Tuesday, August 28, 2012

Today's links

1--China’s Stimulus Headaches, naked capitalism

2--US troops escape criminal charges for incidents that outraged AfghanistanBurning of Qur'ans and urinating on corpses in Afghanistan led to allegations against six US army soldiers and three marines, Guardian

3--Parents deported, what happens to US-born kids?, MPR News
Nearly 45,000 such parents were removed in the first six months of this year, says the federal department of Immigration and Customs Enforcement (ICE).
4--The Middle Class Decline, economic populist

5--The work of John Maynard Keynes shows us that counter-cyclical fiscal policy and an easing of austerity may offer a way out of Eurozone crisis, LSE

6--Is the Fed Gaming Hilsenrath? Next Easing Will Be the Last, TrimTabs

7--Spanish Recession Deepens as Austerity Damps Outlook: Economy, Bloomberg

8--Will the Fed announce an open-ended QE3 program at Jackson hole?, Dr Ed's blog

9--Why Paul McCulley Would Be Shorting The Economy With Both Hands Right Now, zero hedge

10--Gaza will be 'unlivable' by 2020 unless immediate action taken - UN, RT

11--Israeli court acquits Israel of 2003 killing of US pro-Palestinian activist Rachel Corrie, RT

12----Trickle-down quantitative easing, IFR

QE drove a 26% rise in shares above where they otherwise would be, in turn fuelling a nominal increase of almost a trillion dollars in household wealth in Britain, though with the richest 5% owning 40% of financial assets those gains were hugely slanted towards the wealthiest.

Quantitative easing, as distinct from simply lowering interest rates, acts on the economy through channels several of which tend to push asset prices higher. First, most simply and most powerfully, when a central bank creates money and buys a government bond the person selling it is faced with a question of what to do with the money. Many will elect to plow the money back into shares and corporate bonds, boosting prices.

While QE will improve the earning power of corporations, via the wealth effect from higher asset prices and more generally through higher overall economic growth, it seems unlikely, to cite the BOE’s figures, that it has raised the long-term value of corporate earnings by the 26% it has raised the price of a share in those earnings. That very well may leave shares vulnerable; in need of either more QE, which may show diminishing returns, or, less likely, an actual economic recovery.

The so-called liquidity premium may also not last forever.

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