The regressive politics of quantitative easing

ScreenHunter_01 Aug. 07 16.25

Cross-posted from The Conversation

When financial markets stood on the verge of collapse in the summer of 2008, two of the world’s most important central banks, the US Federal Reserve and the Bank of England, began considering unorthodox policy measures. They turned to Quantitative Easing, or QE: injecting money into the economy by purchasing assets from the private sector, in the hope of boosting spending and staving off the threat of deflation. These were desperate measures for desperate times.

With signs of a fragile economic recovery gathering enough momentum to reassure policymakers in the US, the policy was expected to be wound down. But in a move that caught commentators off guard, the Fed instead committed to continue with its existing level of asset purchases. For the foreseeable future, at least, QE is here to stay. What began as a short-term crisis measure has now become a key component of Anglo-American growth strategies. It’s important, then, to take stock of QE and the central role it has played within the Anglo-American response to the financial crisis.

The way the Fed led the policy response to the financial crisis is important in two ways. First, it reflects the extent to which the Anglo-American economies have become financialised: credit-debt relations are pervasive throughout all facets of contemporary economic activity and there has been a deepening, extension and deregulation of financial markets commensurate with this development. In that context, with the increased competitiveness, scale and global integration of financial markets intensifying the risk of financial instability, the crisis management capacities of central banks have become increasingly important.

Second, central bank leadership of the policy response also reflects a key feature of neoliberal political economy in practice. Despite all the rhetoric of free markets, competition and deregulation that has been the mainstay of neoliberalism, there is a central contradiction at its heart: neoliberalism has been extremely reliant upon the active interventions of central banks within supposedly “free” markets.

The crisis has been warehoused on the expanding balance sheets of central banks, demonstrating just how much scope for policy manoeuvre there is when governing elites want it. Government debt and private assets, including toxic mortgage-backed securities, have been indefinitely transferred onto central bank accounts. This strategy highlights the role of arbitrary accounting processes, shaped by state institutions, at the heart of supposedly “free market” economies.

Given this room for manoeuvre, there is no doubt that a much more expansionary fiscal policy and a progressive taxation system could have been implemented in response to the crisis, but that response is foreclosed by the ideological confines of the prevailing neoliberal orthodoxy. Instead, we have monetary expansion and fiscal austerity.

Incubated within the crisis conditions of the 1970s, the neoliberal revolution in the West was birthed during the 1980s with the landmark electoral victories of Margaret Thatcher and Ronald Reagan. The early years of their tenure were marked by proactive central bank policies, fighting inflation through high interest rate regimes that were justified with monetarist dogma. Those policies had mixed results, but, crucially, they signified the strong emphasis upon monetary policy within the new paradigm, which now prioritised price stability, rather than the traditional post-war commitment to full employment.

By 2008, the challenge faced was markedly different. Now it was deflation and a shortage of liquidity, not inflation, which threatened the functioning of financial markets. Yet, in common with the inflationary crisis of the early 1980s, monetary policy has again been emphasised as the proactive component of the policy response. The common element in both crises is this combination of monetary activism, through extreme tightening (in the 1980s) or loosening (from 2008) of the credit flow, plus of course fiscal austerity.

What have the effects of this combination been? In the 1980s, the high interest rate regimes aggravated unemployment, boosted bank profits and accelerated the growth of income inequality. When the Anglo-American economies did return to growth they were markedly different than they had been before.

In the present period, we’ve witnessed a similar form of wealth redistribution. Recent estimates by Berkeley professor Emmanuel Saez, an influential scholar of income inequality, suggest that 95% of wealth gains since 2009 have accrued to the top 1% of the US income distribution pattern. In Britain the experience has been very similar, with the Bank of England’s own report in 2012 suggesting that QE had benefited Britain’s richest 5% the most.

These two major crises – the first inflationary and the second deflationary – have been the defining moments of the neoliberal period within the Anglo-American sphere and it’s remarkable that they have led to a similar pattern of policy response.

They have also both produced “regressively redistributive recoveries”: by this I mean that where and when growth has returned the benefits have been highly skewed towards the upper percentiles of wealth holders. That was the case in the 1980s, when the acceleration of income inequality really got underway. And it has been the case, once again, in the wake of the 2008 crisis.

