Global Financial Crisis scenarios

[botany]

Rising money supply does not necessarily mean inflation. If the additional money supply is not lent and/or spent then it would just be more money sitting in the "bank" (aka the federal reserve). This is one reason why inflation has been so low (apart from the negative inflation prior to QE) as banks have a lot of excess reserves at the federal reserve because there is not enough demand for loans from borrowers that meet an acceptable credit risk.

If in spite of rising money supply and low interest rates, there is not enough demand for loans from borrowers, all it means is that Quantitative Easing has not really been effective. 

You can't say so, since they are targeting the inflation rate and have been successful so far while trying to pass between the upper (run-away inflation) and the nether (stifling deflation) millstone.

Has it really been effective? The target was to get the economy moving again. These funds were supposed to make their way into the economy, not into various emerging market assets.

I'm not very familiar with the effects and aims of QEs, but if I'm not mistaken, one target of the "money printing" campaign was to liquidate toxic assets (read write off). If these funds made their way into the economy that would simply increase inflation rates (now we are heading well into exogenous vs endogenous money debate).

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

[Poorri]

I would say it can sky rocket easy.

[Mobius]

Rising money supply does not necessarily mean inflation. If the additional money supply is not lent and/or spent then it would just be more money sitting in the "bank" (aka the federal reserve). This is one reason why inflation has been so low (apart from the negative inflation prior to QE) as banks have a lot of excess reserves at the federal reserve because there is not enough demand for loans from borrowers that meet an acceptable credit risk.

If in spite of rising money supply and low interest rates, there is not enough demand for loans from borrowers, all it means is that Quantitative Easing has not really been effective. 

You can't say so, since they are targeting the inflation rate and have been successful so far while trying to pass between the upper (run-away inflation) and the nether (stifling deflation) millstone.

Has it really been effective? The target was to get the economy moving again. These funds were supposed to make their way into the economy, not into various emerging market assets.

I'm not very familiar with the effects and aims of QEs, but if I'm not mistaken, one target of the "money printing" campaign was to liquidate toxic assets (read write off). If these funds made their way into the economy that would simply increase inflation rates (now we are heading well into exogenous vs endogenous money debate).

The point of QE is to get people/businesses to take more risks with their money, which would mean they would risk hiring more employees.

[Mobius]

Rising money supply does not necessarily mean inflation. If the additional money supply is not lent and/or spent then it would just be more money sitting in the "bank" (aka the federal reserve). This is one reason why inflation has been so low (apart from the negative inflation prior to QE) as banks have a lot of excess reserves at the federal reserve because there is not enough demand for loans from borrowers that meet an acceptable credit risk.

If in spite of rising money supply and low interest rates, there is not enough demand for loans from borrowers, all it means is that Quantitative Easing has not really been effective. 

The fed is not able to control demand for loans as easily as it can control the supply of capital for loans. In this regard the net effect of QE has not been as great as it otherwise could be but has still somewhat worked.

[tee-rex]

Rising money supply does not necessarily mean inflation. If the additional money supply is not lent and/or spent then it would just be more money sitting in the "bank" (aka the federal reserve). This is one reason why inflation has been so low (apart from the negative inflation prior to QE) as banks have a lot of excess reserves at the federal reserve because there is not enough demand for loans from borrowers that meet an acceptable credit risk.

If in spite of rising money supply and low interest rates, there is not enough demand for loans from borrowers, all it means is that Quantitative Easing has not really been effective. 

You can't say so, since they are targeting the inflation rate and have been successful so far while trying to pass between the upper (run-away inflation) and the nether (stifling deflation) millstone.

Has it really been effective? The target was to get the economy moving again. These funds were supposed to make their way into the economy, not into various emerging market assets.

I'm not very familiar with the effects and aims of QEs, but if I'm not mistaken, one target of the "money printing" campaign was to liquidate toxic assets (read write off). If these funds made their way into the economy that would simply increase inflation rates (now we are heading well into exogenous vs endogenous money debate).

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

[boumalo]

Rising money supply does not necessarily mean inflation. If the additional money supply is not lent and/or spent then it would just be more money sitting in the "bank" (aka the federal reserve). This is one reason why inflation has been so low (apart from the negative inflation prior to QE) as banks have a lot of excess reserves at the federal reserve because there is not enough demand for loans from borrowers that meet an acceptable credit risk.

If in spite of rising money supply and low interest rates, there is not enough demand for loans from borrowers, all it means is that Quantitative Easing has not really been effective. 

