So the recession is over right?

[Snot Sniper]

By one third I guess.

Two things: it doesn't matter where a US dollar is. Its existence adds to total US money supply, since you can at all times use it to buy stuff in the US, even if you probably won't while you hold it.

There is a lot of foreign investment in the US, though I don't expect that that figure is growing just now.

When you say "total US money supply" ... how does money which doesn't get spent (or invested) in the US help with liquidity there?

(Not assuming that you are a supporter of QE btw)

The second thing is that inflation is not a 1 to 1 function of money supply over the short to medium term. Nor are inflation expectations.

I'm not even going to ask about that. Not up for equations just now.

[Neu Leonstein]

how is it not?

The Fed printing money does not finance the US' spending. At least not in the direct way you implied. It's a lot more complicated than that.

(Talking about the fast-growth areas of China of course, not overall)

Meh, knowing what part of Chinese house price growth is reasonable and what constitutes irrational exuberance is worth a lot of money. Obviously I don't. Chances are that a general trend upwards is to be expected, and that in some places bubbles developed. At least that's what the government thinks, since they've capped speculative buying in many cities.

But then, if you're talking misdirected investment in China I suppose no one comes close to the government itself, so it's all a bit moot.

[Saiwania]

The recession will never be over until the Dow Jones Industrial average is back up to 2008 levels or higher.

[The House of Petain]

how is it not?

The Fed printing money does not finance the US' spending. At least not in the direct way you implied. It's a lot more complicated than that.

Yes, I realize it's not that simple.

[Nulono]

But they keep saying the recession is over.

Who are "they"?

(It's 6am; I had to make many corrections to this post because I was thinking something else.)

There's another correction. You're welcome.

[Ramenasia]

I'm sure property prices are pushing up in many of these places. But as I said, the data available at the moment does not suggest that this is because of foreign cash. It's just a symptom of fast growth and a lot of confidence.

And people with earnings or earnings prospects wanting a house of their own so they don't have to live in their grandmother's basement?

But more seriously, China is big but its population is even more big. Population is pretty dense, and isn't the pattern globally that prosperous nations have land prices higher the greater the population density?

(Talking about the fast-growth areas of China of course, not overall)

Land area does affect house prices but in many cases house prices soar as property in rapidly growing countries becomes more and more valuable to outside investors. Even in a country with low population density high demand can send property prices through the roof, as the US experienced recently.

[Neu Leonstein]

When you say "total US money supply" ... how does money which doesn't get spent (or invested) in the US help with liquidity there?

Well, liquidity is a separate issue, and not really what QE is trying to target. Liquidity just means the availability of cash at the time you need it. Normal citizens don't normally have a problem with this until your ATM stops working. But the big banks had problems when they couldn't use the normal IOUs to borrow cash as needed and lend it when they didn't. So they suddenly didn't have the cash when they needed it to pay their own bills, and in the case of a few of the big ones, that was their end.

But since Americans like their ATMs to work, the Fed basically walked out and said "borrow as much cash as you need right now, at low interest rates, and make sure everyone stays alive". Which is what a central bank is supposed to do, and makes a lot of sense.

But QE came much later. The idea is that the Fed will cut interest rates to stimulate economic activity: make it relatively cheaper to borrow and build a new business (or a new house) and give the economy a kick start. But you can only do that until you've cut rates to zero and money is basically free.

But because the US economy was in that deep a slump, zero rates weren't enough, and so they started giving even more cash away. That's "quantitative easing", and they did it by buying US government bonds, ie give the cash to however owned the bonds. There are various channels through which this is supposed to end up making the average citizen spend and invest more, but this is all kinda unusual stuff (ie we don't normally do this, and so nobody has a lot of experience with what is supposed to happen).

For what it's worth, I approach the question of QE with an empirical mindset. I disagree with what some people at the Fed have said about wanting to increase asset prices and rely on a wealth effect to stimulate spending - I just don't see that as being reflective of financial markets as they exist in practice. But that's not to say that QE and maybe even QEII haven't helped or made things less bad.