Today’s “recovery” has largely been confined to rising stock prices and asset values. Meanwhile, average incomes have continued to stagnate or decline and income inequality has intensified. Quantitative easing has been central to this regressively redistributive recovery, boosting balance sheets and stock market values without providing a commensurate recovery throughout the economy as a whole. These measures have disproportionately benefited those who already own financial assets on a large scale.

Quantitative easing is thus exposed. It’s not merely a technical remedy to a malfunctioning financial system, but rather a deeply political policy programme. There are winners and losers just as with any economic policy that affects the overall distribution of wealth and resources within society. The conventional fixation with GDP obscures these dimensions of the recovery and ignores key questions about the distribution of wealth within society.

As the statistics about the uneven benefits of economic activity since the final crisis show, it’s important to remember that recessionary periods are not simply dead-spaces: even while the pie may be shrinking, the slices held by different groups within society can expand and contract in a very uneven manner with serious social consequences. There is no small irony in the fact that the banks, whose indiscretions lay at the heart of the original financial crisis, have been the major winners during the recession.

If we keep on following these same neoliberal policy paths we will only end up with ever more deeply divided and highly unequal societies. These are not firm foundations for healthy democracies.

Article by Jeremy Green, Research Fellow, Sheffield Political Economy Research Institute (SPERI) at University of Sheffield

Unconventional Economist


  1. “Despite all the rhetoric of free markets, competition and deregulation that has been the mainstay of neoliberalism, there is a central contradiction at its heart: neoliberalism has been extremely reliant upon the active interventions of central banks within supposedly “free” markets.”

    Yes, it is rhetoric. Nothing more, nothing less.

    I do not believe that Darth Greenspan or Darth Bernanke ever believed in free markets – sure, they will pretend so in public but that does not mean they did. It is all about control – i.e., how to increase their power and influence – and they have been remarkably successful.

    • “Despite all the rhetoric of free markets, competition and deregulation that has been the mainstay of neoliberalism, there is a central contradiction at its heart: neoliberalism has been extremely reliant upon the active interventions of central banks within supposedly “free” markets.”

      Agree, this is a very quotable quote.

      The most specific problem is not solely that the gains of wealth are all at the top, it is that this has occurred via very successful rent-seeking.

      Warning: No new wealth was created in the making of this new economic paradigm.

      I share the fear of people like Henry George and Ayn Rand that the honest main street business man struggling in a genuinely competitive market, will fall victim to the reaction of the politics of “labour”, to the great zero sum wealth transfer racket that the main street business man was just as much a victim of as everyone else.

      I admit to being somewhat persuaded by the “Gold Standardistas” on the way to fix this. That, and the elimination of zero sum land rent (which the single issue Gold Standardistas are to a man, agnostic about).

      • “Warning: No new wealth was created in the making of this new economic paradigm.”

        They created the same amount of wealth as printing extra zeros to every piece of currency…. Strange, we are all billionaires now but do not feel wealthy …. I wonder why?

  2. It is very sad and disappointing the fact that it takes so long time and indisputable evidences from the irreversible reality for wise people to realize what is going on now and what has happen during the 20th century. There is still many illusions, but the speed of the real processes in the global world will be awakening for many. Maybe at some stage everyone will realize that economics was the greatest nonsense and there should have been studied the only meaningful thing – the old political economy.

    This is the most honest and promising article of MB, because it reflects the true nature of our real world without any “sophisticated” and “highly professional” technical analysis, which always ignore the deeper nature of all phenomenons.

    Thank you MB!

    BTW, when the whole world depends only on the decision of one man, how do we call that system? Please remind me…

      • I prefer to think of it as the “decadent” phase. Ayn Rand said crony Capitalists (that is, in contrast to free market believers) should be hung.

        She also distinguished between “capitalists” and “capitalism”, the latter meaning “free markets” to her.

        It is impossible to sustain this distinction now, so completely different terminology is needed. I wish the terminology of “economic rent” was familiar to those who argue about political ideology.

        (Don’t assume I am an Ayn Randist – I just like quoting some of what she said).

