Here’s a fun chart. (Source: Gluskin-Sheff. Hat tip, Zero Hedge.)
What does it mean? It means that, starting around 2008 or so, the stock market has been strongly linked to the Federal Reserve Bank’s “Quantitative Easing” (QE) policy.
We’ve seen that point before; this chart shows it another way. Since the second half of 2008, the market moves up if the Fed is growing its balance sheet; the market stops (or declines) if the Fed stops; which means that the ratio of them (shown above) has kept fairly level.
A woman in Kunming, Yunnan province, is trying to sue the United States central bank after discovering that the real value of the US$250 she put in an account in 2006 had shrunk by 30 per cent.
She claims it was a result of the Federal Reserve issuing too much money.
Her attorney, her son Li Zhen , called the lawsuit “litigation for the public good” which aimed to stop the Fed from continuing its quantitive easing policy…
He filed the lawsuit alleging “the abuse of monopoly in issuing currency” last month at the Kunming Intermediate People’s Court…but the court has yet to decide whether to officially place the case on file.
Why didn’t I think of that? The woman gets the issue: that the Fed has been debauching the dollar. Whether her suit succeeds is another question, but God bless her!
Finally, I want to mention the recent controversy over Reinhart-Rogoff’s work. It might be boring, so further discussion is beneath the following ‘fold’.
(now with updates)
Reinhart-Rogoff’s work shows, among other things, that a large public debt is associated generally with lower economic growth. I’ve used their work before in my posts (and I’ve made definite claims about causality, which RR have apparently not done).
The controversy is that the neo-Keynesians, which are the Establishment (dominating media, academia and government, and in favor of Big Government), finally think they have a counterstrike against RR’s work, complete with media (Krugman) and Internet frenzy. You can read a specific review of the debate by F.F Wiley at Cyniconomics (or Zero Hedge again), and a more rationalistic (and Austrian School) defense of RR’s point by Pater Tenebrarum at Seeking Alpha.
Here is Wiley’s gist. Though the critics did find some spreadsheet calculation errors, Wiley says that the errors aren’t nearly as fatal as they want you to believe. Indeed, Wiley argues that the critics largely confirmed Reinhart-Rogoff’s work (while pretending otherwise). Wiley states that RR have been largely open about their methods and generous with their data, unlike (say) the climate scienticians that have been criticized in Climategate.
Moreover, RR’s work was built on others’ work, and will be succeeded by others’ work. The debate doesn’t rest on one set of authors. The debate will go on. For my part, it was already clear to me (through observation) before I heard of RR that the countries with large public debt are struggling to grow, while ones with smaller public debt tend (on average, or with possible aberrations) to grow better.
In the meantime, the neo-Keynesians will continue to delude themselves – and try to delude you – that huge government spending, deficits and debt somehow mean a stronger economy… which the neo-Keynesians were already doing. So, nothing changes.
UPDATE: Here is a nicely-written piece from Forbes, on “The Triumph Of Good Economics: ‘Austere’ Baltic States Outgrow Their European Neighbors”.