So, I've been having a rather one sided debate with a monetarist-esque friend of mine who says QE2 is good. He reads Scott Sumner (I think) and he says that the market had a good reaction to QE2 stocks rose, commodities and assets rose, and inflation expectations only went up a little bit. He talked about the TIPS spread and how it indicated that people only think there will be around 1.5% inflation in thirty years... why is it that inflation expectations are so low and how would you respond to the rest of his arguments regarding the market reaction?
"It has been well said that, while we used to suffer from social evils, we now suffer from the remedies for them."
F.A. Hayek, The Constitution of Liberty
If you pour more money into the stock market, the stock market will go up. Nominally :I
ChroMattic: the market had a good reaction to QE2 have you heard of Mr Market, Benjamin Graham's good friend? stocks rose, commodities and assets rose, meaning there was a mad dash to get out of the dollar any way one could. and inflation expectations only went up a little bit. He talked about the TIPS spread and how it indicated that people only think there will be around 1.5% inflation in thirty years... I'm not sure what the point is here. When there was a dot.com bubble and a housing bubble, would you friend have suggested that what people think about stocks and houses [that prices would keep on going up pretty much forever] correlated well with reality? why is it that inflation expectations are so low "You can fool all of the people some of the time, and some of the people all of the time, but you can not fool all of the people all of the time." Lincoln "However, you can fool most of the people, most of the time" Vincent Bugliosi. and how would you respond to the rest of his arguments regarding the market reaction? Already did
have you heard of Mr Market, Benjamin Graham's good friend?
stocks rose, commodities and assets rose,
meaning there was a mad dash to get out of the dollar any way one could.
and inflation expectations only went up a little bit. He talked about the TIPS spread and how it indicated that people only think there will be around 1.5% inflation in thirty years...
I'm not sure what the point is here. When there was a dot.com bubble and a housing bubble, would you friend have suggested that what people think about stocks and houses [that prices would keep on going up pretty much forever] correlated well with reality?
why is it that inflation expectations are so low
"You can fool all of the people some of the time, and some of the people all of the time, but you can not fool all of the people all of the time." Lincoln
"However, you can fool most of the people, most of the time" Vincent Bugliosi.
and how would you respond to the rest of his arguments regarding the market reaction?
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It's easy to refute an argument if you first misrepresent it. William Keizer
The rate paid on TIPS is correlated to the consumer price index numbers. How can stocks go up, commodities go up, the US dollar go down and things not cost more? Gee maybe the CPI numbers are BS. If the payout on TIPS were peoples expectations of inflation they'd probably be around 20% right now. They tell the old folks they don't need a cost of living increase on their social security this year cause the CPI numbers say catfood cost the same as last year. Take one for the team Grandma...just walk it off.
Hey and before you attack me as a statist for defending Grandma's right to a COLA. I never liked the fact that I was forced to pay into Social Security but I have for most of my life. I was self employed for most of my years in the system. You pay half and the company pays half. If you're self employed you pay twice. Social Security was supposed to be insurance not an entitlement program. If Grandma wrecks her car is it all right if Allstate tells her to go ride a bike?
Actually its more like Grandma wrecking her car, Allstate having squandered all her payments as soon as it got them on wild parties, and now taking a gun to the grandkids to force the kids to pay her off. AKA two wrongs don't make a right. Were you ripped off? Absolutely. Does that give you the right to rip off others? Nope.
Make no mistake, all the money you put into SS is gone the instant you make your payment, maybe on the various wars, maybe on sending a man to the moon, maybe on plane tickets to professional basketball players to play with Obama. They admit it.
Ya your right Dave, I'll go ride a bike, but I aint gonna wear a friggin helmet.