Did China Warn the U.S. On QE?



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Podcast Summary

0:00-2:36 Intro

A Warning From China?

2:36-7:35 Discussion of the new direction that the Federal Reserve is taking. All the Fed Presidents have been making statements that they are determined to continue with the tapering of quantitative easing (QE), brushing off a couple of months of poor economic data. The amount of debt the United State is incurring also seems to no longer be a priority for Congress as they have agreed to raise the debt ceiling with out a political battle. Last October Republicans pushed the issue as requiring immediate action but just a few months later have decided not to make it an issue.

Louis suspects that China has warned the U.S. to knock off the QE and don’t even think about defaulting on your bonds. The Fed is trying to achieve low interest rates without QE. Perhaps a lot of money will return to the U.S. because it is viewed as a safe haven as money flees the emerging markets. This could provide support for US Treasuries as the Fed cuts back on purchasing them. The Fed’s willingness to print money gives comfort to holders of Treasuries that they will always be paid back.

How to Interpret Unemployment Data

7:35-11:20 The Fed has set a target unemployment rate of 6.5%. Louis and Ryan break down the numbers relating to the labor market and conclude that the real unemployment rate is far higher than how it is currently being calculated by the Bureau of Labor Statistics. Given the high real rate of unemployment once might think the Fed would want to do more QE.

Alternatives to the US Petro Dollar

11:20- 13:40 Ryan and Louis discuss the U.S. dollar’ s status as the world’s reserve currency and the danger posed by losing that status. Louis discusses the origin of the Bretton Woods agreement, the gold standard, dollar convertibility, and the flippant attitude of the former U.S. Treasury Secretary John Connolly (“it’s our currency, your problem”).

What Has QE Achieved?

13:40-15:50 Ryan reviews what the impact of QE has been.



Who Benefits from Government Spending and Federal Reserve Policies?

Homeowners Cheer On QE

15:50-19:46 Louis reviews who receives government benefits and notes that homeowners are also on the receiving end of Fed policy that has boosted home values and observes that homeowners (especially ones that have underwater mortgages as a result of bad Fed policy under Greenspan) really don’t care that the housing recovery is in price only as long as their homes are rising in value. Housing recovery indicators like low volumes of homes sold, low numbers of newly constructed homes, low percentage of first time homebuyers and a low labor participation rate are ignored. Louis notes that the vast majority of people are reliant in some form on government subsidies or Federal Reserve policies.

The Labor Market and Real Estate

19:46: Discussion of the tepid mortgage market, lower home sales and the correlation to the labor market. The advantages of buying a home with a 30 year mortgage. Louis calls it rent control.

Government/Fed Interference in the Housing Market

25:45-30:45 discussion of the how many potential home purchasers view potential price appreciation as a primary factor in buying. Discussion of buying a home as an investment property vs. as a primary residence.



What is Holding Back Housing Inventory?

30:45 discussion of the factors leading to low housing inventory and how lack of job growth factors into it.

Discussion of how the economy is being propped up by rising stock and real estate prices and when they fall the recovery will be over. Discussion of millennial and first time home buyers. Discussion of Detroit’s rise and fall. Discussion of Billionaire’s Row (Bishop’s Avenue) in London where homes worth billions of dollars are left derelict and the Harvard Economists who took a million dollars out of Bank of America.

Discussion of the adverse Keynesian influence on the Federal Reserve and how politicians promise other people’s money.

Did China Warn the U.S. On QE and The Debt Ceiling?

