Not Much Bang for $85 Billion a Month

Posted by Mark Jasayko, MBA, CFA, Portfolio Manager

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McIver Wealth Management Consulting Group, Richardson GMP Limited

After the Federal Reserve ramped up Quantitative Easing (money-printing) to $85 billion back in December, the lack of impact that this has had on U.S. employment is surprisingly limited.

Obviously QE should be beneficial to improving employment, but I think the financial press is beginning to lose sight of the sheer magnitude of QE and the lack of results.

$85 billion a month is about $4 billion for every trading day.  Or, about $1 billion during every hour and a half of trading.  And, this is still not enough to fix sluggish employment.

In July, the U.S. created 162,000 net new jobs.  In historical recoveries, this number is normally around 300,000 a month, and that is without QE, and with normal interest rates in place!

Instead of re-examining the effectiveness of QE, it is more likely that the Federal Reserve will maintain QE in the face of anemic jobs growth.  Or, even ramp it up higher.

Eventually a good portion of QE will represent a pure “monetization” of the U.S. Federal debt (much of the money created by QE will never be withdrawn from the economy).  This puts the long-term value of the U.S. dollar at risk and continues to increase the potential for commodities denominated in U.S. dollars – gold, oil, etc.


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