QE in simple terms

[Po_d Mainiac]

[Arctic Dave]

1. Will it increase my cars cholesterol levels?

[Po_d Mainiac]

3. Not enough to cause any exhaust blockage.

Just be aware of where the exhaust is aimed. U may want to retard the timing a degree or two to avoid any knocking while under a heavy load.

[jotsy]

2. This is an entertaining way to take in the same kind of info.

Quantitative Easing Explained via xtranormal on Youtube
<http://www.youtube.com/watch?v=PTUY16CkS-k>

[truedelphi]

6. That is one fabulous YouTube video.

Thanks for mentioning it here.

[westerebus]

11. Has the Ben Bernak ever been right ?

....

No.

These folks are great.

[bluerum]

4. Oh yes. That simplifies QE.

NOT.

[jtuck004]

5. I there a link to the rest of this? Because prices are affected by other

things as well, such as commodity speculation as well as supply/demand. Maybe even more so.

[unblock]

7. i know this was meant to be cute, but it's way too facile.

yes, increasing the money supply, in and of itself, GENERALLY and EVENTUALLY has an inflationary effect, but qe was undertaken for several reasons, including to avoid DEflation and because money wasn't chasing goods and services the way it used to be (the velocity of money had decreased.)

in other words, there were and are other forces affecting prices that are having significant impacts and qe is being used to fight it. so, isolating this one component of price changes means missing a whole lot of other influences on prices.

[westerebus]

8. The deflation is here.

The Bernank is digitizing.

Velocity has not been achieved.

Result: Stagflation.

Repeat 1970's.

Just an observe ration.

[Po_d Mainiac]

9. enjoy

http://quotes.ino.com/chart/index.html?s=CBOT_C.H11&t=&a=&w=&v=d6
http://quotes.ino.com/chart/index.html?s=CBOT_ZW.H11.E&t=&a=&w=&v=d12
http://quotes.ino.com/chart/index.html?s=NYMEX_HO.G11.E&t=&a=&w=&v=d12
http://quotes.ino.com/chart/index.html?s=NYBOT_KC.H11.E&t=&a=&w=&v=d12
http://quotes.ino.com/chart/index.html?s=NYBOT_SF.K11.E&t=&a=&w=&v=d12
http://quotes.ino.com/chart/index.html?s=CME_HE.G11.E&t=&a=&w=&v=d12
http://quotes.ino.com/chart/index.html?s=CME_LE.G11.E&t=&a=&w=&v=d12

http://quotes.ino.com/chart/index.html?s=NYBOT_DX&t=&a=&w=&v=d12

[unblock]

10. you show commodity price increases and leap to blame it all on qe?

our history of bubbles is far longer than qe.
tax policy and the concentration of capital probably has more far more to do with this than qe.

starting with reagan, for the most part there has been too much capital chasing too few genuine financial assets, so the excess has gone to distort markets and inflate prices until the asset boom becomes a bust and the cycle repeats in a different sector.

now and again it is equities, a while back it was thrifts, oil had its turn, not too long ago it was housing, now it is commodities.

rich people have sooo much money they literally don't know what to do with it.

[Po_d Mainiac]

12. It's not that complicated

debase the currency and the cost of imports/oil rises......Raise the price for oil, and everything, and I mean everything, becomes costlier to produce and get to market.

[unblock]

13. it's the economy. it IS complicated. there are many factors at play

and overall inflation hasn't been out of hand, in fact overall inflation has been quite tame.
yet somehow price increases in the commodities market specifically are solely due to a generic monetary easing?

[Imperialism Inc.]

14. Tame is an understatement. Last month the Wall St Journal, and others, reported

that inflation trends are at a 6 decade low. They did this in response to Sarah Palin making the same claims OP is making.

Also, the data used for that graphic isn't even accurate. The price of oil has not been flat in the Euro and other currencies.

Then there is the question of why now? The most recent Fed moves have been very small compared to what they have done the last 2 1/2 years. So why is it just showing up now all of a sudden? There is something that explains oil price changes though. Demand growth.



So the demand for oil is finally getting back to levels it was at the last time prices were high. So you have 2 "theories". One says that 2 years of large Fed moves do nothing to the price of oil but smaller ones all of a sudden make the price go up, which makes no sense whatsoever. The other says that when demand dropped out from underneath the economy the price went down and now that it has grown again the price is going back to where it was.

What is going on is that the right wants there to be inflation. I mean they predicted it starting 2 years ago but they couldn't have been more wrong. So what to do? Find something anything that is going up and claim that is vindication. All too many on the left are falling for it.

If someone wants me to change my mind they need to do three things. One, use accurate data that doesn't falsely claim commodity prices have been flat elsewhere. At least address the fact of global demand growth mostly in developing economies (rest of world , and China in the above chart which dwarf US changes). And, explain why 2 years of record moves by the Fed didn't have the same effect that is being claimed now.

[westerebus]

16. Us oil consumption.

20,600,000,000 barrels in 2007. China 7,500,000,000 in 2007.

