QE: Are You A Victim Of Its Myths? Get Help Here

QE money printing does not work it is a myth the pensive nugget collections

Spoiler alert: QE does not work as advertised.

The title of this Collection probably gave that away, but it bears repeating nonetheless. Why? Because of how much misunderstanding that surrounds this topic. Markets move wildly every time the words “Quantitative Easing” show up in the headlines, investors make forecasts decades out into the future based on the amounts of money QE pumps into the system; and traders see the ghost of more QE behind every poor data point and between the lines of every central banker’s statements.

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Is The Fed To Blame For High House Prices? 2

How has QE affected housing prices?

in theory, the Fed’s MBS purchases should be the main driving factor behind high housing prices, but is that the case in reality?

Or is some other factor driving today’s red hot housing market?

Let’s take a look at where it all begins – banks making mortgages.

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Is The Fed To Blame For High House Prices? 3

How has QE affected housing prices?

As record US housing prices fuels talk of another housing bubble and growing calls for the Fed to end its MBS purchases, an important development has been overlooked.

That is, amidst all the clamor, banks are making mortgages, but are unwilling to hold on to them.

What are the implications of this?

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Is The Fed To Blame For High House Prices? 4

How has QE affected housing prices?

Clearly US banks have not been very keen to hold on to the mortgages that they have created, instead offloading them to the GSEs.

While this isn’t surprising per se, since the Fed is still quite aggressively purchasing Agency MBS, what is noteworthy is how much the pace of this offloading has accelerated over the last 6 months.

What could this mean? 

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Why Bull Markets If QE Does Not Work? A New Perspective

If QE doesn't work, why bull markets?

We know that QE does not work because reserves are not lent out.

We also know that this invalidates narratives that attribute rising stock/gold/etc. prices to the explosion in bank reserves.

Why then the massive bull markets in these assets?

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QE Is Harmful. Would Doing Nothing Be Better For Markets?

QE is destabilizing the financial system by removing precious repo collateral

QE doesn’t work, at least not in the sense of fulfilling its objectives as a policy choice.

These would be, broadly, higher economic growth, higher employment, and higher inflation (the good kind).

In short, QE is supposed to be a monetary bazooka that does magical things. Instead, it’s been more magical thinking, not doing much good, while creating serious unintended consequences and second order effects.

Would it be better for central banks to just not do anything?

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