Tapering? – maybe not

Originally posted on Michael Roberts Blog:

Stock markets rocketed up and the dollar fell on the news that the US Federal Reserve had decided not to reduce its planned monthly purchases of US government and mortgage bonds after all.  The prices of shares and commodities shot up because investors concluded that the US central bank was going to continue a while longer with its huge injections of ‘liquidity’ (dollars) into financial markets.  They had been told by the Fed in June that it was getting ready to cut back on its purchases of bonds starting this month.  But the Fed decided to wait.

Part of the reason for the Fed’s delay on beginning the process of ‘exiting’ from printing money was that the bank was still not convinced that the US economy was growing at a sufficiently fast and sustainable pace to get unemployment down and to expand without the help of liquidity injections.  Indeed, the…

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Down in the Jackson Hole

Originally posted on Michael Roberts Blog:

Central bankers from all over the world gather each August underneath the Grand Teton mountains in Jackson Hole, Wyoming for their summer symposium to discuss the global economy and what central bankers can do about it.  This year, Ben Bernanke, head of the most important central bank, the US Federal Reserve, is not present.  He is about to end his term of office at year-end, so perhaps he saw no need to attend.  But lots of other key bankers and mainstream economists are there.

The main issue to discuss, as it was last year, was how effective has been the policy of ‘quantitative easing’ (QE) in getting the global capitalist economy into recovery mode.  QE is where central banks buy up government, corporate and mortgage bonds through the expansion of central bank power money (‘printing money’), in order to inject ‘liquidity’ into the economy.  The idea is that this extra…

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QE, the euro and the monetary option

Originally posted on Michael Roberts Blog:

Despite the intensifying debt crisis in the Eurozone and a battery of weak economic data for the major capitalist economies, the world’s stock markets have risen over the last two months, although the indexes are still well below where they were at the beginning of 2012, when optimism for economic recovery had risen again.

But stock markets are up this summer not because economies are beginning to expand faster – on the contrary.  They are up because the central banks of the major economies are hinting that they will launch yet another round of ‘monetary easing’, namely cuts in interest rates and the injection of money by the purchase of government and corporate bonds, through what is called quantitative easing (QE).  Every time in the past that the Federal Reserve has announced a bout of QE, or the Bank of England and the Bank of Japan have done the same…

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A blind guide dog

Originally posted on Michael Roberts Blog:

‘Forward guidance’ is the central bank buzz-word.  Three of the top four central banks in the world have now officially adopted it.  And the fourth has already made it very clear where its monetary policy is going.  Forward guidance is an attempt by the leading central banks to indicate more clearly what monetary policy will be for a reasonable period ahead along with the conditions for sustaining it. It aims to allow households, businesses and financial markets to know what to expect in central bank base rates for the foreseeable future.  In the current environment of low growth, high unemployment and an overhang of capacity, central bankers hope that forward guidance will exert downward pressure on long-term interest rates as economies recover.

Following their December 2012 meeting, US Federal Reserve policymakers announced their new policy of ‘forward guidance’. The Federal Open Market Committee (FOMC) said it forecast that a target…

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The failure of QE

Originally posted on Michael Roberts Blog:

Just a couple of months ago, mainstream economic analysts were lauding the record high stock market prices as an indicator that the global capitalist economy was well on the way to recovery, thanks to the efforts of central bankers like Ben Bernanke at the US Federal Reserve in applying ‘unconventional’ monetary policy called quantitative easing (QE) to boost liquidity and keep interest rates near zero.  In various posts, I have queried both the likelihood that the stock market boom would continue and that QE had been effective in restoring economic growth (see my post, http://thenextrecession.wordpress.com/2013/03/30/its-still-a-bear-market/).

Well, in the last month stock markets have turned.  In just 23 working days, the FTSE 100 lost 846 points, collapsing from 6,875 on 22 May to 6,029.10 23 June.  And bond markets have also tanked, with the yield on US 10-year Treasuries rising from 2.2% last week to 2.61%, a massive 0.41 percentage…

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