You can't say so, since they are targeting the inflation rate and have been successful so far while trying to pass between the upper (run-away inflation) and the nether (stifling deflation) millstone.

Has it really been effective? The target was to get the economy moving again. These funds were supposed to make their way into the economy, not into various emerging market assets.

I'm not very familiar with the effects and aims of QEs, but if I'm not mistaken, one target of the "money printing" campaign was to liquidate toxic assets (read write off). If these funds made their way into the economy that would simply increase inflation rates (now we are heading well into exogenous vs endogenous money debate).

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

QE and 0% interest rate are propping up the market but they just postponed a much needed recession to eliminate bad debt, bad players and bad practices

If it worked the FED could raise interest rates and stop QE and everything would be fine which is not the case so we are still in recession and heading towards a major financial crisis and probably the fall of the western financial sector as we know it; they will probably hide it behind something else : virus, russia, war, ect. but the problem has been the FED and US government involvement in market, heavy regulation and low interests rates that created bubbles

[tee-rex]

I'm not very familiar with the effects and aims of QEs, but if I'm not mistaken, one target of the "money printing" campaign was to liquidate toxic assets (read write off). If these funds made their way into the economy that would simply increase inflation rates (now we are heading well into exogenous vs endogenous money debate).

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

QE and 0% interest rate are propping up the market but they just postponed a much needed recession to eliminate bad debt, bad players and bad practices

How could zero interest rates be propping up the market if no one is/was willing to take loans? Is this what is called a "liquidity trap"?

[CoinsCoinsEverywhere]

I'm not very familiar with the effects and aims of QEs, but if I'm not mistaken, one target of the "money printing" campaign was to liquidate toxic assets (read write off). If these funds made their way into the economy that would simply increase inflation rates (now we are heading well into exogenous vs endogenous money debate).

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

QE and 0% interest rate are propping up the market but they just postponed a much needed recession to eliminate bad debt, bad players and bad practices

How could zero interest rates be propping up the market if no one is/was willing to take loans? Is this what is called a "liquidity trap"?

No matter what the interest rate is, there's always someone who wants a loan.  So it's a question of how much demand there is for loans at the current rate.  And of course demand falls off as rates increase.  So there may not be a huge demand at 0%, but it would be worse if interest rates were higher.  Less demand for loans/credit translates to less economic growth (which could include economic contraction).  So 0% rates have kept credit flowing, which is propping up the market.

[botany]

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

It hasn't made it worse, but its efficacy was low.

[tee-rex]

I'm not very familiar with the effects and aims of QEs, but if I'm not mistaken, one target of the "money printing" campaign was to liquidate toxic assets (read write off). If these funds made their way into the economy that would simply increase inflation rates (now we are heading well into exogenous vs endogenous money debate).

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

QE and 0% interest rate are propping up the market but they just postponed a much needed recession to eliminate bad debt, bad players and bad practices

How could zero interest rates be propping up the market if no one is/was willing to take loans? Is this what is called a "liquidity trap"?

No matter what the interest rate is, there's always someone who wants a loan.  So it's a question of how much demand there is for loans at the current rate.  And of course demand falls off as rates increase.  So there may not be a huge demand at 0%, but it would be worse if interest rates were higher.  Less demand for loans/credit translates to less economic growth (which could include economic contraction).  So 0% rates have kept credit flowing, which is propping up the market.

This means that QE has worked to a degree after all (and didn't whip on inflation), correct?

It hasn't made it worse, but its efficacy was low.

That's what I'm saying.

[Fray]

I'm not very familiar with the effects and aims of QEs, but if I'm not mistaken, one target of the "money printing" campaign was to liquidate toxic assets (read write off). If these funds made their way into the economy that would simply increase inflation rates (now we are heading well into exogenous vs endogenous money debate).

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

QE and 0% interest rate are propping up the market but they just postponed a much needed recession to eliminate bad debt, bad players and bad practices

How could zero interest rates be propping up the market if no one is/was willing to take loans? Is this what is called a "liquidity trap"?

No matter what the interest rate is, there's always someone who wants a loan.  So it's a question of how much demand there is for loans at the current rate.  And of course demand falls off as rates increase.  So there may not be a huge demand at 0%, but it would be worse if interest rates were higher.  Less demand for loans/credit translates to less economic growth (which could include economic contraction).  So 0% rates have kept credit flowing, which is propping up the market.

