25/11/2014 18:11:42 Free Membership Login

When Fed QE Goes Bust - Real Time Insight

Date : 07/16/2012 @ 10:17AM
Source : Zacks
Stock : Spdr S&P 500 Trust (SPY)
Quote : 207.18  -0.1 (-0.05%) @ 5:55PM
Spdr S&P 500 Trust share price Chart

When Fed QE Goes Bust - Real Time Insight

I'll admit it. I've been a Keynesian. To me, pumping money into the economy, and monetizing debt through quantitiatve easing (i.e., printing new money), was the best course of action since 2008 because the alternative -- a Japan-style deflationary spiral -- was unacceptable and entirely avoidable. Inflation, of any amount, was worth all the risks.

But something curious is going on. The economy is not recovering in a robust way. After today's disappointing retail sales trend continued, Goldman Sachs lowered their 2Q GDP estimate another 2/10ths to 1.1%. They had dropped it to 1.3% from 1.6% just last week on more dismal economic data.

Yet financial markets -- stocks, bonds, gold, commodity prices -- seem to really benefit from QE. Below is a chart from a group called Phoenix Capital Research which plots the S&P 500 index minus the 24-hour pre-FOMC price ramps.

Granted there are other ways of looking at the effectiveness of QE on both markets and the economy. But today I am wondering if QE is still a necessary evil, or if it's actually distorting markets and could possibly damage the long-run health of the economy.

What do you see for the next 6-18 months of the US economy, with or without QE?


 
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