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Quantitative Easing

davidmarsh
Posts: 3
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3/8/2013 9:28:09 AM
Posted: 3 years ago
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.
Cermank
Posts: 3,773
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3/8/2013 11:26:23 AM
Posted: 3 years ago
QE, more money supply, increasing dd for money, more investment in stocks, value of stock market rises.

The only sidenote is the health of the economy.If it is poor, more dd for money does not translate to increase in investment in stock market.
Wallstreetatheist
Posts: 7,132
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3/8/2013 11:44:25 AM
Posted: 3 years ago
Enduring, quality-of-life improving growth and productivity are only attained through savings, market-derived interest rates, and the sort of stable-purchasing-power, price-deflationary-effects that a hard currency tends to bring. It"s known that the Fed watches stock markets, not least of which because a huge portion of the U.S. population is depending upon those equity price levels to fund their retirements.

http://mises.ca...
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malcolmxy
Posts: 2,855
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3/8/2013 8:24:15 PM
Posted: 3 years ago
At 3/8/2013 11:44:25 AM, Wallstreetatheist wrote:
Enduring, quality-of-life improving growth and productivity are only attained through savings, market-derived interest rates, and the sort of stable-purchasing-power, price-deflationary-effects that a hard currency tends to bring. It"s known that the Fed watches stock markets, not least of which because a huge portion of the U.S. population is depending upon those equity price levels to fund their retirements.

http://mises.ca...

Well, if Peter C Earle, acclaimed writer of 2 1/2 months says so, then yeah...consider me convinced.

http://petercearle.com...

(Wow...start a blog on 1/13/13, get a feature on mises.ca...get quoted on DDO as if you have just uttered the Word of God...now there's the free market in action for ya.)
War is over, if you want it.

Meet Dr. Stupid and his assistants - http://www.debate.org...
sadolite
Posts: 8,839
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3/9/2013 11:18:56 PM
Posted: 3 years ago
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

It doesn't. The stock market will crash as soon as the money runs out. The stockmarket "today" is essentially the speculation that a stock will rise in price or fall. It is no longer about creating actual wealth and getting investors to invest in some kind of wealth producing project like a car company or factory of some sort. People with big money "invest".... and I use the term lightly, a lot in a stock and cause a buying friendsy and then the big buyer sells when the stock goes up a few points and makes his money, then the idiots loose all of theirs because the company can't justify the higher price because it didn't create any wealth to justify the rise, so it falls and the little guy looses all his money. QE is just banks banks pumping money into stocks arbitrary giving the impression of growth but it's all fake and contrived. When the money runs out it all comes crashing down.
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%
malcolmxy
Posts: 2,855
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3/10/2013 3:41:30 AM
Posted: 3 years ago
At 3/9/2013 11:18:56 PM, sadolite wrote:
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

It doesn't. The stock market will crash as soon as the money runs out.

money only runs out if you let it. this isn't your grandma's cookie jar stuffed with $20s...there's a bit more going on.

Apple has been a benefactor of QE. Did Apple create economic growth or is that iPad in front of you just an illusion (and, if not you, then the next 3 people who read this...)

The stockmarket "today" is essentially the speculation that a stock will rise in price or fall.

Waking up and choosing to take a shower instead of huddling under the covers all day is, essentially, speculation which centers around a "planet killing" asteroid not suddenly striking Earth.

So what? Life is speculation. It is only directly financed speculation which causes the issues which you are raising.

It is no longer about creating actual wealth and getting investors to invest in some kind of wealth producing project like a car company or factory of some sort.

You must not have heard of The Tesla.

It was Car & Driver's 2013 Car of the Year. I suppose as such, it's easy to miss.

http://www.teslamotors.com...

People with big money "invest".... and I use the term lightly, a lot in a stock and cause a buying friendsy

(frenzy? or were you being clever?)

and then the big buyer sells when the stock goes up a few points and makes his money, then the idiots loose all of theirs because the company can't justify the higher price because it didn't create any wealth to justify the rise, so it falls and the little guy looses all his money.

