Posted on 11/24/2013 10:04:06 AM PST by whitedog57
The recent confusion from The Fed over the future of quantitative easing (or money printing) can be addressed with a few charts.
Here is a chart of real GDP growth PER CAPITA since 1960. Real, of course, indicates that it is Gross Domestic Product adjusted for inflation. Note that Q1 1984 was the peak of real GDP growth and it has been a steady decline since then.
realgdppercap
I added the S&P 500 index to the real GDP per capita chart and you can see that the S&P 500 index spikes when real GDP growth is higher than average at least until recently.
realgdpsp500fed
The prognosis for quantitative easing under a declining real GDP environment is more money printing. So unless something unusual happens, I agree with Chicago Feds Charles Evans that QE will last until 2015.
The above charts are historic real GDP. What about forecasts of real GDP? Since 2011, the forecast of real GDP has consistently missed to the downside (prompting MORE quantitative easing from The Fed). However, the S&P 500 index has consistently risen despite consistently declining forecasts of real GDP growth.
We know that The Feds quantitative easing has really juiced the stock market, particularly since early 2009.
fedbalsp500in
And house prices are really soaring again since 2012 with the advent of QE3.
fedbalcaseshiller20
So, will The Fed actually start the taper? Not unless real GDP growth starts to rise AND the fear of bursting the stock market and house price bubbles subsides.
In other words, are Janet Yellen and The Fed caught in a bear (liquidity) trap?
cherokee-clothing-bear-trap-small-50930
Yes.
I could see that too. It would be the perfect political cover will all the insiders getting advance notice.
There's no such thing as a "liquidity trap".
There is only the perfectly-rational entrepreneurial resistance against investment in a hostile economic and political climate. Keynes didn't think much, though, of rational individuals and had to come up with a mechanistic explanation for the failure of his "General Theory".
And the "liquidity trap" it was.
And, today, the bright lights at the Fed -- Keynesians all [well, there are some Monetarists but the differences between the two schools is negligible] -- still must fall back on the ol' trap theory instead of telling the President that no one's investing because they have no idea what next year will bring.
bfl
If I remember correctly....Keynes admitted later that his theory would fail....”We’ll all be dead”...was his answer!!...and he was right!.. they all are! ...but we’re not....We get to pay!
Naah..They will get the word before the little guy...just like the officers did in Nam...
It’s a mathematical principle. The longer the natural ebb and flow of events is manipulated, the worse the results are going to be. It happened with the mortgage meltdown.
I don't know if you're being sarcastic or not. One reason the recession was so bad when Obama took office was all of the manipulations of the economy by GWB to avoid one.
Example...that mortgage meltdown. It never would've been so awful without people being given mortgages they couldn't handle, in order to prop up the housing market.
yep, recession was the cure
I don’t know if you’re being sarcastic or not.
We’re on the same page re: the recession that has to happen. Can’t imagine what’s going to happen when the puppet masters lose control this time.
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