This is some great analysis from Jim Bianco at Bianco research.  Mr. Bianco finds that QE2 has no wealth effect on the middle class.  In fact, it HURTS the middle class!   This is also in-line with Robert Shiller’s analysis of the wealth effect.  In essence, this program isn’t going to help the economy via a wealth effect. It is more likely to hurt it.  Ethan Harris of Merrill Lynch makes an alternative case, but doesn’t provide a whole lot of evidence:

(Figure 1)

Viedo attached below:


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • prescient11

    If QE has no inflationary impact, then obviously you must debunk this analysis, correct TPC?

  • http://www.pragcap.com TPC

    Have I not already? If it’s not money printing and doesn’t really help the economy then why would it be inflationary? Because a bunch of speculators are running out and driving up prices? Gold and oil are not inflation. Bob Mcteer nailed this today:

    “I don’t quite get the logic of the “won’t-work-but-it-will-be- inflationary” point of view. If it won’t work to stimulate the economy, that presumably means it won’t stimulate spending. If that is so, how is it inflationary? If more bank reserve sit idle as excess reserves and aren’t used for lending, investing, and money creation, how is it supposed to tank the dollar? New (printed, if you insist) money must be spent on goods and services to drive their prices up; it must be spent on foreign exchange to drive the dollar down. If it isn’t spent, it doesn’t do good, or harm.”

  • prescient11

    Just wanted to make sure, your post seemed to support this?

    TPC, I would take a hard look at Fisher’s interview on CNBC today.

    He is exactly right my friend. He starts and ends with the currency war. That’s key buddy.

    QE is brilliant in many different respects, in that BB has taken on the first shots of this war in our favor…

  • http://www.pragcap.com TPC

    I wouldn’t have such a big problem with QE if BB came out and told us he was preparing for another bank downturn. Check the Zillow data on the front page. It’s not good. The housing market is double dipping. That’s the domino that started this whole mess. It’s not a bad thing that BB is out in front of it, but he’s playing games with the public by not admitting that.

    He’s gonna load the boat with MBS in 2011. It will avert a credit crisis, but he’d have to do trillions in purchases to help the banks significantly. It will be interesting to see how it plays out.

  • prescient11

    Well yeah, but what are you gonna do. I’m sure the public might be troubled if they knew what the Fed. was really about in the first place.

    That’s why I would not be heavy short the market here, imho.

    But as a recognized authority in these matters, I was hoping for more from you, in that we need an explicit recognition that a lot of the shite that has occurred has been because of the currency wars we have been subjected to over the 20 years.

    There are brilliant side effects to the QE process. One only hopes that they take hold…

  • prescient11


    I’ll tell you this, as a man with many young children, there is a sentiment that is boiling over of the younger generation. I work myself to death every f’ing day for these POS that do nothing and contribute nothing, and all I see every day is the yolk of the government and oppression pressing down on everything that is good and right and productive.

    This could end bad. Add another 10-20% on the UE number, and watch out… WE are getting f’ed left and right and no one is standing up for us anymore. Christ, they are more concerned about illegals getting free college than a Kansan. How f’d is that.

    Unrest is brewing. Recent elections were only the beginning and may not be unilaterally in the Repubs favor.

    Healthcare is a joke. Any fool knows that law kills a ton of jobs and destroys the budget. That’s the beginning of the revolt. Frankly, I hate most of ‘em.

    I’m just venting. But I worked for everything I ever had, ever. And I am getting very angry and very concerned over the future we are creating for my own children. Seems like the cycle is getting close to repeating, eh? This part of the cycle usually leads to unrest, which is a necessary cleansing of the garbage we have in D.C.

    F them all. They have no clue. Pelosi couldn’t run a braissire store in Brooklyn. How in the f is she Speaker???

    not for long.

  • john

    Thanks for writing something that i agree with totally but could never express it as well. Thanks.
    Concerning inflation and Qe as a swap- What you-TPC- is forgetting that economics is not numbers only, it deals with people and with people’s expierences and beliefs. QE is going to be a disaster that will dwarf any FED screwup in their history.