(no...just a horribly misspelling of frenzy...too bad, because you were onto something with your new word.)

QE is just banks banks pumping money into stocks arbitrary giving the impression of growth but it's all fake and contrived. When the money runs out it all comes crashing down.

Actually, if they did that, QE would work, and it would work quickly. They don't do that, or much else, though, with this money...which is why they are causing it to fail.
War is over, if you want it.

Meet Dr. Stupid and his assistants - http://www.debate.org...
sadolite
Posts: 8,839
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3/10/2013 2:26:20 PM
Posted: 3 years ago
At 3/10/2013 3:41:30 AM, malcolmxy wrote:
At 3/9/2013 11:18:56 PM, sadolite wrote:
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

It doesn't. The stock market will crash as soon as the money runs out.

money only runs out if you let it. this isn't your grandma's cookie jar stuffed with $20s...there's a bit more going on.

Apple has been a benefactor of QE. Did Apple create economic growth or is that iPad in front of you just an illusion (and, if not you, then the next 3 people who read this...)

The stockmarket "today" is essentially the speculation that a stock will rise in price or fall.

Waking up and choosing to take a shower instead of huddling under the covers all day is, essentially, speculation which centers around a "planet killing" asteroid not suddenly striking Earth.

So what? Life is speculation. It is only directly financed speculation which causes the issues which you are raising.

It is no longer about creating actual wealth and getting investors to invest in some kind of wealth producing project like a car company or factory of some sort.

You must not have heard of The Tesla.

It was Car & Driver's 2013 Car of the Year. I suppose as such, it's easy to miss.

http://www.teslamotors.com...

People with big money "invest".... and I use the term lightly, a lot in a stock and cause a buying friendsy

(frenzy? or were you being clever?)

and then the big buyer sells when the stock goes up a few points and makes his money, then the idiots loose all of theirs because the company can't justify the higher price because it didn't create any wealth to justify the rise, so it falls and the little guy looses all his money.

(no...just a horribly misspelling of frenzy...too bad, because you were onto something with your new word.)

QE is just banks banks pumping money into stocks arbitrary giving the impression of growth but it's all fake and contrived. When the money runs out it all comes crashing down.

Actually, if they did that, QE would work, and it would work quickly. They don't do that, or much else, though, with this money...which is why they are causing it to fail.

What ever you say. We will see when the QE ends.
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%
davidmarsh
Posts: 3
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3/11/2013 11:22:40 AM
Posted: 3 years ago
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

Increasing money supply allegedly causes price inflation. This theory derives from a single equation and had, I thought, been discredited..In any event, it does not explain the very high value of the FTSE now. Why would share prices have risen so much more than other prices ?

Twocupcakes is right about the effect on interest rates. Presumably, the demand for government bonds from the Bank of England raises the price of gilts so reducing their yield. Thus, the Bank can keep interest rates very low because there is no competition from gilts. Low interest rates creates demand for equities, while incidentally inflating away the national debt.

Is there any more to it than that ? I have a feeling there is, hence my question. I am told the QE manual is three inches thick, which suggests things are not quite so simple.
malcolmxy
Posts: 2,855
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3/11/2013 2:55:19 PM
Posted: 3 years ago
At 3/11/2013 11:22:40 AM, davidmarsh wrote:
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

Increasing money supply allegedly causes price inflation. This theory derives from a single equation and had, I thought, been discredited..In any event, it does not explain the very high value of the FTSE now. Why would share prices have risen so much more than other prices ?

Twocupcakes is right about the effect on interest rates. Presumably, the demand for government bonds from the Bank of England raises the price of gilts so reducing their yield. Thus, the Bank can keep interest rates very low because there is no competition from gilts. Low interest rates creates demand for equities, while incidentally inflating away the national debt.

Is there any more to it than that ? I have a feeling there is, hence my question. I am told the QE manual is three inches thick, which suggests things are not quite so simple.

