Daily Economy Thread

[Woolfsmck 2,763]

The US is doing well on its own. It will make products imported from Europe a lot cheaper but will cause a small bit of job loss because they get less dollars because of a falling Euro (eventhough most of that already happened in the past year).

 

Sad that the world is stagnating outside the US. China has a housing bubble and wasted money on useless infrastructure paid with middle class and lower class money, the Arab world and many African countries are not doing well politically, Russia, Ukraine and Saudi Arabia and their main trading partners have a declining economy, etc. and all these things together cause stagnation in Europe and Japan. I think both will do fine later on, though.

 

I still don't understand exactly how QE works tho. The ECB gives money to Central Banks and these buy obligations from their own governments? What's the purpose of this? Will this make the debt higher, interest on obligations lower, how should the governments spend the money (save for a lower deficit or invest in infrastructure and small businesses)?

QE is the government buy bonds from banks with 'printed' money. They didn't get the money thru taxes or profits.. The benefit of doing this is that the banks who have a lot of outstanding debt can pay said debt becasue the gov. is buying bonds thru them. In the long term it can and will cause inflation but during a downtown it stabelizes the banks which are the centerpost of the economy for all sectors, accept the blackmarket.

[Luc 4,776]

QE is the government buy bonds from banks with 'printed' money. They didn't get the money thru taxes or profits.. The benefit of doing this is that the banks who have a lot of outstanding debt can pay said debt becasue the gov. is buying bonds thru them. In the long term it can and will cause inflation but during a downtown it stabelizes the banks which are the centerpost of the economy for all sectors, accept the blackmarket.

Ah. But it's state obligations?

[Woolfsmck 2,763]

Ah. But it's state obligations?

I don't understand what your asking...

The goal is to keep the banks from running out of money because they are failing. There are no obligations but EU saw the strategy that the U.S. gov. used and decided to do the same.

[Economy 52,844]

The US is doing well on its own. It will make products imported from Europe a lot cheaper but will cause a small bit of job loss because they get less dollars because of a falling Euro (eventhough most of that already happened in the past year).

Sad that the world is stagnating outside the US. China has a housing bubble and wasted money on useless infrastructure paid with middle class and lower class money, the Arab world and many African countries are not doing well politically, Russia, Ukraine and Saudi Arabia and their main trading partners have a declining economy, etc. and all these things together cause stagnation in Europe and Japan. I think both will do fine later on, though.

I still don't understand exactly how QE works tho. The ECB gives money to Central Banks and these buy obligations from their own governments? What's the purpose of this? Will this make the debt higher, interest on obligations lower, how should the governments spend the money (save for a lower deficit or invest in infrastructure and small businesses)?

i dunno about that. The loss from getting fewer dollars might be offset from higher consumption demand from EU assuming this works :shrug:

[Economy 52,844]

I don't understand what your asking...

The goal is to keep the banks from running out of money because they are failing. There are no obligations but EU saw the strategy that the U.S. gov. used and decided to do the same.

is that why they never did QE in Canada to lower our currency when it was too high? Cause our banks were fine?

Like why the need to buy them thru private banks? Cant a Central Bank buy soverein debt directly on its own account and lower market yields that way???

Cuz by lowering yields on Government Bonds, all bonds would go down with it and the whole credit market would become more loose

But i guess if private banks are failing it makes more sense to do it that way

[Woolfsmck 2,763]

is that why they never did QE in Canada to lower our currency when it was too high? Cause our banks were fine?

Like why the need to buy them thru private banks? Cant a Central Bank buy soverein debt directly on its own account and lower market yields that way???

Cuz by lowering yields on Government Bonds, all bonds would go down with it and the whole credit market would become more loose

But i guess if private banks are failing it makes more sense to do it that way

I'm not sure about the Central European Bank and their rules, but the U.S. government passed an Affordable Housing Act under the Bill Clinton tenure which guarentee low interest variable rate loans to 'all' banks and stipulated the qualifications for such loans was unlawfull to racially segrate or profile recipients. The banks prodeeded to make home loans to anyone who had a job without qualifying at all anyone. The resulting default's sent the banks cash reserves to nothing and insome cases left them without assets to cover deposits which at the time were being withdrawn (almost nobody was saving money) ...

