Turning off the QE tap is going to be impossible

And it's no laughing matter. Try asking the record 20.2 per cent of US households stuck on food stamps.

Ben Bernanke pulled back in horror from a 1937-style repeat of Marriner Eccles’ premature emasculation of the economy, in Helicopter Ben’s case from his very own flagship QE policy: the FOMC decided not to taper its $85 billion monthly dose of QE steroids, as previously notified. These steroids were meant to be a shot-in-the-arm for the US economy, whose recovery is stuck very alarmingly in neutral: only 169,000 new jobs in August does not recovery make.

QE is now linked to unemployment – still stuck at 7.3 per cent, despite a record number of job no-hopers conveniently falling off the other end of the escalator. The US has actually lost 347,000 jobs in the past two months. House sales and mortgages, which are linked to 10-year Treasuries whose yield has doubled, have also stalled. The US economy, like the Fed, is backfiring badly and is nowhere near escape velocity.

QE tapering is now to begin when unemployment reaches 7 per cent – but it’s only at 6.5 per cent that the QE tap will be finally turned off and interest rates rise, depending on the reality on the ground, and not these meaningless spin-driven, manipulated, distorted, half-truth figures for unemployment. What has also become clear, however, is that these US steroids went global and are creating lax monetary conditions and consequent asset bubbles from Timbuktu to Chongqing and back again.

Isn’t this where the Global Crunch started? When Ben Bernanke announced in June that tapering would begin in September, he under-estimated the global reaction: horror! Money rushed back to the dollar, and the promise of higher US rates to come, as the yield on two-year Treasuries doubled since May. This bit wasn’t in the Bernanke script.

The Fed watched this global reaction with trepidation, as though they only now realised the global impact of their own printing presses and the consequent need for low interest rates.

Public debt everywhere is still far too high – the UK is having to borrow £115.7 billion this year and cannot afford higher interest payments; nor are the markets ready to fund public debt which is out of control in most of the G20; bank balance sheets are stuffed with bonds, and rising rates would trigger losses, and another banking crisis; that would have led to withdrawals of their special deposits earning just 0.25 per cent, and rocked the Fed itself; and there lurks the threat to emerging markets and another Asian currency crisis. Luckily for the Fed, inflation remains subdued – if you believe government figures.

The real error is that the Bernanke thought QE would rescue the real economy, but buying existing bonds and mortgages does not add a bean to aggregate demand, and it is consumer demand, buried under old debts and slowing real wages, which is the missing spark to re-ignite the US economy. And the obvious cure is tax reductions, but that means more debt, or actual or mandated cuts.

Unfortunately, it’s still stalemate-time again on Democrat tax increases versus Republican expenditure cuts on Capitol Hill. And worse still, it’s time this month to settle the acrimonious issue of the budget and the US Total Debt Ceiling ... Obama is the man stuck inside the shrinking Economic White House, and the Republicans are loving every minute of it – sweet revenge for having lost the White House twice running.

The central bankers are, once again, in danger of losing control of interest rates and monetary policy, and somewhat bizarrely QE seems to be the new 600-lbs gorilla in the bankers’ parlour, which is now threatening to control them. As I said last week, printing QE largesse is easy, but stopping it is unchartered territory, for which there is no arithmetic.

Is this the new Big Black Hole in Professor Bernanke’s post-retirement thesis - "How I Single-handedly Saved the Global Economy with My Printing-press"? Ending QE is no laughing matter... Just try asking the record 20.2 per cent of US households stuck on food stamps.

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This piece first appeared on Spear's Magazine

Ben Bernanke. Photograph: Getty Images

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Commons Confidential: Could Corbyn's El Gato kick Larry out of Downing Street?

The No 10 cat fight.

A rolling revolt is gathering speed, as the suspicion grows that Theresa May called her snap poll to escape potential by-elections, should the Crown Prosecution Service find that her MPs were involved in electoral fraud during the 2015 campaign.

A growing number of Tory MPs are informing HQ that they don’t want a battle bus visit. Driving the rebellion is the hard-boiled Andrew Bridgen, who made his cash by selling prewashed spuds to supermarkets. “I’m going to post party workers on every route into my constituency,” growled the veg baron, who is defending an 11,373 majority in Leicestershire, “with orders not to let any bloody bus on to our patch.” Here’s an opportunity for Tory command to raise a few bob: flog tyre-bursting spike strips to candidates.

Fur would fly in the unlikely event that Jeremy Corbyn moves into No 10. The more optimistic among his entourage fret over whether the moggy El Gato could cohabit with Larry the Downing Street cat. Corbyn muses that El Gato is a socialist, sharing food with a stray that turned up in his north London garden. If Labour wins, I understand that El Gato is the top cat or Larry is out with May. Jezza’s first call wouldn’t be to Donald Trump or Angela Merkel but to Battersea Dogs and Cats Home.

George Osborne’s £650,000 BlackRock sinecure is jeopardised, I hear, by his London Evening Standard editorship. An impeccable source whispers that the world’s largest investment fund, controlling £4trn of loot, anguishes over possible conflicts of interest. BlackRock hired Osborne to nurture high-net-worth clients, who are suddenly wary of divulging secrets to an ambitious hack. Perhaps the super-rich should relax. He is incapable of recognising a story, even missing Standard deadlines with his resignation as a Tory MP.

The word is that Ukip’s seven-time loser Nigel Farage declined the chance to risk an eighth loss to retain his £800-per-hour LBC radio gig. The Brexit elites’ Don Farageone needs the money – a chauffeur-driven Range Rover with tinted windows won’t be cheap.

Corbyn’s war on dandelions is on hold during the campaign, with green-fingered comrades tending his allotment. Cherie Blair was accused 20 years ago of mentally measuring up curtains for No 10. Corbyn quipped that he is tempted to measure flower borders to plant runner beans. Labour’s No 10 would certainly be no bed of roses.

What will retiring MPs do? Middlesbrough South’s Tom Blenkinsop informed colleagues that he might join the army. My hunch is that at 36, with a Peaky Blinders haircut, the general secretaryship of the Community trade union is more likely.

Kevin Maguire is the associate editor (politics) of the Daily Mirror

Kevin Maguire is Associate Editor (Politics) on the Daily Mirror and author of our Commons Confidential column on the high politics and low life in Westminster. An award-winning journalist, he is in frequent demand on television and radio and co-authored a book on great parliamentary scandals. He was formerly Chief Reporter on the Guardian and Labour Correspondent on the Daily Telegraph.

This article first appeared in the 27 April 2017 issue of the New Statesman, Cool Britannia 20 Years On

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