With a government controlled central bank, it would be.
War is over, if you want it.

Meet Dr. Stupid and his assistants - http://www.debate.org...
Cermank
Posts: 3,773
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3/11/2013 9:31:48 PM
Posted: 3 years ago
At 3/11/2013 11:22:40 AM, davidmarsh wrote:
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

Increasing money supply allegedly causes price inflation. This theory derives from a single equation and had, I thought, been discredited..In any event, it does not explain the very high value of the FTSE now. Why would share prices have risen so much more than other prices ?

Increasing money supply leads to inflation only insofar it is proportionally more than the increasing productive capacity of the economy.

Similar to the way that a specific share market bubbles when the investment into it is not backed by relavant increase in value. Although I have no idea about FTSE, generally share prices rise so much because they often fluctuate due to speculations, which is more volatile than central bank sourced increse in money Supply. Alan Greenspan once used the word ,' irrational exuberance' to explain the phenomenon.

And as malcolmxy pointed out, govt intervention does lead to complicating matters.

Twocupcakes is right about the effect on interest rates. Presumably, the demand for government bonds from the Bank of England raises the price of gilts so reducing their yield. Thus, the Bank can keep interest rates very low because there is no competition from gilts. Low interest rates creates demand for equities, while incidentally inflating away the national debt.

Is there any more to it than that ? I have a feeling there is, hence my question. I am told the QE manual is three inches thick, which suggests things are not quite so simple.

lol that's terrible reasoning. Most of the stock market ideas and terms and instruments are pretty standard and basic, this is the basic reasoning behind the relation between QE and prices.
wrichcirw
Posts: 11,196
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3/13/2013 10:21:52 AM
Posted: 3 years ago
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

The key mistake in your question is the word "value". Nominal price increases in the stock market do not necessarily imply increases in intrinsic value.

One may say that stock market gains are quite "intrinsic" to those that buy low and sell high, but if the entire basis for gains were of a nominal nature (which QE is, it is monetary policy), then there's no increase or decrease in real value.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
malcolmxy
Posts: 2,855
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3/13/2013 10:27:31 AM
Posted: 3 years ago
At 3/13/2013 10:21:52 AM, wrichcirw wrote:
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

The key mistake in your question is the word "value". Nominal price increases in the stock market do not necessarily imply increases in intrinsic value.

One may say that stock market gains are quite "intrinsic" to those that buy low and sell high, but if the entire basis for gains were of a nominal nature (which QE is, it is monetary policy), then there's no increase or decrease in real value.

Nominal implies, in economics, a non-inflation adjusted something (price, value, etc).

Inflation was 2% last year. As long as the gains were above 2%, they were very REAL as opposed to NOMINAL.
War is over, if you want it.

Meet Dr. Stupid and his assistants - http://www.debate.org...
slo1
Posts: 4,359
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3/14/2013 10:36:56 PM
Posted: 3 years ago
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

Most of these are covered, but here is how I see it.

1. The fed buys treasury assets off the market, this:
A. Takes an asset which can not be counted as a reserve by the bank (a treasury) and gives them an asset in return that is a reserve, thus free's up more money that can be loaned and put forth into the economy.

B. Since the fed is buying treasuries off the open market, their buying presence lowers interest rates, which helps everyone in the economy from business to individuals buying homes spend less on interest and more on real goods.

More money available in the system ( I believe the reserve rate for loaning money is only 3%, so $1 billion reserves can equal $33 billion of loans which can be made.) This and lower interest rates creates economic activity which in turn raises stocks.

A secondary trigger is that as interest rates decrease it is hard to create a return that beats inflation, thus some money tends to go to stocks to chase a better return. This leads us to inflation.