    • “This is the most honest and promising article of MB, because it reflects the true nature of our real world without any “sophisticated” and “highly professional” technical analysis, which always ignore the deeper nature of all phenomenons.”


      This is just a repeat of what I stated before, but I cannot overemphasize the importance of studying enough history. There are a lot to learn about human nature.

      E.g., How did Robespierre win the Force over Danton? How did Stalin win the Force over Trotsky? Why did Robespierre ultimately fail and Stalin prevail?

      • I am not sure what you are getting at. But I fear that there is never sufficient intelligence among the revolutionaries who seem to prevail, to understand what is bad about the order they are overthrowing, and what is good; and they destroy the whole lot.

        Their success, IMO, is based not on “popularity” with “the majority”, but the winning of civil war in a highly factionalised bloody struggle, and then maintaining their power with sufficient brutality and terror. We in the democratic west tend to have lost sight of this harsh reality that most of humanity most of the time has existed under. But the prolonged mass killing from which no-one is safe, should clarify our thinking.

        I believe the Founding Fathers of the USA were unique revolutionaries who recognised good, stuck to that, refined it and built on it, and overthrew what they saw as the perverted version of their heritage, not the heritage itself. One of “the best 5 books everyone should” read IMO, is “The Theme is Freedom” by M. Stanton Evans.

        The Founding Fathers, if they came back today, would see the perversions of the current system at a glance.

      • “We in the democratic west tend to have lost sight of this harsh reality that most of humanity most of the time has existed under.”

        “The Founding Fathers, if they came back today, would see the perversions of the current system at a glance.”

        I think you got my point after all.

        You know, once in a while I saw some posts (on the MB site) which argue that we should “kick out” the US influence.

        What these people do not realize is that creating a strategic vacuum is a very dangerous idea. Historically, such a vacuum was never left unoccupied for long. I am not sure who will take over – Russia or China or somebody else – but I do not believe that we would be better off….

      • “…I think you got my point after all….”

        I am really pleased that you did mean what I hoped you did.

        This is one of the things I love about MB, in contrast to most other sites. People like you and me can get somewhere and we all have a sensible discussion without being swamped by the stooges of the various vested interests and useful idiot ideologues.

        I don’t know if moderation is keeping that down or whether those types are hoping MB will go away by ignoring it. They certainly drive me nuts on some other sites, to the extent that I don’t even bother.

      • I have similar sentiments regarding the MB site, Phil.

        The MB site is the only site of this type I visit. I do not have time to visit any other; in fact I do not have time to read all the articles on the MB site, let alone all the comments. Then, once in a while I learn something new, something I did not know before, thanks to people like you, and I am truly grateful for that. They say one needs to read many poor novels before encountering a good one. I think the hitting rate on the MB site is pretty good.

        As you may know, I am relatively new to RE as I have been a “share guy”. But I am learning fast. And the more I find out about the RE market the less I am impressed. A housing market is essentially a pseudo market that allows leverage and yet lacks a shorting mechanism (and the price discovery mechanism that comes with it). This lack of symmetry alone is sufficient to make me feel uncomfortable in going in.

  3. Coincidentally, this was touched upon in the article on robotics a few minutes earlier.

    Historians may come to identify May 1979 as the outbreak of “The Great Conservative Revolution” which began in Britain and quickly spread throughout the world.

    Sold at first as a (classical) liberal movement aimed at improving efficiency and welfare for all, The Great Conservative Revolution quickly transformed into a program of winding back the egalitarian and democratic tendencies that had characterised the twentieth century.

    Privatisation as a means of increasing competition between firms and improving efficiency quickly morphed into privatisation as a pretext for granting private monopolies and tax-farming franchises.

    The promise of technology providing an easier life for most people gave way to the new religion of “Greed is Good” and “International Competitiveness” which meant that the majority of people in the most technologically advanced countries would actually be required to work harder and longer, held to ever higher standards of “performance” and accountability.

    The 1960s and 1970s look relaxed in comparison.

    In recent times as median incomes in the most technologically advanced countries stagnate and reverse, they have been required to do that for less in return!!

