What head of State would not dream of going into an election backed by 3.5% growth and 5.9% unemployment rate? That would surely insure victory over opponents... However, Barak Obama and the Democrats just lost the mid-term elections. They were already in minority in Congress and now they are sinking even deeper, losing their majority in the Senate in favour of the Republicans.
There is nothing unfair in these results. On the contrary, they simply show that manipulating statistics has its limits. The American people, unlike “economists”, columnists and political leaders, know that unemployment is being grossly under-estimated, namely because millions of discouraged unemployed workers are not accounted for in the statistics. People also realise that the Fed’s monetary printing experiment has created a “wealth effect” (QE is good for stocks and shareholders) generating a little growth, but that this growth remains fragile and bubble-like. The American people, in general, are not faring better since the 2008 crisis and there is no real economic recovery: they just let it be known to the politicians in place.
All this “quantitative easing”, which purpose was to hide the misery, will have brought the Fed’s balance sheet from $800Billion before the crisis to over $4.5Trillion today. All this debt, at the end, only generated a limited spike in GDP. The results are deplorable but all this free money, in truth, has been put to use in doping the stock market indices. Fed’s chairwoman Janet Yellen has announced the end of QE but, in reality, it’s a little more complex. The Fed has indicated it will continue to reinvest the proceeds of bonds as they mature and keep them on their balance sheet, which will not be reduced... it is akin to continuing a mini-QE of sorts. And, above all, the base rate, fixed at 0%, will stay there for a long time, which will allow the banking system to finance itself with real negative rates. Talk about an incredible bonanza!
Bottom line: these mid-term elections bring reality back to the forefront, and reality looks ugly. These voting results should be taken as an extra warning about the uselessness and danger of all those “quantitative easing” plans put in place all over the world.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.