QE increased inflation by:
1. Increasing economic activity - more money chasing more goods as capacity is often lagging.
2. The fed buys a real asset that has value with virtually nothing, an electronic deposit to the institution's reserve account at the fed bank. Money supply increases and debases the value of the $ because it ultimately comes from deficit spending (the treasury issuing debt)

QE is generally so effective that it leads to an economic bubble that ends up bursting. In worst cases the currency is so debased that inflation shoots to ridiculousness amounts, but there is an entire other train wreck that has to get thrown in the mix for that to happen.

QE works, put money in the system and it will get used, even if not as quickly as some thing that it will work, it will eventually. I myself believe this up tick is not looking to be sustained for over 2 years. We will get in the trap that the QE can not be unwound before the next down turn, which will limit the ability of the fed to use QE at that time.
wrichcirw
Posts: 11,196
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3/17/2013 2:36:23 AM
Posted: 3 years ago
At 3/13/2013 10:27:31 AM, malcolmxy wrote:
At 3/13/2013 10:21:52 AM, wrichcirw wrote:
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

The key mistake in your question is the word "value". Nominal price increases in the stock market do not necessarily imply increases in intrinsic value.

One may say that stock market gains are quite "intrinsic" to those that buy low and sell high, but if the entire basis for gains were of a nominal nature (which QE is, it is monetary policy), then there's no increase or decrease in real value.

Nominal implies, in economics, a non-inflation adjusted something (price, value, etc).

Inflation was 2% last year. As long as the gains were above 2%, they were very REAL as opposed to NOMINAL.

Growth in stock market prices are not synonymous with real growth. This is a fallacy beyond reason. C'mon bro, do you really believe this?

Stock market prices are little more than a figment of one's imagination. The OP did not ask about earnings growth, which would actually have some relation to your point about inflation. He asked about stock market prices. This can and usually is divorced from reality.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
malcolmxy
Posts: 2,855
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3/17/2013 10:17:28 AM
Posted: 3 years ago
At 3/17/2013 2:36:23 AM, wrichcirw wrote:
At 3/13/2013 10:27:31 AM, malcolmxy wrote:
At 3/13/2013 10:21:52 AM, wrichcirw wrote:
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

The key mistake in your question is the word "value". Nominal price increases in the stock market do not necessarily imply increases in intrinsic value.

One may say that stock market gains are quite "intrinsic" to those that buy low and sell high, but if the entire basis for gains were of a nominal nature (which QE is, it is monetary policy), then there's no increase or decrease in real value.

Nominal implies, in economics, a non-inflation adjusted something (price, value, etc).

Inflation was 2% last year. As long as the gains were above 2%, they were very REAL as opposed to NOMINAL.

Growth in stock market prices are not synonymous with real growth. This is a fallacy beyond reason. C'mon bro, do you really believe this?

Stock market prices are little more than a figment of one's imagination. The OP did not ask about earnings growth, which would actually have some relation to your point about inflation. He asked about stock market prices. This can and usually is divorced from reality.

In economics, real growth is any growth that outpaces inflation, so economically, the growth is real.

Do I "put any stock in it", so to speak?

of course not, but that wasn't the matter at hand.
War is over, if you want it.

Meet Dr. Stupid and his assistants - http://www.debate.org...
davidmarsh
Posts: 3
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3/26/2013 10:47:05 AM
Posted: 3 years ago
At 3/11/2013 9:31:48 PM, Cermank wrote:
At 3/11/2013 11:22:40 AM, davidmarsh wrote:
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

Increasing money supply allegedly causes price inflation. This theory derives from a single equation and had, I thought, been discredited..In any event, it does not explain the very high value of the FTSE now. Why would share prices have risen so much more than other prices ?

Increasing money supply leads to inflation only insofar it is proportionally more than the increasing productive capacity of the economy.

Similar to the way that a specific share market bubbles when the investment into it is not backed by relavant increase in value. Although I have no idea about FTSE, generally share prices rise so much because they often fluctuate due to speculations, which is more volatile than central bank sourced increse in money Supply. Alan Greenspan once used the word ,' irrational exuberance' to explain the phenomenon.

And as malcolmxy pointed out, govt intervention does lead to complicating matters.