But as far as whether or not the US dollar the Fed has just handed over gets spent at the local Wal-Mart, or used to settle a transaction between a Brazilian miner and a Chinese steel mill, that's not really part of the picture at this point. It's not something the Fed has a lot of control over - it meant that at some point somebody who does not live in the US borrowed US dollars from a US investor/bank, but it shouldn't have much of a net effect either way. The US dollar is not "lost" to the US economy in any way - it'll ultimately be paid back and could at any point prior to that be used to buy American stuff. That is, afterall, why it's worth anything to the Brazilian and Chinese to start with.

[Holaloperho]

NO it's not, and it's going to get WORSE before it CRASHES. All part of the Agenda.

Conspiracy doesn't actually make sense, my friend

[Holaloperho]

The recession will never be over until the Dow Jones Industrial average is back up to 2008 levels or higher.

Not necessary the case, the fed print so many money that it cause all source of asset to worth more.
This means that even we get the DJIA to worth the same as 2008, the economy will not be the same as in 2008

[Hairyhippydudes]

NO it's not, and it's going to get WORSE before it CRASHES. All part of the Agenda.

Conspiracy doesn't actually make sense, my friend

They'll put that on your gravestone once they've taken over the world and had us all shot.

[North Kolovo]

If you guys don't make the right decisions by 19th of August 2011, yere all heading for Economic Ruin, like Ireland(Hell, jump on the bandwagon!)

[Coccygia]

I dunno, but I got a job. Screw you losers! I'm votin' Republican!*



*Not serious...

[Arkinesia]

Recessions have a dictionary definition and the US economy at present does not fit that definition. To say we are out of a downturn would be lying though.

[JJ Place]

Cisco is about to dump 10000-16000 workers.

Borders is about to close which will dump another 10000 workers.

But they keep saying the recession is over.

Recessions are not calculated by job layoffs. Employees of companies are laided off in economic periods of depressions, recessions, moderate economic growth periods, expansion, and booms; but they're not used to calculate the current stage of economic activity. Corporations fail, businesses go down, bad things happen to companies because of the management; that's a fact of this world, and it's observed in all Capitalistic economies, in all economic periods. The economic growth of the economy is used to indicate the economic period of the economy.

[Nansurium]

This recession is far from over...unfortunately.

[Khakodesia]

They never said the recession is over. I don't know where you got that from.

[Augarundus]

Borders is about to close which will dump another 10000 workers.

I shit my pants when I found this out this morning... I loved Borders...

[JJ Place]

Borders is about to close which will dump another 10000 workers.

I shit my pants when I found this out this morning... I loved Borders...

Look at the bright side, borders has another month left of life support. The U.S.A. is going bankrupt in two weeks. Borders is doing better than a Global Super-Power

[Indig0]

jobs cut employees all the time. it could be that what you hear on the news is not true. who cares what they say? if you still have a job, that's all that should matter.

[Nansurium]

Thomas Jefferson said he can't live without his books. I tend to agree.

[The House of Petain]

Borders is about to close which will dump another 10000 workers.

I shit my pants when I found this out this morning... I loved Borders...

Borders sucked. B&N was about 100% better.

[The Black Forrest]

I shit my pants when I found this out this morning... I loved Borders...

Borders sucked. B&N was about 100% better.

No really. Prices were cheaper.

Where you one of the multitudes who can't do math and purchased a "discount" program?

[Hydesland]

It create crisis because those money which were create by the fed doesn't cause banks in the US to lend more money out domestically, instead they turn into hot money and enter the developing countries. That the reason Asia have a lot of "cheap money" waiting to be lend out.

This is completely wrong, the banks are not lending out any of their excess reserves, it's just sitting there in their accounts with the fed not doing anything. The effect of QE2 is through its effects on bond holders, by putting pressure to flatten the yield curve (although by not much at all), inducing investors to adjust their portfolios to more investment in equity to compensate for lower long term interest rates. It has nothing to do with increasing the base supply of money reserves.