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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Is Yvette Cooper surging?

The bookmakers and Westminster are in a flurry. Is Yvette Cooper going to win after all? I'm not convinced. 

Is Yvette Cooper surging? The bookmakers have cut her odds, making her the second favourite after Jeremy Corbyn, and Westminster – and Labour more generally – is abuzz with chatter that it will be her, not Corbyn, who becomes leader on September 12. Are they right? A couple of thoughts:

I wouldn’t trust the bookmakers’ odds as far as I could throw them

When Jeremy Corbyn first entered the race his odds were at 100 to 1. When he secured the endorsement of Unite, Britain’s trade union, his odds were tied with Liz Kendall, who nobody – not even her closest allies – now believes will win the Labour leadership. When I first tipped the Islington North MP for the top job, his odds were still at 3 to 1.

Remember bookmakers aren’t trying to predict the future, they’re trying to turn a profit. (As are experienced betters – when Cooper’s odds were long, it was good sense to chuck some money on there, just to secure a win-win scenario. I wouldn’t be surprised if Burnham’s odds improve a bit as some people hedge for a surprise win for the shadow health secretary, too.)

I still don’t think that there is a plausible path to victory for Yvette Cooper

There is a lively debate playing out – much of it in on The Staggers – about which one of Cooper or Burnham is best-placed to stop Corbyn. Team Cooper say that their data shows that their candidate is the one to stop Corbyn. Team Burnham, unsurprisingly, say the reverse. But Team Kendall, the mayoral campaigns, and the Corbyn team also believe that it is Burnham, not Cooper, who can stop Corbyn.

They think that the shadow health secretary is a “bad bank”: full of second preferences for Corbyn. One senior Blairite, who loathes Burnham with a passion, told me that “only Andy can stop Corbyn, it’s as simple as that”.

I haven’t seen a complete breakdown of every CLP nomination – but I have seen around 40, and they support that argument. Luke Akehurst, a cheerleader for Cooper, published figures that support the “bad bank” theory as well.   Both YouGov polls show a larger pool of Corbyn second preferences among Burnham’s votes than Cooper’s.

But it doesn’t matter, because Andy Burnham can’t make the final round anyway

The “bad bank” row, while souring relations between Burnhamettes and Cooperinos even further, is interesting but academic.  Either Jeremy Corbyn will win outright or he will face Cooper in the final round. If Liz Kendall is eliminated, her second preferences will go to Cooper by an overwhelming margin.

Yes, large numbers of Kendall-supporting MPs are throwing their weight behind Burnham. But Kendall’s supporters are overwhelmingly giving their second preferences to Cooper regardless. My estimate, from both looking at CLP nominations and speaking to party members, is that around 80 to 90 per cent of Kendall’s second preferences will go to Cooper. Burnham’s gaffes – his “when it’s time” remark about Labour having a woman leader, that he appears to have a clapometer instead of a moral compass – have discredited him in him the eyes of many. While Burnham has shrunk, Cooper has grown. And for others, who can’t distinguish between Burnham and Cooper, they’d prefer to have “a crap woman rather than another crap man” in the words of one.

This holds even for Kendall backers who believe that Burnham is a bad bank. A repeated refrain from her supporters is that they simply couldn’t bring themselves to give Burnham their 2nd preference over Cooper. One senior insider, who has been telling his friends that they have to opt for Burnham over Cooper, told me that “faced with my own paper, I can’t vote for that man”.

Interventions from past leaders fall on deaf ears

A lot has happened to change the Labour party in recent years, but one often neglected aspect is this: the Labour right has lost two elections on the bounce. Yes, Ed Miliband may have rejected most of New Labour’s legacy and approach, but he was still a protégé of Gordon Brown and included figures like Rachel Reeves, Ed Balls and Jim Murphy in his shadow cabinet.  Yvette Cooper and Andy Burnham were senior figures during both defeats. And the same MPs who are now warning that Corbyn will doom the Labour Party to defeat were, just months ago, saying that Miliband was destined for Downing Street and only five years ago were saying that Gordon Brown was going to stay there.

Labour members don’t trust the press

A sizeable number of Labour party activists believe that the media is against them and will always have it in for them. They are not listening to articles about Jeremy Corbyn’s past associations or reading analyses of why Labour lost. Those big, gamechanging moments in the last month? Didn’t change anything.

100,000 people didn’t join the Labour party on deadline day to vote against Jeremy Corbyn

On the last day of registration, so many people tried to register to vote in the Labour leadership election that they broke the website. They weren’t doing so on the off-chance that the day after, Yvette Cooper would deliver the speech of her life. Yes, some of those sign-ups were duplicates, and 3,000 of them have been “purged”.  That still leaves an overwhelmingly large number of sign-ups who are going to go for Corbyn.

It doesn’t look as if anyone is turning off Corbyn

Yes, Sky News’ self-selecting poll is not representative of anything other than enthusiasm. But, equally, if Yvette Cooper is really going to beat Jeremy Corbyn, surely, surely, she wouldn’t be in third place behind Liz Kendall according to Sky’s post-debate poll. Surely she wouldn’t have been the winner according to just 6.1 per cent of viewers against Corbyn’s 80.7 per cent. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.