The volume of defaults exceded even the governments reserves and promted the QE strategy to prop up the banking system. The '08 crash was a result of the banking system shutting down overnite loans to each other because of the fear that the banks would default on each other.

[Economy 52,844]

I'm not sure about the Central European Bank and their rules, but the U.S. government passed an Affordable Housing Act under the Bill Clinton tenure which guarentee low interest variable rate loans to 'all' banks and stipulated the qualifications for such loans was unlawfull to racially segrate or profile recipients. The banks prodeeded to make home loans to anyone who had a job without qualifying at all anyone. The resulting default's sent the banks cash reserves to nothing and insome cases left them without assets to cover deposits which at the time were being withdrawn (almost nobody was saving money) ...

The volume of defaults exceded even the governments reserves and promted the QE strategy to prop up the banking system. The '08 crash was a result of the banking system shutting down overnite loans to each other because of the fear that the banks would default on each other.

i always thought the purpose of QE was to lower yields so that credit became cheaper and encourage ppl to borrow and spend and as a result proping up assets as well since fixed income became less attractive to investors

I guess that was just part of it.

Thats quite a scheme the Japaneese invented tho :MANiCURE:

[Woolfsmck 2,763]

i always thought the purpose of QE was to lower yields so that credit became cheaper and encourage ppl to borrow and spend and as a result proping up assets as well since fixed income became less attractive to investors

I guess that was just part of it.

Thats quite a scheme the Japaneese invented tho :manucure:

rates are set by the Fed. QE lowers bond values because the demand is artificial ... gov buying them in volume. The goal is to solidify the banking systems assets to keep depositors confident enought to leave their assets in the system.

[Economy 52,844]

rates are set by the Fed. QE lowers bond values because the demand is artificial ... gov buying them in volume. The goal is to solidify the banking systems assets to keep depositors confident enought to leave their assets in the system.

i know the rates are set by the Central Bank (ok Fed in the US since u like giving it a fancy name) and i know the effect QE has on yields lmao im not a noob

I just wasnt aware fully how the relationship was between private banks

[Woolfsmck 2,763]

i know the rates are set by the Central Bank (ok Fed in the US since u like giving it a fancy name) and i know the effect QE has on yields lmao im not a noob

I just wasnt aware fully how the relationship was between private banks

Oh .. sorry .. I know your not a boob and I wasn't implying...

Private banks base their rates off the Central Bank ... Sometimes they can offer better interest rates becasue they aren't regulated as much.. But the risk factor keeps them in line. Since QE is fed directly to that system, the relationship is more of a beacon or guiding lite ...

[Economy 52,844]

Oh .. sorry .. I know your not a boob and I wasn't implying...

Private banks base their rates off the Central Bank ... Sometimes they can offer better interest rates becasue they aren't regulated as much.. But the risk factor keeps them in line. Since QE is fed directly to that system, the relationship is more of a beacon or guiding lite ...

well, thats just part of it. They cant borrow all their money from the Central Banks. A big portion is also savings accounts, the rates thu can get from bonds etc

Thats why fluctuations in bond yields affect mortage rates up and down even when the Central Banks benchmark rate remains the same

I just thought QE sole purpose was to buy up bonds to force yields even lower than rates at 0% ever could, and that would make credit even cheaper since some of the money banks borrow to lend is also from bonds

I didnt realize tho that in the process of doing this the Central Banks did it thru private banks but i guess it makes sense if u have failing banks

But if banks arent failing but the economy is super weak... Theoretically theres no reason why the Central Bank cant still purchase bonds soley by thenselves simply to lower yields. Ud still get cheaper credit offered by private banks wothout actually involving them in the scheme directly :shrug:

