St. Louis Fed official: No evidence QE boosted economy | Hacker News Reader

St. Louis Fed official: No evidence QE boosted economy

cnbc.com

27 pointsadventured19 comments

But it sure helped out banks, who get to borrow from the Fed at near zero rates and lend at much higher rates.

The US tends to inject Government money into the economy through banks. In comparison, Japan tends to inject Government money through infrastructure projects. Some of the infrastructure projects are expensive for what they accomplish, but at least they're real things.

Open market operations can't really be characterized as lending to banks. Instead, the Fed buys various kinds of debt, especially US govt bonds, thus injecting money into the economy. The fed funds rate is really the rate at which banks lend to each other. Banks are privileged in that they have a special legal mandate to act as banks, but they are not privileged in terms of access to credit (they can borrow at the "discount window" but this is less important than the Fed's open market operations).

But more importantly, QE is more like injecting money into "real things" since it is buying corporate debt that presumably funds real projects. So the (alleged) failure of QE is not very good evidence for your claim that standard monetary policy is bad.

EDIT: and they main reason I and most economists prefer US style monetary policy is that it's very neutral: you have a lever, and that lever is how much bonds you buy. You can choose various flavors of bonds, and various maturities, but they are all fundamentally the same. In contrast, the government directly funding real projects lends itself to corruption and favoritism.

> You can choose various flavors of bonds, and various maturities, but they are all fundamentally the same.

It appears to me that you've just equated a US Treasury bond with a private label subprime RMBS. Is that a fair assessment? If so, how strongly do you feel about that equivalence? I see the private label RMBS's as less of a 'real thing'.

In the context of that sentence, I was referring to the bonds bought by open market operations, which are primarily US government bonds and would not include private label subprime RMBSs.

The kind of close-to-risk-free bonds bought in open market operations are all fundamentally the same because they simply move money from one point in time to another.

Isn't a treasury bond primarily funding social security, medicare, and defense spending (the three biggest US budget non-discretionary spending categories)?

While I agree that that both corruption and favoritism have negative effects on the investment environment and civil society. Wouldn't the money wasted in corruption and favoritism drive inflation even if only in the direct cost of the projects themselves.

> You can choose various flavors of bonds, and various maturities, but they are all fundamentally the same.

It appears to me that you've just equated a US Treasury bond with a private label subprime RMBS. How strongly do you feel about that equivalence?

Just a nit pick: The term "taxpayer money" is more accurate, I think. It isn't "government money" it's our money. When they give millions of dollars to someone studying the effects of underwater basket weaving on the English parliamentary system it is our money that is being well-allocated and utilized, not "government money".

I feel the distinction is important because it connects the burden or benefit of the decisions government makes to those who work real jobs to pay for those programs, investments and financial bonfires. It's money that came from a single mom working three jobs, truck drivers, engineers, doctors, high school kids, servers at restaurants and a million other people. It certainly isn't "government money".

Fiat money is government money.

I recommend anyone interested in understanding fiat money to read about Modern Money Theory (for instance here: http://neweconomicperspectives.org/modern-monetary-theory-pr...). It changed my perspective for sure.

You are talking about something entirely different.

If everyone in the US stopped paying taxes the government would not have money to spend. They couldn't just print it to pay themselves and whatever else. They couldn't even take out loans because there would be no money from us to pay for them.

So it isn't in the end government money. They use taxes collected from us as well as loans that we, ultimately, pay for, to fund the operation of government and all other programs and activities.

Without taxes government and everything funded through taxation, directly or indirectly, would collapse.

Fiat money is, at the simplest, about a dollar no-longer being backed by an equivalent amount of gold. That has nothing whatsoever to do with the use of tax revenue to fund programs. Not one thing. Any program funded through taxation is being funded by you, me and every other tax-payer in the nation. It's our money they are spending.

To paraphrase Mark Blyth (Prof. Econ. at Brown), QE is the absolute worst way to deal with our banking mess, except doing nothing. It kept the US from crashing into the mess that Europe is in. That was probably good, but it was effectively a class-specific put option.

"Not crashing" does not necessarily mean "positive boost".

This sounds like it leads into an argument for trying to find ways to broadly increase wages in order to deliberately spur inflation.

One of the main mechanisms by which inflation stimulates the economy, is that it lowers wages (because of sticky wages) hence decreasing unemployment. So intentionally raising wages as a form of stimulus seems counterproductive. Could you explain your argument more?

One of the ideas floating around is that the economy is currently limited on the demand side, and that increased wages will result in more disposable income and higher consumption.

Increasing wages will make employers less inclined to hire people, and thus potentially less total disposable income. Giving ordinary people more money directly seems like a more reasonable sort of stimulus. Where are these ideas floating around? The idea of sticky wages dates back to Keynes.

I tend to side with the argument that employers ultimately hire not because people are cheap, but because they need them to meet demand. If there's no demand, there's no wage low enough to justify a hire. I don't want to speak for Thomas Piketty, but my reading of his data is that generally economic growth is the product of higher wages, not the other way around.

Hard to judge what would have happened had the policy not been in effect. Only 1 sample in the experiment.

Banks are broken, they will only issue mortgages, high interest credit cards and charge fees.

They're not issuing nearly as many mortgages.

Non bank mortgage lending is nearly 40% of the market at present, up from 13% in 2012.

http://www.cnbc.com/2015/04/01/guess-whos-issuing-slews-of-m...

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