? Are you suggesting there are potential problems and therefore the need to be brave is required?

No.

The need to fight established and embedded (although wholly wrong) orthodoxy requires courage.

Krugman explains it well here.....

"And there are lots of things these people say that sound very wise and sensible. But it's all upside-down; it's all wrong. Yet the power of their orthodoxy – even when it's failing – is quite awesome."

These Very Serious People present economics as a morality play, in which debt is a sin, and we have all sinned, so now we must all pay the price by tightening our belts together.

They tell us the crisis will take a long time to resolve, and must inevitably be painful.

All of this, according to Krugman, is the opposite of the truth.

Austerity is a self-imposed collective punishment that is not just unnecessary, but won't work.

We know what would work – but for complex political and historical reasons that his book explores, we have chosen to forget.

"Ending this depression," he writes, "should be, could be, almost incredibly easy. So why aren't we doing it?"

http://www.guardian.co.uk/business/2012/jun/03/paul-krugman-cassandra-economist-crisis

And Carney has already vowed to use "unorthodox policies" to achieve "escape velocity", so whilst his approach will take a monetary rather than fiscal (as Krugman prefers) stance, the end result should be similar.

“Within the framework of flexible inflation targeting that exists in most of the developed economies, there remains considerable flexibility, which includes the use of communications,” he said Saturday, adding that monetary policy must ensure economies “achieve escape velocity.”

Mr. Carney has previously floated the idea of targeting real gross domestic product as an indicator for monetary action, similar to how the Bank of Canada targets inflation and adjusts its key lending rate accordingly.

http://business.financialpost.com/2013/01/28/more-needs-to-be-done-carney-calls-on-central-banks-to-ensure-escape-velocity/

Stimulus until a self sustaining recovery is achieved.

HAMISH_MCTAVISH

And in case you missed the Krugman reference to VSP....

Very Serious People or Very Serious Person (VSP) is a sarcastically derogatory phrase given to pundits and legislators who are generally viewed as having respectable, conventional opinions but are actually wrong and foolish.

http://en.wikipedia.org/wiki/Very_Serious_People

purch

I said last week that the U.S. has no choice.

They have to continue QE, as do we.

grizzly1911

Canada id doing really well must work;)

http://www.theglobeandmail.com/report-on-business/top-business-stories/soft-canadian-economy-cause-for-concern-not-alarm/article8374469/

Heavily reliant on US aren't they?

Thrugelmir

Graham_Devon wrote: »

Is there no end?

Who wants to buy the US debt?

The housing boom was fuelled by money from savers in Germany, China and Japan. Alas no longer.