John Snow explains the pyramid scheme known as Quantitative Easing

Former Treasury Secretary John Snow explains the short strokes of QE last night on PBS Nightly News. He makes no bones about explaining the government's objective in printing more money (adding to tax payer debt) in order to buy paper assets in the open market. To wit:

“…you buy government paper that’s held by financial institutions or individuals. And then they have the money. And then they go out and buy some other financial assets, stocks. And they drive up the value of those other financial assets so we get an increase in the value of financial assets which means an increase in the value of lots of peoples’ household wealth. And the idea is if household wealth goes up, then that will be a spur to spending.”

So you artificially prop up asset prices above market values in the hopes that people will not sell their assets at these elevated levels and bank the profits, but rather you hope that they will continue to hold their units in the ponzi scheme, “don't worry be happy”, and find a way to keep spending no matter how bad the economy looks. Wow, this is the best plan of the most educated and informed financial minds in the government? Who wants in?

Watch the full episode. See more Nightly Business Report.

Hat tip: Tim Iacono.

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2 Responses to John Snow explains the pyramid scheme known as Quantitative Easing

  1. Anonymous says:

    will be interesting to see how far the market can be goosed up by the QE2 before investors realize it's only a temporary measure and start selling. Could be an ugly turnaround.

  2. Anonymous says:

    Wednesday, October 13, 2010. 9:15 am.
    We’ve all sat in the audience at a magic show or watched on TV and asked that question in awe, “How do they do that.
    I’ve been watching 3rd quarter earnings reports and asking the same question.
    More than twice as many S&P 500 companies warned in recent weeks that they would not meet Wall Street’s estimates for 3rd quarter earnings than warned prior to 2nd quarter earnings being released.
    Among them Intel, considered the important bellwether for the tech sector.
    So how did that work out?
    On August 27, just six weeks ago, Intel, the world’s largest chip-maker surprised global markets by warning that its third quarter sales and earnings would not meet Wall Street’s estimates, due to sharp declines in demand from the tech sector. The company said its sales would only be between $10.8 billion and $11.2 billion, well short of estimates of $11.2 to $12 billion.
    They reported last night, and sure enough their sales came in at $11.1 billion, well short of the estimates.
    Well no, they didn’t. Somehow Wall Street managed to get the consensus estimate down to $10.99 billion.
    So Wall Street and TV anchors are excited this morning and the tech sector is surging because Intel beat expectations, sales above $11 billion for the first time ever, etc. And earnings of 52 cents a share beat the significantly lowered earnings estimates of 50 cents a share.
    And the company, which six weeks ago correctly lowered its forecast and said it was due to declining demand from the tech sector, says in its report that the strong results were “due to solid demand for its products”.
    A Wall Street spokesman said in an interview on CNBC yesterday “We can get more out of this rally if we can get the focus shifted from the economy and QE2 to earnings.” An unusual admission, but that seems to be the goal, and it’s working this morning.

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