You are correct to say that overall demand for loans is generally guided by interest rates, however demand for loans by credit worthy borrowers is guided by many more factors, such as economic growth and the regulatory environment, both of which have been horrible over the past several years. If president Obama's economic policies had been pro growth then even without QE demand for loans by credit worthy borrowers would be much higher.

[tee-rex]

I'm not very familiar with the effects and aims of QEs, but if I'm not mistaken, one target of the "money printing" campaign was to liquidate toxic assets (read write off). If these funds made their way into the economy that would simply increase inflation rates (now we are heading well into exogenous vs endogenous money debate).

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

QE and 0% interest rate are propping up the market but they just postponed a much needed recession to eliminate bad debt, bad players and bad practices

How could zero interest rates be propping up the market if no one is/was willing to take loans? Is this what is called a "liquidity trap"?

No matter what the interest rate is, there's always someone who wants a loan.  So it's a question of how much demand there is for loans at the current rate.  And of course demand falls off as rates increase.  So there may not be a huge demand at 0%, but it would be worse if interest rates were higher.  Less demand for loans/credit translates to less economic growth (which could include economic contraction).  So 0% rates have kept credit flowing, which is propping up the market.

You are correct to say that overall demand for loans is generally guided by interest rates, however demand for loans by credit worthy borrowers is guided by many more factors, such as economic growth and the regulatory environment, both of which have been horrible over the past several years. If president Obama's economic policies had been pro growth then even without QE demand for loans by credit worthy borrowers would be much higher.

But why would he and his administration choose to oppose the economic policies that would be pro growth? I just can't find reasonable arguments for this unless we don't know (or understand) enough to make a well-grounded conclusion.

[boumalo]

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

It hasn't made it worse, but its efficacy was low.

QE and low interest rates postponed the crisis but it is going to be worse and will probably end up in hyper inflation and wars

[zedicus]

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

It hasn't made it worse, but its efficacy was low.

QE and low interest rates postponed the crisis but it is going to be worse and will probably end up in hyper inflation and wars

I really don't see QE and wars being linked, especially since most of the modernized world has engaged in some kind of QE (neither wars fought with military or economic/trade wars). Also the fact that banks are keeping the majority of the money they get from QE as excess reserves at the federal reserve is preventing inflation from getting out of hand.

[CoinsCoinsEverywhere]

I'm not very familiar with the effects and aims of QEs, but if I'm not mistaken, one target of the "money printing" campaign was to liquidate toxic assets (read write off). If these funds made their way into the economy that would simply increase inflation rates (now we are heading well into exogenous vs endogenous money debate).

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

QE and 0% interest rate are propping up the market but they just postponed a much needed recession to eliminate bad debt, bad players and bad practices

How could zero interest rates be propping up the market if no one is/was willing to take loans? Is this what is called a "liquidity trap"?

No matter what the interest rate is, there's always someone who wants a loan.  So it's a question of how much demand there is for loans at the current rate.  And of course demand falls off as rates increase.  So there may not be a huge demand at 0%, but it would be worse if interest rates were higher.  Less demand for loans/credit translates to less economic growth (which could include economic contraction).  So 0% rates have kept credit flowing, which is propping up the market.

You are correct to say that overall demand for loans is generally guided by interest rates, however demand for loans by credit worthy borrowers is guided by many more factors, such as economic growth and the regulatory environment, both of which have been horrible over the past several years. If president Obama's economic policies had been pro growth then even without QE demand for loans by credit worthy borrowers would be much higher.

I agree that Obama has been a bad president in many respects, and I wouldn't say he's helped the economy much, either.  But what kind of pro-growth policies could he have implemented?  He could have spent more of the stimulus money on things that would have directly contributed to the economy, like infrastructure improvements/repairs.  But what else could he have done?

[twiifm]

WRT Obama

Its an interesting question that can't be answered.   Abenomics did a bigger QE combined with big stimulus spending and that didn't seem to work either.

Some interesting proposals I've heard were things like job guarantee (employer of last resort) .   Its like a type of stimulus spending.   Google Pavlina Tcherneva.   

[boumalo]

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

It hasn't made it worse, but its efficacy was low.

QE and low interest rates postponed the crisis but it is going to be worse and will probably end up in hyper inflation and wars

I really don't see QE and wars being linked, especially since most of the modernized world has engaged in some kind of QE (neither wars fought with military or economic/trade wars). Also the fact that banks are keeping the majority of the money they get from QE as excess reserves at the federal reserve is preventing inflation from getting out of hand.

