One who intends to leave others better off for his having existed.

11/28/13

John Hussman on QE

"...the policy of quantitative easing ...undermines planning, as every economic decision must be made in the context of what the Federal Reserve may or may not do next. It starves risk-averse savers, the elderly, and the disabled from interest income. It lowers the bar for speculative, unproductive, low-covenant lending (as it did during the housing bubble).

...It undermines price signals and misallocates scarce savings to speculative pursuits. It further skews the distribution of wealth, and while the extent of this skew has a scarce chance of persisting, the benefits of any spending from transiently elevated stock market wealth will accrue to primarily to higher-income individuals who are not as constrained as the millions of lower-income, low-asset families hoping for some “trickle-down” effect. We have seen numerous variants of this movie before, and we should have learned the ending by now.

Importantly, the magnitude of the “wealth effect” on employment is dismally small. Even if the entire relationship between market fluctuations and employment fluctuations was causal and one-directional, it would still take a roughly 40% advance in the market to draw the unemployment rate down by 1%. Unfortunately, price advances do not create the underlying cash flows to support them, so the strategy of manipulating prices higher also involves a piper that must be paid."

John Hussman

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