That's almost 3 to 1.

US is still the largest consumer of oil on the planet.

When the US decreases oil consumption prices decline due to the glut of oil on the market.

Growing demand outside of the largest consumer of oil is causing the rise in cost?

The recovery is going so well in China that prices are peaking. Really?

China just raised rates trying to cool their economy. Major real estate bubble possibly?

The BRIC are working out deals to trade in currency other than dollars.

One problem, oil is priced in dollars. No oil, no trade.

All the G-20 complaints about US policy devaluing the dollar is just talk?

Can't have any possible connection to the two plus years of QE. And now QE lite.

Dollars become money(debt) when they are lent as far as I know.

So the $9,000,000,000 lend out by the FED has no effect on the value of the dollar?

Can't be that the oil producers see the dollars' value diminishing?

With BRIC trying to go around the dollar. Currency war anyone?

Or speculators looking at the EU and wondering how their QE is going to work?

The US housing market is going south in value.

The single largest asset that private citizens own is on track to devalue another trillion dollars.

At $4 a gallon of gas what's the decline in US GDP?

1% may be. 2% at $5.

US GDP at what 2.6%. If you have faith that number is correct.

With 10% unemployment. More faith based belief required.

That's one hell of a recovery we got going here.

And no, I'm not interested in changing your mind.

The reason we don't have inflation is that we are de-leveraging. Or attempting to.

There are no wage gains for the vast majority. Hasn't been for a decade.

We grew on credit (debt) and that's pretty much a done deal.

So our largest asset's value is declining, high UE, low GDP and no credit creation by the consumer.

We are in a deflationary depression.

So the Bernak can digitize for a long, long time.

Just ask the Japanese, they've been at it for twenty years, how that's worked out for them.

There was something about the YEN carry trade I was going to mention.

Never mind it's just money.

We can just make more.

And no I don't see hyper-inflation coming. May be the tinted glasses?

[Po_d Mainiac]

15. Tame inflation???

As long as you don't eat or drive.

Go blow smoke up someone else's butt :mad: :mad: :mad:

[westerebus]

17. Easy big guy.

Count some shiny stuff. Now that's better. Nice cup a tea maybe?

[unblock]

19. gee, you picked food and energy prices

the two most notoriously volitile price categories.

yes, looking at prices overall and having some historical perspective, yes, inflation is tame.
we've still got serious economists worried about DEflation for pete's sake.

it is simply very hard to get serious inflation going in an economy that has nearly 10% official unemployment.


i just don't get why you would insist that a run up of food and energy price could have nothing to do with either fundamentals in those sectors and/or some sort of speculative market run. why insist on pinning it on a broad-based inflation due to monetary easing, which should be affecting prices across the entire economy, yet it's not.

[angryfirelord]

18. A couple of ways to look at it

Certainly there has been an increase in commodity prices. But is it entirely to blame on QE2? After all, when QE1 went into effect in 2008, prices went down in 2009.

http://futures.tradingcharts.com/chart/CO/M

The problem with blaming QE is that when the Fed injects money into the system, it is not a direct relationship to price inflation. This is the common mistake that Austrian economists and other free market schools of thought make. A 5% increase in the monetary base does not always trigger a 5% increase in price inflation Sometimes it happens, but most of the time it doesn't. There are other factors involve that create inflationary scenarios, such as the willingness of banks to absorb those extra dollars.

The thing is that it's impossible for oil to stay at $40 a barrel. There is demand, there is speculation, and there is also OPEC, which seeks to restrict supply. Unless there is another economic collapse or slowdown coming into the future, oil is probably going to $100 regardless of what the Fed does.

As for QE, the key thing to note is that the taylor rule actually says that rates need to be negative. The problem is that you can't have rates go below 0%. Therefore, QE seeks as a way to get to that level.

http://1.bp.blogspot.com/_GMkD4mFrFxw/TBkEWH55LHI/AAAAAAAADgw/C9_vfeZaglQ/s1600/Taylor+Rule.gif

[Imperialism Inc.]

20. Excellent points.

There is a good chart here: http://krugman.blogs.nytimes.com/2010/12/27/partying-like-its-1923-or-the-weimar-temptation/ illustrating what you are saying. The chart shows Monetary base vs M2 vs CPI (inflation). Yes the fed has increased the base money but as should be clear it is not making its way in to the actual economy. So what about this increase in monetary base is supposedly causing commodity price increases? Just the fact that it is sitting there as bank reserves? What??

[whattheidonot]

21. something for nothing

This all to save the banks. It is an attempt to create value where there is none. there is speculation not investment in USA by design . this what Obama just signed on to. This what is so surprising. I do not a Republican could have done this. This will hurt middle class. It is another bubble to increase assets with not much backing them. The rest of the world is not going along with this nor should we. Auserity is another way of saying no taxes for the rich.

[roamer65]

22. I'll pay in devalued dollars before I pay in gold or silver.

Even at the 9% increase.

[roamer65]

23. This gives "bringing home the bacon" extra meaning...heheh.