You’ve said QE is the cause, but provide no evidence to back up these claims. Considering QE occurred multiple times after the 08 crisis, what makes this time different? Bold claims without much substance.
First, the market is made up of all of us seeing similar data and coming to our own conclusions based on our interpretations and self-interest.
Second, the market didn't just crash in 2008, it melted down. There were fears of simultaneous runs on global banks with catastrophic consequences. Bernanke/Geithner/Paulson orchestrated government backstops on money market funds, on Fannie/Freddie debt, on shotgun-marriages between banks, on defusing the credit default swap nightmare constructed by AIG and its counter parties. ZIRP and QE were brought in to juice spirits in the hopes of rescuing growth.
2008-2009 was the end of the financial world as we knew it going back to Paul Volcker. It was nightmare. It was a catastrophic end that many and been predicting for some time. Some saw the writing on the wall by 2005 and were positioning their investments accordingly. Read about the thoughts of Ray Dalio, Stan Druckenmiller, or Jeremy Grantham.
Since 2008-2009, we're now in a whole new regime. Perpetual QE + ZIRP is not in ur economic textbooks and I do not believe our models can tell us what is coming.
We had an opportunity when things were stable in 2010 to find a sustainable path forward. Instead, worldwide, we've just taken regular hits of QE.
QE bought a lot of long term junk-ish bonds (full of "AAA housing"), no?
QE was the bridge between the two sides of the chasm, hence it's not visible on the graph. We see a rapid fall, a smooth bottom and a nice rise, but it could have been simply a big crash at the bottom and nothing for a decade.
I have thought a lot about this. I am not sure that I have an answer because the way in which everyone (inc. myself) thinks about financial markets appears to be totally wrong (I am in the UK, we have had several rounds of QE since 2010...every time, the BoE gave a different explanation of how QE works).
But it is easier to comprehend that, most obviously in the EU, there is a shortage of risk-free assets. It is less that there is too much money and more that there is a mismatch between assets required by investors to match liabilities and what there actually is. My guess is that over the next ten years, we see a move to understand the demand for financial assets in more depth (and from this perspective, QE seems like financial vandalism). Framing purely in terms of supply doesn't really explain what is happening or why people are doing things that make no sense.
I also don't think 2007/08 was a function of too much money at all. It was a combination of structural issues, poor regulation, and a relatively normal financial cycle (people buying things because other people were buying them). What happened in 2008 was the market working effectively. It was after 2008 when the odd things started happening (one very interesting thing to me was Blackstone's property business...they were doing the most overvalued deals at the very top of the market in 2006/07...and they ended up making multiples, that really isn't normal, and the bailout in the view of the Fed was the market working...which is, ofc, totally backwards).
To paraphrase Mark Blyth (Prof. Econ. at Brown), QE is the absolute worst way to deal with our banking mess, except doing nothing. It kept the US from crashing into the mess that Europe is in. That was probably good, but it was effectively a class-specific put option.
"Not crashing" does not necessarily mean "positive boost".
This is basically right. It's a myth that anyone believed in any of the stronger forms of efficient markets. The interaction of ineffective regulation and political lobbying had a lot to do with the crisis.
Related myth is the idea that nobody saw it coming. I went to a luncheon at Goldman's in 2006 where they announced things would start looking rocky in 2007 and the big whammy would be 2008.
IDK why this is being downvoted...poster is right. QE never ended in 2008 or when it peaked in 2010...and the closest we came to trying was in 2010 which sparked a flash crash and was immediately shelved as an option in favour of three more rounds of QE on the house.
from TFA: "The Fed's pandemic actions fueled a housing boom"
well thats part of the issue (pulling a mini tarp), but the other half of the story is the extraordinary steps taken way back in 2010 to keep people in their homes in the first place. The government wanted cake and they wanted to eat it too. Banks that over-leveraged and pandered predatory loans were never allowed to crash and burn; they were almost all bailed out through TARP. homeowners in turn who accepted these loans were also often gifted with TARP assistance that kept them in overvalued homes. auto-makers without customers were never made to reform, only a few token concessions and mergers here and there for companies with a track-record of dismal performance, and a well published cosmetic defect when executives from these conglomerates came with dog-eared pockets to congress on private jets.
Effectively, when the market ran out of gas, the federal government began expectorating ether into the air scoop of the economy like a wasteland war boy effectively trying to outrun any crash that didnt focus entirely on the poorest members of society.
The world has been on the bull run powered by QE and zero rates for 13 years or more, then the fun ended, and suddenly it's all the disasters in the world that will inevitably lead to a recession.
When did the economists forget the term "market correction"?
This is an interesting analysis, but leaves out a big point: the structural evolution of markets over time
Back in 19th century, accounting standards weren’t as strict, information was not as widely available, and central banks didn’t exist. It was the Wild West so no wonder you had bubbles and long periods of draw downs
Today the US fed would quickly intervene to turn markets around. When Japan crashed in late 80s, they didn’t know QE was the answer so they struggled for a decade. When the US crashed for similar reasons in 2008, they knew QE would help and jumped on it. The stock market was back on track in a freaking year. It didn’t recover to the heights but it was trending on right direction.
To believe we would have similar long draw downs like the 19th century, you’d have to believe that something structural would change where current valuations would decrease: a shrinking economy (very unlikely), or capital flight elsewhere (also very unlikely given US track record).
The US economy has a lot of advantages and I’m having a hard time seeing a long term bear case for it
It was a massive bail out for the financial sector. Did it work - we will see, current signs are not good.
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