Friday, September 3, 2010

What Does $300B of a 'QE2' Look Like?

I've added an approximate $300B red line of newly created reserve balances to the Feds current graphical report on existing reserve balances. This would represent the result of a potential new $300B round of "Quantitative Easing" that the Fed could enact in response to further economic weakness.


Why would the addition of the red line be meaningful when we have already experienced the so-called "stimulative effects" of the blue line that precedes it for 2 years?

3 comments:

Mike Norman said...

Yeah, it's ridiculous.

googleheim said...

Hi Matt,

Can you please spell this one out a bit more ?

I don't get the irony or if you are being sarcastic or not.

Are they really adding the red line or are you just "imagineering" a red line for some reason ?

Elastic Currency theory details that these additions to reserves should swell to indicate among other things, the attempt to prevent a run on the banks.

Please spell out for me, who is out of the gist for the moment, if the red as actually been added, or is going to be added, or is hypothetically added here just for sake of argument or joke.

thanks

Matt Franko said...

Goog,
Its just 'imagineering'. If the Fed does a QE2, which at Jackson Hole was Benrnakes indicated preferred response to a double dip, all they are going to do is trade their (Feds) reserves creation for outstanding Treasury Securities from the public, then system reserves will go up a bit more as perhaps along the red path (if they do 300B) ...Im trying to graphically show how it is not relatively that significant to what has already been imposed.

But I have a larger point.

Years ago, these balances would oscillate about the 10B level, many monetarists would fret if these balances would increase by a few billion dollars, as if it was meaningful. If they would have been at 10B and then over a few months would rise to 15B, they would say things like "money has increased by 50% over the last 60 days" or something to that effect, or better yet "they're printing money!" portending catastrophic inflation. I can still remember Jimmy Rogers going on with Cavuto back in the 90s (When Neil was still on CNBC!)..."Neil, they're printing money!....Neil, they're debasing the currency!" when this would go up by a few $B. ...Starting in fall of 2008, as you can see, these balances just went straight up, Goog, they went from like 10B to like 1.2T!

They used to fret about a 50% increase, this is a TWELVE THOUSAND PERCENT INCREASE. TO...NO...EFFECT. HELLO INFLATIONISTAS?! HELLO?!

Goog, you are smarter than I am in the physical sciences. Do you know of a meaningful phenomenom/force in the physical sciences that when it exhibits a 12,000% increase, has no predicted effect?

Overall here Im calling BS on Monetarism. The current data provides the evidence (OVERWELMING!) to expose the economic fraud of monetarism once and for all.

Resp,