by David E. Altig

Federal Reserve of Atlanta-Macroblog published this article 30 May 2013.

You might not expect me to endorse an article titled "The 7 Reasons Why People Hate QE." I won't disappoint that expectation, but I will say that I do endorse, and appreciate, the civil spirit in which the author of the piece, Eric Parnell, offers his criticism. We here at macroblog, like our colleagues in the Federal Reserve System more generally, pride ourselves on striving for unfailing civility, and it is a pleasure to engage skeptics who share (and exhibit) the same disposition. What the world needs now is ...well, maybe I'm getting carried away.

Let me instead appropriate some of Mr. Parnell's language. It is worthwhile to explore some of the reasons that people do not like QE from someone who does not share this opposing sentiment. In particular, let me focus on the first of seven reasons offered in the Parnell post:

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From Daily Reckoning

by Addison Wiggin, Daily Reckoning

Nothing in politics is new... except for the euphemisms.

Premise: In math, science and technology, learning is linear. Each idea gets built on the innovations that have gone before it. In politics and economics, as in love and war, we keep making the same dumb mistakes over again.

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by Washington's Blog, Washington's Blog

Forget “Peak Oil” and “Peak Credit” … Are We On the Downslope of “Peak Intelligence”?

Scientists say that we have much smaller brains than our ancestors had 20,000 years ago … and we might have gotten stupider since agriculture became widespread.

Indeed, Huffington Post reports that we’ve probably gotten dumber than even our Victorian ancestors:

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Written by Hilary Barnes

The European Commission, possibly owing to pleading by France's President François Holland, possibly because the German government has changed its stance, or possibly on its own initiative, has eased the terms on which budget stabilisation policies must be implemented by the Eurozone countries.

Many commentators have been quick to conclude that this marks the end of the Europe's austerity policy, or at least the beginning of the end, but this is a mistake. The commission has not abandoned austerity policy, as its high priests continue to repeat, only eased it a little.

What the countries concerned have got is a breather in their progress from the first to the second stage of austerity policy, with the second stage introducing what is to all intents and purposes a policy of permanent austerity for countries with high debt to GDP ratios.

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by David James alias 'Sell on the News', Macro Business

Europe, Japan and America are printing money at an extraordinary rate. It has reduced the cost of debt to negligible levels. Usually this is explained with reference to what is happening in the conventional economy, but I suspect there may be another explanation. The systemic effects of the bizarre financial system that we have created, which is based on leverage. That leverage, which is thought of as debt, is not really what we mean by debt.

One of the features of the explosion of derivatives in the last 15 years, the rise of “meta money”, is that it was achieved through the creation of massive amounts of leverage. When Long Term Capital Management nearly destroyed the world financial system in 1998, it was done through a highly leveraged play on the rouble. LTCM was brought undone when Russia defaulted on its bonds.

Nothing was learned, and the creation of this meta money was encouraged rather than stopped. Derivatives are now more than twice the capital stock of the world. Oh what fools these mortals be.

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