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.

Read more from Stephen Hill

This piece first appeared on Spear's Magazine

Ben Bernanke. Photograph: Getty Images

This is a story from the team at Spears magazine.

Felipe Araujo
Show Hide image

Hull revisited: What happens when a Brexit stronghold becomes City of Culture?

We report from Hull, to find out if you can replace the kind of nostalgia that led to a Leave vote with cultural investment.

At 75 metres long, the offshore wind turbine blade erected across Queen Victoria Square, in the heart of Hull, is a sculpture intended to mark a new chapter in the city’s history. For the next 12 months, Hull, a city of more than a quarter of a million people in the northeast of England, will be the UK’s City of Culture.

The 28-tonne blade hails from the local Siemens plant. The German technology company employs around 1,000 people in the area, making it Hull’s biggest single employer.

Seen up close in this context – laid dormant in the middle of a town square instead of spinning up in the air generating energy – the structure is meant to remind passersby of a giant sea creature. It is also, I’m told, an allusion to Hull’s rich maritime history.


All photos: Felipe Araujo

Nostalgia is a big thing in this part of the country. At one point, Hull was the UK’s third largest port but technology and privatisation drastically changed that. The battle over cod fishing with Iceland in the waters of the North Sea 40 years ago has also dealt a major blow to a region with a long and proud trawling tradition.

People here still talk about a bygone era when the fishing industry provided jobs for everyone and there was enough money to go around.

Fast forward to 2017, and the country’s new capital of culture is the same city that voted 67 per cent in favour of leaving the EU last June. Its new-found prestige, it seems, is not enough to erase years of neglect by a political class “too busy for commoners like us”, as one resident puts it.

“More than a message to Brussels, it [the Brexit vote] was a message to Westminster,” Paul Leeson-Taylor, a filmmaker born and bred in Hull, tells me. “For the first time in a long time people in Hull felt like they had the chance to change something, and they took it.”

But while speaking to people on the high street and hanging out with locals at the Community Boxing Club in Orchard Park, one of the city’s most deprived areas, there is one word that consistently popped up in conversation – more than any specific policy from Westminster or the much-hated rules “dictated” by Brussels. Foreigners.

According to official figures, Hull’s population is 89.1 per cent white British. Still, immigration is big on people’s minds here.

During my two-day stay in the city, I find myself being the only black person in most places I visit – I’m certainly the only black guy at the boxing club. So when someone begins a sentence with “I’m not racist but…”, I know a tirade on immigrants is about to ensue.

“There are just too many of them,” Nick Beach, an estate agent whose Polish clientele is a big part of his business, tells me as he is about to teach a boxing class to local children. Beach was born in Shepherd’s Bush, in West London, but has been living in Hull for the last 20 years.

“When I go down there these days and go into Westfield shopping centre, it is very rare you get an English person serving you now,” he says. “I just find it disappointing that you go into your capital city and you are a minority there.”

These are the much-discussed “left behind”, a white working-class community that has gained particular prominence in a time of Brexit and Donald Trump. Under economic pressure and facing social change, they want to have their say in running a country they claim to no longer recognise.

For Professor Simon Lee, a senior politics lecturer at the University of Hull, immigration is only a superficial layer when it comes to explaining the resentment I witness here. For him, the loss of the empire 70 years ago is still something that as a country Britain hasn’t come to terms with.

“The reason for us to be together as a United Kingdom has gone, so what is the project?”

As destiny would have it, a foreign company will now play a major role on Hull’s economic future, at least in the short term. In the wake of the Brexit vote, there were widespread fears Siemens would pull out of the region and take its factory elsewhere. With the massive blade looming large in the background, Jason Speedy, director of the blade factory in Hull, assures me that isn’t the case.

“The Brexit decision has made no difference. We have made our investment decision, so Siemens, together with the Association of British Ports, has put in £310m. It’s all full steam ahead.”

As Hull becomes the country’s cultural hub for the next few months, the hope is that its residents stop looking back and start looking forward.

For Professor Lee, though, until there is a complete change in the power structures that run the country, the north-south divide will remain – with or without the EU. “The way you kill nostalgia is to have something new,” he said. “The reason why people here are nostalgic is because there is nothing to replace it with.”

Felipe Araujo is a freelance journalist based in London. He writes about race, culture and sports. He covered the Rio Olympics and Paralympics on the ground for the New Statesman. He tweets @felipethejourno.