Crumbling Foundation of QE’s

In another piece of the puzzle ending the reign of Bernanke’s monetary influence, there remains deep dissatisfaction with the economy. Poll after poll just ahead of the coming midterms shows the economy as “somehow” the top concern.

The discontent in the latest ABC News/Washington Post poll is palpable. Despite its fitful gains, seven in 10 Americans rate the nation’s economy negatively and just 28 percent say it’s getting better. In a now-customary result, 68 percent say the country’s seriously off on the wrong track.

You have to hand it to ABC in really trying to be polite, actually describing the economy as having “fitful gains” rather than the usual diatribe about the Establishment Survey’s robustitude and direct deference to the conventional narrative about how good everything is. This gets back to the primary influence of the QE’s, or what was thought about them in the Bernanke age. Though this may be but one story reflecting the broader shift in sentiment about monetarism, there are other anecdotes that even media reporting is not so monolithic now, instead being forced by this kind of reality to bend toward accepting interpretations beyond orthodox economics.

QE was supposed to make people “feel” better about pretty much everything, reinforcing that positivism via asset prices if nothing else. The record high stock prices (or at least for some of the indices) were meant as a signal to “don’t worry, be happy.” Orthodox economics treats recessions now as almost fully devolved to unsophisticated emotion (undue “pessimism” seems to dominate recessions, confusing cause and effect in this convention – recessions and their precursors cause pessimism not the other way around), so an emotional response seemed to them so very appropriate.

Instead, no “animal spirits” have been revived other than raw greed toward a third episode of “easy money” in stocks and elsewhere (low default rates in corporate credit, especially junk, is a peak signal of bubble behavior, not representative of a new and permanent plateau of prosperity). So it has to be very concerning, in considering what to do after dismantling everything that Bernanke built up, that the psychology seems to only penetrate the most shallow and pliable surfaces. That is not something upon which to base an economic foundation.

In other words, if QE is (was, at least for the third and fourth installments) psychology and the majority psychology is still so deeply pessimistic as to be the primary voter concern for an election years later, then QE simply doesn’t work – at all.

So, again, where it may represent a step forward for central banks to actually see this for what it means, they have not arrived yet at the full truth. They still see monetarism as valid, and only the means of monetarism in this case, QE, as being invalidated. Instead, as Japan’s history has shown quite clearly, and now Europe and probably the US in short order, QE is representative of the broad failure of monetarism. It’s now a race to the third bubble.