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markets are getting this right...

But, at least the initial reaction to ECB QE is expected inflation in the near and mid term is up roughy 20 basis points.

He may be right but that isn't the market's reaction at present.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon Jan 26th, 2015 at 12:15:26 PM EST

It's Frances Coppola, not Francis Ford Coppola.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Jan 27th, 2015 at 05:30:12 AM EST
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I want to see the helicopter scene in her "Monetary Apocalypse Now".

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Tue Jan 27th, 2015 at 11:06:38 AM EST
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I love the smelling of quantitative easing in the morning? They have to change the Wagner though - perhaps somthing from Rheingold?
by IM on Tue Jan 27th, 2015 at 11:23:06 AM EST
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by IM on Tue Jan 27th, 2015 at 02:51:16 PM EST
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QE has been carried on in the US and UK for a considerable enough length of time, and inflation is conspicuous by its absence. So I'd suggest the markets are running on standard CW, money-printing -> inflation.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Jan 27th, 2015 at 05:38:42 AM EST
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Krugman argues that the main benefit of QE is that it increases inflation expectations, not necessarily inflation itself in any direct or immediate sense. So Redstar is correct in pointing to the increase in inflation expectations post the QE announcement (as Krugman has also done). Krugman also points out the fallacy of "runaway inflation" fears that opponents regularly cite - saying most of the money will end of sitting in bank accounts/vaults, having little effect on real economic activity or anything else.

Thus the economic benefits of QE are very marginal at best especially as interest rates approach the zero bound.  We have reached the limits of what monetary policy can do.  What QE CAN do - as pointed out by Stiglitz below, and by Chris Cook in relation to oil prices - is to create asset price and commodity price bubbles - as  investors/rentiers search desperately for ever more exotic instruments to generate a return.  

These can cause a contraction in the real by economy by increasing costs/making it less attractive to invest in productive activity here - but I expect that to become more of a problem further down the business cycle.  At the moment increased (say) houses prices are encouraging an increase in construction activity which (in Ireland at any rate) is still way below the historical average that is required given demographic trends.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jan 27th, 2015 at 09:34:11 AM EST
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I'm skeptical of the impact of QE in general.  The studies I've read suggest it has a slight positive contribution to growth and inflation, but not much.

There's probably a small consumption effect as the Fed/BoE buy bonds at higher and higher prices and stuff cash into the pockets of investors.  But investors have very low propensities to consume.

Pushing down corporate bond yields probably helps to induce some investment, although direct spending and tax cuts to jack up demand would be much more effective.

To be honest, I'm not seeing much by way of bubbles that wasn't there before QE began.  And investors piling out of T-bills and corporate bonds in favor of gold and oil probably has little impact on the real economy.  As I said in Chris's thread, I don't think his picture with its "perfect correlation" shows any such thing.

I think the price swings in oil are more a function of expectations of future fundamentals and panic-buying and -selling than anything.  You can buy all the oil you want, but if it's not sold in sufficient quantity, inventories pile up and the market crashes.  The ones on his chart look to me like a visual representations of the market's reactions and corrections related to the various false dawns we've gone through since the recession ended.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue Jan 27th, 2015 at 05:06:49 PM EST
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It is plausible that the rebound of commodity prices after October, 2008 was funded largely by QE. It would require a detailed stock and flow analysis in order to demonstrate that thesis, and, somehow, that information is not available to the mortal man, and only partially available to to the demi-gods who are the inside regulators for the NY Fed. Carmen Segarra showed very clearly just how well that works for the public interest.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jan 28th, 2015 at 09:56:00 AM EST
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Lots of things are plausible.

A stock and flow analysis isn't going to get you there.  That's still just storytelling.  You need a statistical analysis to suggest causation.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Jan 28th, 2015 at 02:00:12 PM EST
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