    In the political sphere the twentieth century values of participation were already being wound back in favour of “Let the Leaders Lead”, even before the events of September 2001 gave politicians the ideal pretext for winding back liberties and placing their subjects under surveillance.

    It is worth remembering that the modern concept of “all men are born equal” is . . . well . . . just that, a modern concept. For most of history, the “natural” distinction between the Rulers and the Ruled was self-evident.

    As Alexander Hamilton famously remarked:

    All communities divide themselves into the few and the many. The first are the rich and the well-born; the other the mass of the people … turbulent and changing, they seldom judge or determine right. Give therefore to the first class a distinct, permanent share in the Government … Nothing but a permanent body can check the imprudence of democracy. (Alexander Hamilton, Speech to the Constitutional Convention, June 1787)

    There is no grand universal design that guarantees a move in the direction of egalitarianism, either political or economic.

    Twentieth century egalitarianism arose out of very specific historical and economic conditions, conditions in which it was optimal to invest a large amount of resources in developing the skills of individual workers. Under such conditions those individuals became “valuable” and were treated accordingly.

    But to the extent that they are now replaceable with machines – machines of ever increasing intelligence – many human workers have become commensurately less valuable.

    In the absence of political institutions that ensure otherwise, they will be treated accordingly.

    • Egalitarianism is dead, but that doesn’t mean that financial capitalism will be for ever, trust me. It is the most parasitic system and that is what will kill it.

    • “There is no grand universal design that guarantees a move in the direction of egalitarianism, either political or economic”

      In fact, from scientific viewpoint, the most natural (i.e., without any artificial influence) distribution of wealth or money or anything that is tradable is the Boltzmann distribution. I made a detailed post on this (

      In other words, any distribution that is different from the Boltzmann shape would require constant input of energy for its maintenance.

      • I like the comment you refer to. I agree.

        Economics mirrors physics, fascinating.

        Trying to enforce egalitarianism always does destroy wealth and lowers all boats (except the Nomenklatura’s), so it is very like a wasteful “constant input of energy” being required. I like the analogy.

        Milton Friedman and Thomas Sowell both distinguish between “doing good to the poor” and “equality via forced redistribution” as quite different forms of morality and reason.

      • PhilBest, why everyone suggests that destruction of financial capitalism by itself means introducing egalitarianism? Where is the imagination of all intelligent people?

      • Thanks Phil.

        In the same post, and earlier, I have been arguing that negative gearing can only be abolished in a coherent manner with a total taxation system overhaul.

        The central question here is whether one’s income should be taxed as a whole or as separate entities. If we abolish NG then the indexing should not apply to the passive income. In other words, each of us should be required to file two tax returns. As a matter of principle, one cannot have it both ways in my view.

        But somehow people on the MB site are largely unable to get my point. I wonder why – presumably because they are ideologically driven? I would be interested in new ideas, not in ideology or dogma or doctrine.

      • If I remember my thermodynamics correctly, the Boltzmann distribution relies on the assumption that the thing being traded (in that case energy) is equally likely to be found in any of the possible states. For example, there is no preference for kinetic energy to be found in movement along the x axis compared to movement along the y axis.

        The famous distribution arises because if more energy were concentrated in one state that in another, the probability of energy flowing into the lower energy state would be greater than the probability of it flowing from the lower energy state to the higher.

        But all of that depends utterly on the underlying assumption.

        There are other physical situations which are described differently. In some there is a reinforcing process at work. In the early solar system, for example, matter coalesced because those bodies which were already heavy were more likely to attract matter than to lose it.

        Likewise, one might postulate that those already in possession of money and political power are more likely to accrete it than lose it (at least up to some limitation of the system).

        In any event, it is wise to be alert to the danger of Naturalistic Fallacies. My comment was merely describing what “is”, not what “ought to be”.

      • @Stephen Morris

        Yes, what you stated about the canonical distribution is mostly correct except for one rather technical point; if more energy were concentrated in one state that would reduce the total number of ways the remaining energy could be distributed.

        Of course, canonical is one of the simplest possible models. I am not arguing that it can perfectly describe the real economy (physics is all about approximations after all). Rather, it is surprising that such a simple model can capture the essence of what we observe in the real world. It can also provide useful baseline from which various things can be measured; e.g., there is less wealth inequality in Australia than in the US, not because the US has a bad policies or regulations but because Australia has more regulations.

