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QE Weblogging


Cardiff Garcia, FT Alphaville, The downsides of quantitative easing, Cardiff Garcia smackdown watch, here.

Brad DeLong asks (politely) why oh why can’t we have better QE weblogging, and then issues a challenge:

“Toward the end of an otherwise very good think piece, the intelligent and thoughtful Cardiff Garcia mysteriously writes: “But the downsides to continued QE aren’t trivial either.”

Which makes me ask: what are the downsides to continued QE?

The Federal Reserve buys long-term Treasury debt. The private sector has no less amount of safe U.S. government liabilities to serve as collateral–in fact, the cash or that short-term Treasuries now in private hands are better collateral for cash than the long-term Treasuries.

The Federal Reserve now bears some short-term risk, but not if it holds the securities to maturity–which it will. The Federal Reserve has thus promised that it will not let the money stock fall below its long-term Treasury holdings until they mature, which adds to certainty and removes deflation risk.

The private sector’s limited risk-bearing capacity thus has a reduced quantity of duration risk to bear, and that risk-bearing capacity can be turned to bearing the risks of investment and enterprise. …

I fear bubbles in real estate, in equities, and in commodities. But is Cardiff telling me that I should fear bubbles in… bonds, which have a terminal maturity date and value that pins down their value not in some infinite transversality-condition long run but in 2023?

I thereby challenge Cardiff Garcia: Explain to me just what is meant by the claim that: “The downsides to continued QE aren’t trivial.”

And if, Cardiff, you meet not this challenge, I name you caitiff, and offer you slight regard!”


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