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.

Photo: Getty
Show Hide image

The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

0800 7318496