Quantitative Easing in U.S.: Like Japan, only bigger

[Chomsky]

That’s not quantitative easing…

Posted by Tracy Alloway on Dec 22 10:27.

THIS is quantitative easing.


From Bank of America (HT to BoA for the Crocodile Dundee reference too).

In reviewing the development of QE in the United States there is a natural comparison to the QE initiated by Japan earlier this decade, starting in March 2001. However, the US QE initiative is both greater in magnitude than that implemented by the BOJ earlier this decade and, importantly, involves purchases of a variety of assets other than Government bonds, a key distinction from the BOJ’s QE. In quantity terms, a comparison of the US QE with that in Japan shows that, during just the first four months (16 weeks), the US monetary base has soared by 97.2% compared to a modest 6.7% at this point in the Japan QE cycle. Indeed, even after the first year the Japanese monetary base had risen only 32.5%.

That astronomical increase in the US monetary base aside, the qualitative difference between the US’s and Japan’s quantitative easing is what will make America’s the more effective of the two, according to BoA. Where Japan was focused primarily on getting the banking sector to lend again by buying up government bonds to boost reserves, the US is snapping up a variety of assets including commercial paper, MBS, etc.


From BoA’s Robert Sinche and Michael Cloherty:

By taking on these non-Government assets onto their balance sheet the Fed is helping to distribute credit availability into the broader economy, a process that has a higher probability of success in stimulating economic stability than a process that relies on a hampered banking system to expand credit availability. The degree of ultimate success remains unknown, but the US Fed has taken the concept and implementation of quantitative easing well beyond that utilized by the bank of Japan earlier this decade.

http://v2.ftalphaville.ft.com/blog/2...tative-easing/

[LargoWinch]

Re: Quantitative Easing in U.S.: Like Japan, only bigger

That’s not quantitative easing…

Posted by Tracy Alloway on Dec 22 10:27.

THIS is quantitative easing.


From Bank of America (HT to BoA for the Crocodile Dundee reference too).

In reviewing the development of QE in the United States there is a natural comparison to the QE initiated by Japan earlier this decade, starting in March 2001. However, the US QE initiative is both greater in magnitude than that implemented by the BOJ earlier this decade and, importantly, involves purchases of a variety of assets other than Government bonds, a key distinction from the BOJ’s QE. In quantity terms, a comparison of the US QE with that in Japan shows that, during just the first four months (16 weeks), the US monetary base has soared by 97.2% compared to a modest 6.7% at this point in the Japan QE cycle. Indeed, even after the first year the Japanese monetary base had risen only 32.5%.

That astronomical increase in the US monetary base aside, the qualitative difference between the US’s and Japan’s quantitative easing is what will make America’s the more effective of the two, according to BoA. Where Japan was focused primarily on getting the banking sector to lend again by buying up government bonds to boost reserves, the US is snapping up a variety of assets including commercial paper, MBS, etc.


From BoA’s Robert Sinche and Michael Cloherty:

By taking on these non-Government assets onto their balance sheet the Fed is helping to distribute credit availability into the broader economy, a process that has a higher probability of success in stimulating economic stability than a process that relies on a hampered banking system to expand credit availability. The degree of ultimate success remains unknown, but the US Fed has taken the concept and implementation of quantitative easing well beyond that utilized by the bank of Japan earlier this decade.

http://v2.ftalphaville.ft.com/blog/2...tative-easing/

Here is another article - nothing new - but with updated charts from St.Louis Fed:

http://www.gold-eagle.com/editorials...ney121908.html

From the article:

"

Base Money (1919 - November, 2008)

But here are a few charts that I didn't show at the conference...
The next chart is "Cash in Circulation". So far only a small amount of all that extra currency shown in the above chart has leaked out of the banking system and into circulation. But you can bet your assets... IT WILL. When it does, it means that prices must rise to soak up all that extra currency, like a sponge soaking up water. This is bad news for someone holding dollars, but cause for celebration for a precious metals investor.

Currency in Circulation (1919-November, 2008)

Here is a chart of how many dollars the banks have borrowed from the Federal Reserve through the end of last year (2007). Please note the spike that indicates the banks had to borrow $8 billion from the Federal Reserve during the Savings and Loan Crisis of the late 1980s.

Bank Borrowings from Federal Reserve (1919-2007)

Here is the same chart, but I've now taken it out through November of 2008. You can't even see the $8 billion S&L Crisis peak anymore! In fact, the banks are approaching $800 billion in borrowings. This means that the banks perceive this crisis as being 100 times larger than the S&L crisis.

Bank Borrowings from Federal Reserve (1919-November, 2008)

This next chart is Reserve Bank Credit. It is the total amount the Federal Reserve has loaned out of its bottomless checkbook. This chart includes all the rest of the bailouts (at least through November 2008). This chart also rises to roughly $800 billion by the end of 2007, but by November 2008, it has risen to $2.2 trillion. As Brent Harmes would say "It's climbing skyward like a homesick angel."

Reserve Bank Credit

Last, we have a chart of "Excess Bank Reserves". These are reserves in excess of the amount that the Federal Reserve requires the banks to have. It looks almost identical to the chart of Bank Borrowings, except for two small features; there is a tiny blip in 2001 and a small bump around 1941. Could it be that the banks perceive this crisis to be 50 times larger than 911 or even World War II?

Excess Bank Reserves (1930-November, 2008)"


- W.

[marsien59]

Re: Quantitative Easing in U.S.: Like Japan, only bigger

That’s not quantitative easing…

Posted by Tracy Alloway on Dec 22 10:27.

THIS is quantitative easing.

http://v2.ftalphaville.ft.com/blog/2...tative-easing/

Hi,
for your education on "Quantitative easing" this link from

http://marketplace.publicradio.org/videos/whiteboard/quantitative_easing.shtml