Mark Cuban's View on QE2

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If the Fed thinks that creating money to make it easier for companies to borrow money

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I may be wrong but thats not why they are doing it correct?

Id say QE1 was more about trying to get lending going again...even though there was strong historical evidence that it wouldn't work...not so much with QE2.

QE2? What's the point...

They needed to have a bigger QE $ amount to lower rates any more and QE1 really didn't have the effect they wanted/needed/

They can't possibly believe they can devalue the dollar so much we actually become a legitimate competitor in the world market. It's just going to artificially mess with the Trade Deficit.

Possibly to prevent more banks from failing?

I really have no idea.

QE1 was needed. We were on the brink of collapse. QE2 is not needed. Clarity is needed. Businesses are actually growing and are flush with cash. They are not hiring because of all the unknowns with health care, financial reform, and taxes. If an employer cannot quantify how much the next employee will cost them, they simply will not hire. As more clarity comes, the jobs will follow. QE2 is missing the point.

I think you've definitely got one part of the equation right. However, I think that consumer demand will not increase until people are satisfied they have secured their own financial circumstances. Whether its eliminating debt, achieving a certain level of savings or some other determinant, many consumers will continue to exercise frugality until they reach their personal goals. The lack of demand for their products will also slow employers from hiring.

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Even if it becomes clear that employees will cost more?

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I would think so. As long as the cost is relatively known. You have to spend money to make money. Smart business will find a way to do it as long as they don't get hit by a "successful" tax along the way.

Looks like we have a constructive and informative post going and i'd love to get some more views/information. Feel free to post something long or any article you think applies, i'll read it.

@Kfizz

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it is, at the very least, debatable whether the first round of easing

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From what I saw the "first round of easing" mimicked what happened in Japan...the total sum of "printed" money dramatically shot up and the amount of money in circulation/borrowed/spent did SLIGHTLY increase but it was no where near the increase of the money pumped in. That's why I think it failed; I'm probably wrong and would love to hear what you think.

@Billder

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QE1 was needed. We were on the brink of collapse. QE2 is not needed.

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Can you expand a little more?

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Businesses are actually growing and are flush with cash.

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Are there businesses who were well managed throughout the crisis and are poised to do well when things spring back? Yes. I look at ALOT of financials/debt covenants etc...from what i'm seeing, which albeit probably is not the whole picture, there are not alot of business "flush" with cash.

@Poodle

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think you've definitely got one part of the equation right. However, I think that consumer demand will not increase until people are satisfied they have secured their own financial circumstances.

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many consumers will continue to exercise frugality until they reach their personal goals.

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Agreed.

I agree. I think its pretty impossible to quantify what the effects of the first phase was, given everything going on, but if you're of the opinion (such as DF) that the goal was ultimately to inflate asset prices (markets, housing, etc) and slow or counteract deflationary effects, given where we were heading pre-March 09 and where we ended up post-March 09...well I think that answer is fairly obvious. Again, to what degree is that due to fed policies and to what degree is that due any other myriad economic factors...is a different story. At the end of the day the outcome will be the same though, IMO. It might work to buoy those markets for awhile, but eventually the battery will die and you'll be stuck in the same place.

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QE1 was needed. We were on the brink of collapse. QE2 is not needed.



Can you expand a little more?

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Sure. An oversimplified explanation:
What we had was a liquidity crisis, and there was a massive run on cash for safety. There was enough demand for cash that all obligations could not be satisfied. Very quickly financial institutions were going to become insolvent. The Fed "opened the window" and allowed banks to borrow to satisfy requests. If this didn't happen, there is a bank run, banks can't meet their obligations, people can't get their cash, people/businesses can't meet their obligations, most major banks fail, the world financial system fails, etc..... I know it sounds far-fetched, but we were there. Pretty scary stuff.

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Are you LSURussian's alter?

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No alter. I usually post on the Rant. I rarely post on the money talk, but I lurk a good bit.

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ETA: FTR "opening the window" =/= "QE1." The myriad emergency credit facilities the Fed created = "opening the window;" buying agencies and treasuries = what is now commonly known as "QE1."

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I stated it was an oversimplified explanation. In hindsight maybe too oversimplified. I lumped in all Fed action to increase money supply into QE. I agree that the buying of agencies and treasuries is QE in its purest form.

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ETA: And I feel its necessary to distinguish between what explicitly was the first batch of easing versus the temporary facilities for precisely the reason you commented. The liquidity facilities dealt with the liquidity crisis. If the crisis were purely a liquidity crisis, then we would have never had a credit easing policy implemented in the first place, because it isn't a liquidity crisis, its a liquidity crisis that evolved into a deleveraging crisis, which is what the credit easing policies are "supposed" to fix.

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Very well said. Correct me if I'm wrong, but "credit easing policy" was born in this crisis. Didn't Bernanke coin this term to distiguish what they were doing versus action taken in Japan? Don't many of the fundamentals of QE = "credit easing policiy"?