More Quantitative Easing in the Cards?

For some time we’ve been saying that the FED is addicted to Quantitative Easing (QE) and that it wouldn’t be so easy to kick the  habit. Then last week we told you that there are signs that the Deflationary roots go deep and the only thing keeping the economy on a steady keel is all the money being created by the FED.  But all that funny money is eroding the foundations and the FED can’t keep it up forever. Up until now every crisis required a bigger and bigger entity to step up to the plate and assume the debt.  At this point the only entity bigger than the FED left to step up is the World Bank. So when the FED runs out of bullets it will be the last round of musical chairs. But at this point it looks like the FED is still in the game. In today’s article Bill Bonner looks at the recent calls by the St. Louis FED  president for more Quantitative Easing. ~Tim McMahon, editor.

Get Ready for QE4

And how do you like that James Bullard?  Stocks have barely begun to correct (the S&P 500 is down about 7% from its September high) and the St. Louis Fed president is already preparing for QE4. But where is the proof – from logic or experience – that QE pays off?

It is a shame that quack philosophers, politicians and central bankers are not subject to penalty. After all, bridge builders and hedge fund managers suffer shame and ruin when their projects fall to pieces. Couldn’t some suitable stick be laid on world improvers, too? Preferably before their wacky programs are put into service.  For example, when they make a claim that cannot be supported by rigorous proof, they should lose a year’s worth of income… Maybe that would slow them down.

A More Complex Universe

Yes, dear reader. Things are setting up pretty much as expected. That is to say in a way that seems logically coherent, but is nevertheless incomprehensible. Liquidity is drying up. Volatility is returning. The leaves are falling. Investors are getting nervous. And Fed officials are promising more cash and credit, neither of which they actually possess.

You’ll recall that stocks fell when QE1 and QE2 ended. Why shouldn’t they fall now that QE3 is ending too? No doubt, they will. And that will set little feet running in predictable, but preposterous, directions. Bertrand Russell published his famous book in 1912. Called The Problems of Philosophy, it raised questions about how we know things and how we can prove that anything we think we know is true.

Turns out the universe is far more complex than our best philosophers (let alone Bertrand Russell) can comprehend… or our evolved language can describe… or our simpleminded logic can illustrate. For example, you tell us all politicians always lie. We ask, How do you know?  I have it on good authority, you reply. A senator told me.

Hmmm. Now, what do I know?  Not much. The senator may be a good authority on the scoundrels of the US Senate, but he is disqualified as a source of honest opinion or observation.  “Although the sun has risen every day previously,” wrote Russell, “we have no reason to expect the sun to rise tomorrow.”

There, poor Bertie was mistaken. We have every reason to think it will rise. We just don’t know for sure. This was the “black swan” problem Nassim Taleb popularized a century later.  Perhaps, every once in a very long while, the sun does not rise… black swans appear… and it’s a new era.

But we only bring this up to remind readers that it is usually the same old era. For now, the sun still appears on schedule. A kiss is still a kiss. And stock markets still go down as well as up. That much we take for granted. Always has been that way. Always will be.

Roll Out the Fire Hoses!

Still, there is something very new on this water planet: central bankers who think they can succeed where philosophers fail.  Without explanation, they think they know where the S&P 500 – and the FTSE 100 and the Nikkei 225 – should be.

Never before in the long, comic history of mankind and his money have bankers taken such a keen interest in asset prices. Now they create money – out of nowhere – for the express purpose of pushing them up. Should those prices fall – as they naturally and episodically do – you can be sure that some lunkhead such as Bullard will be quick to roll out the fire hoses.

Bloomberg reports:

US stocks recovered from an early plunge as St. Louis Federal Reserve Bank President James Bullard said policymakers should consider delaying the end of bond purchases to halt the decline in inflation expectations.

Widely reported was that the Bullard comments gave the market “a shot of adrenaline.” Said St. Louis money manager Chad Morganlander: “The overall markets are hooked on QE and liquidity is being withdrawn.”

Adrenaline now. The hard drugs will come later. More highs. But more lows, too. Monday… what happens when the Fed comes forward with more liquidity.

Regards,

Bill Bonner

Further Reading: James Bullard clearly hasn’t read Bill’s new book, Hormegeddon. If he had, he’d know that too much of a good thing – including QE – leads to disaster.

To understand why central planning fails… and how to protect your savings from the follies of central bankers… pick up a copy of Hormegeddon: How Too Much Of A Good Thing Leads To Disaster today on Amazon.com.

You might also like:

• Europe is Teetering on the Edge of “Japan-Style” Deflation
• Why the Fed Does Not Control Inflation and Deflation
• Deflationary Forces Overpower FED
• International Inflation and Deflation Trends over the Past 5 Years

This article originally appeared on Bill Bonner’s Diary and was reprinted by permission