Crafty is trying to stir it up again...
Stocks are up because corporate profits are up; P/E's are up also. Corporate profits are up for reasons like being able to hire fewer workers to achieve the same output (improved productivity), while over-regulation is locking out competing startups and disruptive innovation, and more money is chasing fewer companies. It's not like the US or world economic growth is on fire.
Wesbury was right about stocks - they went up during all this time of zero interest rates and unprecedented QE. Good for him. (Said with a little Elizabeth Warren-style sarcasm.)
Now we have "tapering", which is even more QE (at a slower rate) on top of all previous QE. It is not a reversal of QE.
Wesbury: "Yes, the Federal Reserve has done a massive amount of QE. And, yes, interest rates have been low. But, correlation does not equal causation."
Proof of causation isn't the question or issue. Correlation is enough. Low interest rates accompanied QE, and if we are done with QE, then we are done low interest rates. No Latin lecture on Post hoc, ergo proptor hoc is required. If QE and low interest rates are coming and going hand in hand, what difference does proof of causation make?
Look at it more closely. When the federal government was in deficit in amounts of a trillion a year for multiple years, it did not have to go out and find willing buyers for all those bonds. If they did have to, they also would have had to raise the yield way up to do that, which is the interest rate. QE was the government "buying" their own bonds with an accounting entry, without having to first secure the funds anywhere and without having to offer an attractive interest rate to a buyer. That looks like causation of lower interest rates to me. Oh well.
Here is Scott Grannis trying to explain how QE is not money creation: "I suspect that a great number of market participants and observers do not fully understand how QE works. The myth that QE means the Fed is "printing money" persists. All the Fed can do is buy bonds from banks and "pay" for them by crediting the banks' reserve account at the Fed. This is equivalent to the banks selling bonds to the Fed and simultaneously lending the money to buy them. (Zero interest is lending? Sounds more like crony graft.) It is also equivalent to the Fed acting like a massive hedge fund, borrowing money at a short-term interest rate (0.25%) that it sets in order to buy notes and bonds. It is also equivalent to the Fed "transmogrifying" notes and bonds into T-bill substitutes. (Gruber, is that you?) No money creation is involved in the QE process. Money is only created if banks use their reserves to back up an increase in lending. Banks have only recently started to do this in earnest."http://scottgrannis.blogspot.com/2014/03/saving-lending-and-tapering-combine-in.html
(Quote is from the comments section.)
Reserves are created out of thin air (an accounting entry) but that isn't money creation unless someone, by chance, uses that money created as money, which they are now starting to do (as of last March). So QE IS money creation?
Wesbury quoting Janet Yellen (December 2008): ďAs Japan found during its quantitative easing program, increasing the size of the monetary base above levels needed to provide ample liquidity to the banking system had no discernible economic effects aside from those associated with communicating the Bank of Japanís commitment to the zero interest rate policy.Ē [Japan has been having nothing but economic trouble before and since Dec. 2008. Zero interest rates screws up nearly everything and so does a lot of other unforced errors they are committing.]
(Back to Wesbury) "In other words, by ending QE, the Fed is implicitly ending its commitment to low rates. As a result, the 2-year Treasury yield has jumped from 0.31% in mid-October to 0.64%. Not because of tapering, but because rate hikes are now expected. There is no mystery here. QE signals a low interest rate policy."
Splitting hairs to me, that sounds like causation.
"[QE is ending,] ... interest rates will rise. Thatís happening in the U.S. right now." - Wesbury again.
On a better note, here is Wesbury caught reading the forum:
Wesbury: "Whatís missing from just about every conversation about central banks
is their inability to offset the damage done by excessive taxes, government spending, or regulation
Doug, preciously: [That is] "applying the wrong solution to the wrong problem", "like putting more gas in the tank when the tires are flat". http://dogbrothers.com/phpBB2/index.php?topic=1948.msg84398#msg84398
Wesbury closes: [QE is over] That means higher interest rates are on their way.