      • Finding similarities with the physical world is just what human brains are hard wired to do – the analogy fit does not imply a rule it just shows that the human brain has satisfactorily linked cause and effect for their brain.

        Nb – re the neg gearing stuff . The ATO can lose because profit in one entity does not cost the same as profit in another and also revenue gains get changed to capital. Everything on tax moves on these parameters (with temporal relativity) with ‘derivation’ the tool our model of taxation uses to fix the tax point.

        What you are correctly identifying is that everything is taxed somehow, somewhere, sometime at some rate – this is old news to the industry. Tax advisory is arbitrage.

      • aj,

        Look, I have never done any negative gearing (I think it is crazy) and I do support the Henry tax review whose end results are remarkably similar to my proposed way of abolishing NG.

        That said, I do not understand as to precisely which part is wrong with my following thinking.

        In Year Zero NG was banned. In Year One, NG is introduced. Will the tax receipts rise or fall? It looks to me that the ATO will increase its revenue with every new (negatively geared) dollar loaned, not only because the data will show that 80% of the NG loans will be concentrated to those with incomes of $80k or less (and the banks’ profits must be increasing), but also because there are simply more flows of cash to tax on.

        Is it possible that the tax receipts increase with the introduction of NG AND reversing the rule back to Year Zero will also increase the tax receipts? I doubt it, because if this were the case, then the ATO could keep boosting its tax receipts to infinity by simply changing the same rule back and forth every financial year!

      • PS

        I am very interested in debugging errors in my algorithms, both in my valuation models and in my own thinking, but so far I am unable to detect an error in my above thinking.

        This problem has been on display for many weeks now. If nobody could detect errors then I would have no choice but to assume that I was right.

      • Another interesting point (although not really relevant to the topic):

        If the distribution of wealth really did mirror the canonical distribution then one would expect to see constant exchanges of wealth between the “available states” (in this case the individuals of the ensemble).

        In fact, amongst people the opposite is true: there are very slow exchanges of wealth. Indeed, the inter-generational correlations of income suggest that it doesn’t move much over decades or even centuries.

        Thermodynamically this would correspond to a system at very low temperature. As t limits to 0 there would be infinitesimal probability of finding any wealth above the ground state. This would be a subsistence society.

        Unless, of course, the “Boltzmann-Dumpling Constant” were enormous!!

      • @Stephen Morris

        I am glad that you appear to have some fun with this new intellectual exercise. I hope I did not bore you with this. As you correctly pointed out earlier, the canonical model is just a classical model (as opposed to quantum) and only for thermal equilibrium. In reality, we do not live in thermal equilibrium; moreover, humans are a bit more complex than molecules with complex interaction parameters, so some serious modifications are necessary to account for that.

        But at least, with the aid of physics, one can avoid some fundamental “putting the cart before the horse” type of mistakes….

        And you are right about the “enormous k”. After all, we are much larger than molecules….

      • @D – re the profit tax for neg gearing it’s actually a pretty good question in detail. My view (quick calc) is it looks a bit like this:

        @150K payg earner & sole trader pays approx 45K tax (30%) – this is no accident its designed to normalise any arbitrage with a company structure.

        @100K payg earner/solet. pays approx 25K (25%) – 5% progressive improvement in tax rate.

        So if a 150K earner gets a 1mil loan (say interest only at 5%) then they will reduce their rate from 30% to 25% and free up 20K from the ATO for cash-flow.

        Where does the 25K the ATO would have made go? Some to the bank, some to the onshore and offshore funders to the bank. How this ties with fractional lending and yield on debt etc needs a better banking head than mine. But we can say:

        – Some goes to bank (effective rate about 29%)
        – Some goes to onshore depositor (effective rate likely to be less than 30%)
        – Some offshore (unknown but unlikely to be 30% how much the ATO gets depends on whether treaty country or not etc)

        In the washup – as you have identified the immediate cost to the ATO is at the margin. And depending on the true nature of fractional lending – may actually result in a step up in bank profits!, so perhaps the tax base does actually go up.