[Woolfsmck 2,763]

well, thats just part of it. They cant borrow all their money from the Central Banks. A big portion is also savings accounts, the rates thu can get from bonds etc

Thats why fluctuations in bond yields affect mortage rates up and down even when the Central Banks benchmark rate remains the same

I just thought QE sole purpose was to buy up bonds to force yields even lower than rates at 0% ever could, and that would make credit even cheaper since some of the money banks borrow to lend is also from bonds

I didnt realize tho that in the process of doing this the Central Banks did it thru private banks but i guess it makes sense if u have failing banks

But if banks arent failing but the economy is super weak... Theoretically theres no reason why the Central Bank cant still purchase bonds soley by thenselves simply to lower yields. Ud still get cheaper credit offered by private banks wothout actually involving them in the scheme directly

I am still learing about the financial system too.. I don't know why some things are the way they are either.. Sometimes I get things a mixed up too... 8-) What it appears to me is that some of the things that they do are experimental and they don't always know what their doing either...

Point being is that the Private Banks are suppose to be 'free' to fail but really aren't ... Usually you see them being absorbed into larger banks.

[Luc 4,776]

When do you think the housing bubble in China will spat? And will it be enough to force the world economy into a crisis, like the US housing bubble did?

[Economy 52,844]

I am still learing about the financial system too.. I don't know why some things are the way they are either.. Sometimes I get things a mixed up too... 8-) What it appears to me is that some of the things that they do are experimental and they don't always know what their doing either...Point being is that the Private Banks are suppose to be 'free' to fail but really aren't ... Usually you see them being absorbed into larger banks.

well QE is highly experimental... Before the US did it only Japan had ever done it. The politicians themselves who innotiated didnt know for certain the affects it would have. Some admited that later

But as for letting banks fail... I think thats an idea from the past thats outdated...

The financial system is too interlinked and complicated in the modern economy for there not to be disaster when a bank fails especially considering how large some of them are now

It used to be as far back as the 1800s that very few ppl invested in stocks or mutual funds or worried about retirement savings etc. Banks were only there for loans to start up a business or a house and to lend that money they would use deposited money and pay good interest to attract clients and deposits since there didnt used to be Central Banks subsidizing part of the loans at such low rates

And to add to that most banks were small back then too

150 years ago a bank failed and the only concequences were its few customers lost their savings... Now a bank fails, and the market reacts immediately and bailouts are discussed almost right away to avert disaster :shrug:

[Economy 52,844]

When do you think the housing bubble in China will spat? And will it be enough to force the world economy into a crisis, like the US housing bubble did?

well Chinas bubble is huge...

On the otherhand...

- Banks there are Government owned and easily bailed out if they became insolvent

- China has large wealth funds it can tap into an emergency to spend and stimulate the economy

- theyve been cutting rates but they still have plenty of room to cut rates further to soften a blow if a major downturn happened given their rates are not at 0% to 1% like most of the developed world

- In China Real Estate is culturally a long term investment wealthier ppl are really into there so they may not let go of those properties easily which should reduce the downspiral effect of panic

- China has the worlds fastest growing middle class since their economy is maturing and the Government understands to get more growth sustainably they must develop a domestic economy with more consumption. So more ppl in middle class means more ppl can afford to buy property.

In short... Chinas housing bubble is pretty big and dangerous but stable for now and they have many factors on their side that should prevent a huge collapse... Hopefully...

Here in Canada weve had a huge housing bubble for like ever and the bubble never pops because theres never been a catalyst for it like in the US. If manufacturing and exports and with it incomes as the US economy improves, we might actually get that "soft landing" in the housing market they are looking for and a gradual correction with no collapse... I pray thays how it will go

My point is not all bubbles burst. Given the right circumstances and factors, bubbles can deflate gradually and simply slow down economic growth for a time rather than causing an actual crash. Chinas housing bubble is no garantee of a big crash especially with many positive factors on their side :shrug: