Thursday, 11 November 2010

Money does, in fact, grow on trees

Martin Wolf of the FT (The fed is right to turn on the tap) claims that opponents of QE are behaving hysterically and the underlying causes of their growing hysteria originate basically from two factors: 1. a fear of hyperinflation and 2. "beggar they neighbour" policies.

In his analysis, Mr Wolf, like many of his sycophantic contemporaries, appears happily to ignore three additional, and perhaps more important, issues that are really igniting the wrath of the world's investors, commentators and the world's hard working families. These are as follows:

1. Easy money, granted every time the financial markets throw a fit, better known as the "Fed put" is largely responsible, and now openly so, for inflating asset price bubbles the pricking of which has brought us in a neat round trip to even easier money. When prices reach bubble territory, the Fed throws up its hand and claims its remit is not to influence asset prices or prick bubbles. It appears its mission therefore is mainly to inflate them further.

2. Asset price support benefits primarly the very wealthy minority who own the vast majority of the world's assets. The hard working middle income families, with more modest savings sitting in banks currently earning nothing, get some support through lower mortgage payments, but in reality part of those savings are eaten up by higher fees from banks and investment bankers who package up and trade mortgage bonds.

3. As Japan has proven over twenty years, QE really does not work and distracts intelligent people to waste their precious time looking for lazy, quick fixes. An aging demographic means that for each person who transfers savings towards consumption due to low nominal and negative real interest rates, there is another who feels the need to save more for retirement planning, or merely to pay for the rapidly escalating college fees for their two kids, particularly as yields on bank accounts approach 0.

The supposed "hysteria" by those who have "half a brain" according Mr Wolf, is more an echoing of a deep sense of injustice felt by the world's hard working families who have learnt and in turn teach their kids, that "money does not grow on trees" and to succeed "you have to work hard." The Fed is teaching a very different lesson to its own misbehaving kids throwing periodic tantrums in the markets. However, what most parents learn by the time they have their second child, and Fed has not, is that greater amounts of pandering simply leads to bigger fits for smaller and smaller provocations.


  1. The financial markets have become a monster, devouring real wealth at the expense of those who create it. When the great unwashed eventually get wind of this there will be a reckoning. Too many Marie Antoinettes in the world today.

  2. I've no idea what Wolf is up to. It seems pretty to me clear that it's all about propping the bubble up. We need the bubble to burst and learn lessons.