Twocupcakes is right about the effect on interest rates. Presumably, the demand for government bonds from the Bank of England raises the price of gilts so reducing their yield. Thus, the Bank can keep interest rates very low because there is no competition from gilts. Low interest rates creates demand for equities, while incidentally inflating away the national debt.

Is there any more to it than that ? I have a feeling there is, hence my question. I am told the QE manual is three inches thick, which suggests things are not quite so simple.

lol that's terrible reasoning. Most of the stock market ideas and terms and instruments are pretty standard and basic, this is the basic reasoning behind the relation between QE and prices.

I fear you missed my point, Cermank. The instruments may be simple but the consequences of their use are not. It has been said that the outcome of QE is hard to predict. My point, perhaps oblique, is that the QE proposal is extensive and presumably contains a view of that outcome. What will happen when the FED or the Bank of England has to sell all those assets ? Very high interest rates to attract demand ? Will the markets, currently highly priced, go into reverse ?
Noumena
Posts: 6,047
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3/26/2013 2:22:18 PM
Posted: 3 years ago
At 3/8/2013 8:24:15 PM, malcolmxy wrote:
At 3/8/2013 11:44:25 AM, Wallstreetatheist wrote:
Enduring, quality-of-life improving growth and productivity are only attained through savings, market-derived interest rates, and the sort of stable-purchasing-power, price-deflationary-effects that a hard currency tends to bring. It"s known that the Fed watches stock markets, not least of which because a huge portion of the U.S. population is depending upon those equity price levels to fund their retirements.

http://mises.ca...

Well, if Peter C Earle, acclaimed writer of 2 1/2 months says so, then yeah...consider me convinced.

http://petercearle.com...

(Wow...start a blog on 1/13/13, get a feature on mises.ca...get quoted on DDO as if you have just uttered the Word of God...now there's the free market in action for ya.)

Ignoring the boring ad hominem part (oh wait that's the entire post), it's painfully obvious that people like Mises and Hayek have been saying the same thing for decades.
: At 5/13/2014 7:05:20 PM, Crescendo wrote:
: The difference is that the gay movement is currently pushing their will on Churches, as shown in the link to gay marriage in Denmark. Meanwhile, the Inquisition ended several centuries ago.
wrichcirw
Posts: 11,196
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3/26/2013 6:28:55 PM
Posted: 3 years ago
At 3/17/2013 10:17:28 AM, malcolmxy wrote:
At 3/17/2013 2:36:23 AM, wrichcirw wrote:
At 3/13/2013 10:27:31 AM, malcolmxy wrote:
At 3/13/2013 10:21:52 AM, wrichcirw wrote:
At 3/8/2013 9:28:09 AM, davidmarsh wrote:
Can someone explain why QE raises the value of the stock market, please ? I would like to know more abut the economic mechanism.

The key mistake in your question is the word "value". Nominal price increases in the stock market do not necessarily imply increases in intrinsic value.

One may say that stock market gains are quite "intrinsic" to those that buy low and sell high, but if the entire basis for gains were of a nominal nature (which QE is, it is monetary policy), then there's no increase or decrease in real value.

Nominal implies, in economics, a non-inflation adjusted something (price, value, etc).

Inflation was 2% last year. As long as the gains were above 2%, they were very REAL as opposed to NOMINAL.

Growth in stock market prices are not synonymous with real growth. This is a fallacy beyond reason. C'mon bro, do you really believe this?

Stock market prices are little more than a figment of one's imagination. The OP did not ask about earnings growth, which would actually have some relation to your point about inflation. He asked about stock market prices. This can and usually is divorced from reality.

In economics, real growth is any growth that outpaces inflation, so economically, the growth is real.

Do I "put any stock in it", so to speak?

of course not, but that wasn't the matter at hand.

If a store sold a can of peaches one day for $1, and then the next day priced it at $10 and sold it, is this real economic growth? Because this is essentially how the stock market works.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?