Fiat allows bigger and more expensive wars; QE and low interest rates is a way not to be honest about the situation and to hide the problems for a while; when the problems will come back and be bigger, the politicians will not accept it and say they were wrong.
QE+low interest rates manipulate the markets heavily which can come back in the form of frustration, protests or wars.

In the US the politicians tend to regulate for the big banks and the big corporations such as the military industry; wars are good for the former so wars are made. Politicians are often sociopaths who want to control everyone so they are likely to start wars when their fallacious economic actions are unsucessful

[CoinsCoinsEverywhere]

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

It hasn't made it worse, but its efficacy was low.

QE and low interest rates postponed the crisis but it is going to be worse and will probably end up in hyper inflation and wars

I really don't see QE and wars being linked, especially since most of the modernized world has engaged in some kind of QE (neither wars fought with military or economic/trade wars). Also the fact that banks are keeping the majority of the money they get from QE as excess reserves at the federal reserve is preventing inflation from getting out of hand.

Fiat allows bigger and more expensive wars; QE and low interest rates is a way not to be honest about the situation and to hide the problems for a while; when the problems will come back and be bigger, the politicians will not accept it and say they were wrong.
QE+low interest rates manipulate the markets heavily which can come back in the form of frustration, protests or wars.

In the US the politicians tend to regulate for the big banks and the big corporations such as the military industry; wars are good for the former so wars are made. Politicians are often sociopaths who want to control everyone so they are likely to start wars when their fallacious economic actions are unsucessful

Fiat allows bigger and more expensive wars than what?

I agree that poor economic policies can lead to wars, and that QE and low interest rates, when taken to excess, as it seems they have been, are poor economic policies.  But I don't think that politicians (at least most of them) just try to start wars like that.  When a country's economy collapses, that generally leads to a lot of unrest as the vast majority of people really get screwed (see Greece).  Some politicians may try to deflect that angry sentiment to their neighboring countries, which could lead to wars.  But I don't think that (most) politicians sit around trying to figure out how they can start wars.

[boumalo]

The financial crisis took out a few players (banks / investment banks) in the credit market. The absence of these financial intermediaries would have resulted in lower credit being available to main street. Rates would also have risen, with banks not willing to take on additional risk. QE was supposed to ensure that this did not happen, by making ample liquidity available in the system.

So, in the worst case, QE just didn't work out since there was not much demand for credit from the "main street", but it didn't make it worse either, right?

It hasn't made it worse, but its efficacy was low.

QE and low interest rates postponed the crisis but it is going to be worse and will probably end up in hyper inflation and wars

I really don't see QE and wars being linked, especially since most of the modernized world has engaged in some kind of QE (neither wars fought with military or economic/trade wars). Also the fact that banks are keeping the majority of the money they get from QE as excess reserves at the federal reserve is preventing inflation from getting out of hand.

Fiat allows bigger and more expensive wars; QE and low interest rates is a way not to be honest about the situation and to hide the problems for a while; when the problems will come back and be bigger, the politicians will not accept it and say they were wrong.
QE+low interest rates manipulate the markets heavily which can come back in the form of frustration, protests or wars.

In the US the politicians tend to regulate for the big banks and the big corporations such as the military industry; wars are good for the former so wars are made. Politicians are often sociopaths who want to control everyone so they are likely to start wars when their fallacious economic actions are unsucessful

Fiat allows bigger and more expensive wars than what?

I agree that poor economic policies can lead to wars, and that QE and low interest rates, when taken to excess, as it seems they have been, are poor economic policies.  But I don't think that politicians (at least most of them) just try to start wars like that.  When a country's economy collapses, that generally leads to a lot of unrest as the vast majority of people really get screwed (see Greece).  Some politicians may try to deflect that angry sentiment to their neighboring countries, which could lead to wars.  But I don't think that (most) politicians sit around trying to figure out how they can start wars.

Than no fiat

Agreed that most politicians probably don't just try to start war : politicians do things that lead to wars and are manipulated by people that want war, it is very obvious in the Ukraine situation

[giveBTCpls]

If I had to choose a potential result because of such scenareo, I wouldn't know, im divided between bitcoin crashing hard, as people would panic too much to even bother with it, and I also predict it going sky rocket mode, because maybe people on that panic scenareo get that "do what it takes" trigger activated and they all find about Bitcoin and put their assets there hoping they will survive.