  • amstern


    be careful of what you wish for.

    if there is a revolt or revolution you may not like the form it takes

  • Eric

    Can someone explain to me how an increase in the Fed’s balance sheet is not inflationary?


  • Oroboros

    Roach unconvinced of QE effectiveness:

    Carlsberg CEO talks of margin compression due to rising commodity costs:
    In this case, unlike Starbucks, it’s already hitting profit margins

  • eludog

    prescient, I too have a young family and while I agree people are starting to boil, it has a long ways to go before any real revolt takes place. What I see happening is a continued divide between the older and younger generations. For example, unions in our state continue to vote down any across the board cuts, instead opting for employment cuts. Well many of my teacher friends are being cut and they are pissed. I talk to my folks who both have government pensions and I say to them that we need across the board cuts and they grill me saying “we worked for our pensions!” Just wait as housing drops another 10-20%. Then I think you will get people fired up enough to act.

  • goodfriend

    boatman wil like this one !

  • goodfriend

    That’s the way of the (plutocratic oligarchy = plutonomy guys) !!!

  • prescient11

    Thanks for all the thoughts and comments. Just needed to blow off a little steam every now and then.

    Hey TPC and everybody,

    did you see that Cravath offered to represent Harrisburg PA for free with regard to a potential muni bankruptcy filing…… This is the first step in what will become the norm in the near future.

    I would not be short the market here, except for 1-2 day anticipated moves and if you do get that spike down, cover like as fast as you can.

  • Adam

    Prescient11 & Iluvatar,

    Your right to be angry but I feel you’re both misssing the boat. It’s not that government is bad and bankrupting the country on foolish programs – it’s that government was bought and paid for by people who think that just because they have a $100M paycheck means they must have earned it. The way they keep those paychecks is by ensuring that the average man doesn’t get ahead. They’ve bought and paid for massive de-regulation and are trying to by the end of what remaind of the great social programs that allowed the average man to break away from subsitance living.

    A nation sovern in its own currency can afford anything it wants (up to the economy’s ability to supply it that is). Assuming we really are a democracy then if the people want healthcare for all, social security for retirement, a strong military, etc… all we have to do is agree to allow the government to buy it. Taxes need not and don’t factor into the purchase for a nation sovern in its own currency. Yes, if as a society we asked a lot of our government we may need higher taxes, but not to fund these programs but to reduce the private sectors ability to spend and compete with government for resources – the true cause of inflation.

    The truly sad fact is we could end this recession/depression in short order just by buying up all of the idle labor, but unfortunately we wont because a certain crowd is worried that a strong government intent pushing full employment for the average man will prevent them from taking home $100M paychecks. Any army of unemployed people served them and their wallets well. Why ruin a good thing (for them).

  • RkD

    I dont understand how TPC thinks QE2 is bad, but QE is good. is the point of this video to illustrate that Bianco is correct?? If he is correct, then Bianco asserts that Ben *is* printing.

    So which one is it?

  • billw

    Guys no matter what BB does, in the end it will not matter. There is just too big a mountain of debt just like in 1930. They had 4 good years from 1933-1937 by doing government support much like we are doing. But government support can’t go on forever; just ask Japan. We would be better off if we just forced the debt out of the system so that the remaining businesses could start to grow again. Now when that time comes we have already wasted 2.5 years of unemployment pay and that cushion will not be there. Anyone who really thinks that they can bring this crisis in to a soft landing needs to see a psychiatrist. How many insolvent states and cities do we have? Almost all of them. Which of the PIIGS will go through bankruptcy first; which of course will bring down Europe which will bring down the rest of the world. Who will have to restructure first: Japan, China or the US. And of course any one of those will bring down the world also. A double dip in housing will cause several big banks to be restructured , and will send the US into a double dip as well. And on and on. Yes we will play it out just like a losing football team and not quit, but the inevitable next leg down of this depression is on its way. This country as a whole has not faced reality yet because most of the UEs are receiving checks, but that too can’t go on forever. If this crisis were covered like the one in 1980, we would have been shown all of the hurting unemployed people and everyone would understand what is happening.