Today, meanwhile the technology-based NASDAQ probably still suffer from the problem of China, Dow Jones & S&P is getting better with +23 and +2 pts, respectively, for today. The reasons, according to news, is Quantitative Easing, among other things, but the Federal Reserve didn't yet fixed its interest rates. So, question to start with: why markets likes Quantitative Easing? When countries will stop using them, and why it is not absurd to do so? Finally, how much each country uses Quantitative Easing and what's the real impact for now? I don't know if Quantitative Easing is that good for USD, given what it done to EUR.
I believe only the USA, Japan and Germany would be in a situation to use quantitative easing effectively, for everyone else, the risk of rapid inflation would be problematic. Countries like Russia also do it, but in their case, the are reacting to, and creating a crisis which we saw last year. The reason the markets like when the US does quantitative easing is because overall the markets like small, tiny measures to nudge the numbers one way or another. Using quantitative easing is probably the smallest incremental thing the Fed can do. It is using the fine-tune dial. Market likes Predictable, Stable, Incremental. I also think people are coming around to my way of thinking (haha).. and that is simply that the USA is in a unique position with our ability to ´print money´ and not have that cause inflationary pressures in the USA. Because the US dollar is used so much around the world, the inflationary pressure of the US Gov´t printing money is spread out all over the world. Any other Gov´t that tries to print money would have a much more direct impact on inflation of their home country. For instance, if Mexico just went apeshit printing pesos, it would quickly cause inflation in Mexico. But when the US gov´t prints dollars, the inflation is spread around the world because so many gov´ts hold US dollars.
The problem is that, you talk about Germany, but Quantitative Easing is done at the currency level, not at the country level. So when you talk about Quantitative Easing, all Eurozone countries are concerned. Only United Kingdom and few other countries are outside of this thing, honestly. So I don't know how one country could get the QE but another couldn't get it, with the same currency. Do you also mean that US is using more wisely and smartly the Quantitative Easing than other countries does? Because of the fact there's a lot of US dollars, or for another reason? But many thanks for the explanation, already. And I understand why market likes stability. The only weird thing is that, I weird news about economy and they said Wall Street was unstable today. So, it is stable, or unstable?
Printing and pumping in money and holding down rates should be used sparingly as needed. Not as some sort of "new normal" just to keep markets inflated so that investment firms, retail investors, and politicians are placated in the short term. Ray Dalio has some interesting thoughts on our current situation: http://www.marketwatch.com/story/br...ching-quantitative-easing-measures-2015-08-25
Definitely. Low interest rates and printing money can and will lead to inflation at some point. But in the current world environment, the inflationary aspects of those two things is being overridden by currency issues in China, Russia and the EU. There are a lot more factors that go into inflation than just interest rates and currency devaluation.. and fortunately for the USA, for the time being, we are benefiting from those things. If not for the benefits we get from the mess in China and Greece, the Fed would have probably had to raise rates earlier this year.
Everyone likes the idea of easy money, which is effectively what QE is. The problem is that it's not good to have too much of a good thing because the environment it has create is simply isn't sustainable, or fundamentally healthy. US interest rates have been held down at emergency levels at a time when we're simply not in an emergency any more. Unfortunately, the world got very drunk on the stuff, rather than simply being slightly tipsy and merry on it. No one is really ready for the hangover and would rather stay drunk for a little longer. Unfortunately, we have to sober up at some point....
Agreed. A price will be paid sooner or later. Besides political and Wall Street pressure, It doesn't help that the rest of the world is hurting and easing and wants us to at least put off any further tightening. Personally, I'm just gonna keep doing what I do for my clients and doing what I do for myself to make at least SOME money somewhere no matter what, and try to keep any losses to a realistic minimum no matter what the powers that be and the street decide to do. Bottom-up, baby.
I agree on the fact that Quantitative Easing shouldn't be a new normal, that's pretty true. However, well, I am not that sure that US & Fed is using it so badly. The quantity of US dollars in circulation is so heavy compared to some other curriencies that makes it easier to do easing. Meanwhile, while markets likes easing, it seems Feds aren't wanting that so much anymore. But, what's really the solution to keep up a 2% inflation rate? Because the real argument behind their decision isn't that bad: this inflation leaves some leg room to the Federal Reserve if anything goes wrong, so I understand easily why they want it that way. But there's not so many ways to try to enforce it reliably.
Everyone with a basic understanding of economics knows low interest rates and pumping cash into the money supply can only lead to inflation. However how is it Japan has been doing this for what, 2 decades now, and hasn't had a lick of inflation (they have also had abysmal growth.) Is/was this a sign of things to come for other developed countries? I could never fully wrap my head around the Japan situation.