        In addition, the capital gain that may exist for the property is realised from the seller plus the myriad of the other little taxes including stamp may mean that the states coffers are net better off in a timing sense under negative gearing.

        In general, without devoting my whole Sunday morning to the issue, i’d have to say you are broadly right. This is a topic that deserves a whole post and discussion at macro business – but in substance you are correct in saying this is a political issue not an economic issue for the state and many people arguing against NG are making assumptions on cost that may not be correct.

      • @aj,

        “This is a topic that deserves a whole post and discussion at macro business”

        I am glad that you got my point. I did not carry out detailed calculations (I admitted as much in my July post), but I do believe we need to have the facts straight before we go on any further.

        I do not do NG, but I will be affected as a taxpayer if they abolish it, because (this is my guess) the ATO will most likely look into ways to offset the shortfall in their tax receipts by taxing the wise – i.e., those who had not “contributed” to their bottom line through NG (after all, where else can they find extra taxable revenues from?). Let’s just say I won’t be happy with that scenario.

      • edit to above comment – on reflection how much of the 25K is then returning at 30% of the 25K? so it may be more than at the margin ie the 25k tax is turning into 25K taxable profit and needs more thought than a sunday coffee 😉

        But the offset agains the step up in fractional lending and realised property gains to the state coffers is the unknown.

    • You forgot to mention that left leaning political parties joined in (if you can’t beat em, join em) the neoliberal movement as well, notably after the success of “New Labour” under that class A A-hole, Tony Blair.

  4. Quantitative easing has been central to this regressively redistributive recovery, boosting balance sheets and stock market values without providing a commensurate recovery throughout the economy as a whole. These measures have disproportionately benefited those who already own financial assets on a large scale.

    Our own RBA move towards ZIRP is aimed at achieving the same result, with the added fig leaf of “boosting construction”.

    But like QE, they are only delaying the inevitable… Not for long..

  5. “Today’s “recovery” has largely been confined to rising stock prices and asset values. Meanwhile, average incomes have continued to stagnate or decline and income inequality has intensified.”

    This is so obvious now to all that is like a trap set before the desperate and the greedy – the only way forward is to speculate in asset values – there is nothing to lose. Except everything.

    Big bets were placed and when the time came to pay up the politicians and the central banks had their backs, the game was declared void.

    I learned the best lesson of my short investing career watching the process unfold after 2008. The game is rigged.

    • Cheer up, aj.

      Fractional ownership in great businesses is always going to be rewarding if purchased at a right price. Granted, it is getting difficult to find good value stocks, but there are still a few around; CAB and FWD come to my mind (disclaimer; I have both and they comprise my second and third largest holdings now).

      I sense a lot of resentments in the comments posted on housing. My sense is that people are frustrated at the meagre return on their cash, but unwilling to join the party (rightly so), and not quite sure of what to do with their cash. I think for those who are sitting on extra cash that they do not need for some time (i.e., fairly long time horizon) the best strategy is to invest in bust-proof, or better, pro-bust stocks; CCP, CLH, FSA. Mind you, my valuation model suggests that they are a bit overvalued (but not ridiculously so), so there are clear risks. But then again, their overvaluation can only mean one thing; the market is pricing in their future revenue growth. I wonder where that extra revenue could come from?

    • Cheer up, aj.

      The game may be rigged, but that does not alter the fact that fractional ownership in great businesses is rewarding if purchased at a right price. FWD and CAB come to my mind. ORL might join them in the next few weeks.

      • One persons fractional ownership is another’s speculation on how long asset prices can be supported by negative rates before the rug gets pulled out (if ever).

        Good luck with the timing – but those poor souls that bought CAB at 13 bucks didn’t have luck on their side.

      • Obi-Wan Buffett: In my experience, there’s no such thing as luck….

        Seriously though, value investing is just like owning a minor stake in a casino (as opposed to walking into one yourself); you might win or lose on any given day, but you will be pretty much guaranteed to win over time.

      • Ask someone who was a big value investor before 2008 – they are still underwater and inflation adjusted they may as well have gone home and put the cash in their pillow.

        This is a very old debate – my view is in the end its just trading. I just took 30%-80% 3 month gain on gold juniors when gold last touched 1550 – i’ve learned to always take gains and cut losses.

        Buff has just cleverly ridden the stock rise through the post gold-standard currency debasement and Greenspan-Bernanke put. For mine the best reason for holding stocks is that the put needs to stay, the worst reason is that the put needs to stay.

        In my view its a bet – some long time-frame and some short time frame but it’s a bet. And most massively underestimate just how rigged the game is.

      • “In my view its a bet”

        To this I agree. And hence my earlier reference to casino business.

        But I do not understand your reference to “a big value investor before 2008”. The valuation must have surely been stretched by 2007 (like for the local banks now)? If these pseudo “value investors” still held onto these stretched stocks in 2007, then …. well, what can you expect?

      • @aj

        I do similar trades as what you described for gold juniors.

        I hope the following idea might become useful for you in future if it makes sense.

        The way I look at cash is as if it were a stock “CASH” whose price is always (i.e., zero volatility) 1 share = $1, which pays unfranked dividends that reflect the retail cash rate. I constantly upgrade my portfolio by selling overvalued stocks and buying undervalued ones (by “constantly” I mean major trades a few times a year, depending on what becomes available at reasonable discounts).

      • PS

        It follows that what QE does is to massively increase the number of outstanding CASH shares and hence dilute the existing ones.

      • Thanks for the link.

        One’s first reaction would be; why were they (the government) so stupid? The correct way of a bailout is not asset purchases but direct capital injection in exchange for a gigantic number of ordinary bank shares (i.e., nationalization). Then the taxpayer will be guaranteed to win over time (because the taxpayer would essentially have monopoly control of all the major banks). That would be the economically rational thing to do in that set of circumstances.

        But the above reaction would be before he realizes that the world was in fact ruled by Emperor Bernanke and his apprentices….. and the sad fact is that most people do not even realize this…..

      • Dumpling, it would be rational for the majority, not for the top1% and the banksters. You are obviously still delusional, mate. The rational for THEM and for us is two absolutely opposite things. How do you call this contradiction in society?

      • Yes, I am afraid that I still have a lot more to learn. It is so hard to fine-tune my perception to reality by constant upgrading/debugging in my thought process. But I think it is worth the effort. As Michael Lewis wrote in Moneyball, a trader with superior knowledge always wins. Plus, I cannot afford to learn all the possible mistakes by myself, so I have to learn from others’ mistakes (i.e., history)……

    • Thank you for the link. Very interesting. The economics is truly THE pseudo science of the Dark Side, because of its outsized influence on politicians and the power that comes with it.

      I found some similarities to the way the Vietnam War had escalated (from the US side that is); too much trust (and too much stake) in unfounded models. Add the political interference from pollies’ self-interest & vested interests, a disaster is virtually inevitable.

      Why do not they abolish the Nobel prize in the pseudo science (I think Nobel himself knew better)?

  6. Does Janet Yellen Know What a Bubble Looks Like?
    Mark Calabria | Sep 30, 2013

    “…..If one cannot from the perch of San Francisco identify the perverse impact of loose money on housing prices, then you’re likely to miss it from D.C. as well.

    If you think bubbles are a great avenue for wealth creation, then Yellen is the Fed chair for you. If you, however, suspect bubbles are damaging to our economy, then you might rightly be concerned that she repeats her San Francisco performance on a national level…..”

    As I have cynically commented many times, Federal Reserve positions will continue to be awarded to bubble bunnies, not anyone who ever saw anything coming…..

    • It would be interesting see where Darth Bernanke will end up after his retirement from the Fed. Perhaps Goldman Sachs?

      Henry Paulson was in Goldman Sachs before becoming the Secretary of the Treasury, so there is no surprise that he totally screwed up (perhaps knowingly) his handling of the GFC, as your link above shows.

      As for Yellen, which apprentice do you think Darth Bernanke would wish to appoint as his successor?

      These people are already wealthy. The only thing they may still want is power/influence/control. When looked in this light, their actions make a lot of sense (for them).

      The $60m question is; what would be our best counter strategy?