With not a wisp of concern

At Moneyness:

... let's say that QE was not irrelevant and can be held responsible for a large chunk of the rise in equity prices over the last few years. Even then, the real economy, and therefore the poor, would have been equal beneficiaries of QE. As I pointed out in my previous post, financial markets are not black holes. Newly-created money, insofar as there is an excess supply of the stuff, cannot stay 'stuck' in financial markets forever. For every buyer of a financial asset there is a seller, and that seller (or the next seller after) will choose to do something 'real' with the proceeds, like buying a consumption good, investing in real capital, or hiring an employee—the sorts of purchases that benefit the poor...

In the post Koning is considering stories that he doesn't find satisfying. I want to be careful not to say anything that sounds like I think he accepts those explanations. But in the above excerpt, it is the "QE was not irrelevant" story that is not his. The rest of that excerpt *is* Koning, the "the poor would have been equal beneficiaries" part, and the repeating what he said in his previous post, and all that.

Koning writes:

For every buyer of a financial asset there is a seller...

I hate that. It's such a wrong thing to say. It implies that the number of buyers is equal to the number of sellers, when obviously it is the number of buyings and the number of sellings that are equal.

In a world skewed by inequality it is likely that there are sometimes many buyers and few sellers, sometimes many sellers and few buyers.

"For every this there is a that" is a terrible, terrible argument. It confuses the truth. But that's not the worst of the worst. Koning writes:

... and that seller (or the next seller after) will choose to do something 'real' with the proceeds...

In other words, Koning says nobody hoards money. The Fed Q-ease new money into existence, and the first recipient spends it on something real. Or the second recipient.

But if things ever did work that way, they don't any more. We just don't want to spend anymore. That's what the change was, back when things suddenly changed. You know. It happened at the same time that the money multiplier stopped working. People don't spend money they have, and people don't borrow to spend money they don't have. That was the change. Yet Koning says no one hoards money.

So, what does Koning's graph show? Oh -- no, nothing. Koning doesn't show a graph. Here, use mine:

Graph #1: The sudden change in the blue line was the Fed's response to the sudden increase in hoarding.

Po people don't have money that makes them money. So let's don't look at MZM or M2 money. Let's look at spending-money, the money readily available for spending -- the money the Fed calls M1. And let's compare M1 money to the total assets of Federal Reserve Banks, which were significantly increased by the Quantitative Easing. Koning was talking about the Quantitative Easing, remember.

Graph #1 compares spending-money to total Federal Reserve assets. Used to be, for every $800 of Fed assets there was about $1200 of spending-money. The red and blue lines ran side-by-side, roughly parallel, the blue line low. But with Quantitative Easing, that all changed. The Fed started increasing its assets (blue) and has been increasing its assets ever since.

Fed assets jumped from being less than M1 money, to being more than M1 money. From about two thirds, to about four thirds of M1 money. And the difference is even greater now. People don't hoard? What was Koning thinking?? Obviously, whoever has the newly-created money is in no great rush to turn it into spending-money.

NOTE:
FRED's title for the dataset shown in blue is All Federal Reserve Banks - Total Assets, Eliminations from Consolidation. It would have been simpler if they just called it All Federal Reserve Banks - Total Assets. The word "eliminations" in there makes it seem that the blue line must show less than the total. I don't think that's the case. I think they add up (or consolidate) the holdings of the dozen Fed banks and then eliminate some items to avoid double-counting. Net instead of gross. Something like that.

One more bit from the Moneyness quote above, before we move on:

... that seller (or the next seller after) will choose to do something 'real' with the proceeds, like buying a consumption good, investing in real capital, or hiring an employee—the sorts of purchases that benefit the poor...

Please don't call me "poor".


Almost done. In the same post, Koning writes:

Say we change where central banks inject new money. Instead of conducting QE with a select group of banks, central banks now purchase directly from the populace. And instead of buying financial assets, they bid for stuff that regular folks own, like cars, houses, and wedding rings...

No.

The trouble with QE was not that it bought the wrong assets. Asset-buying by the Federal Reserve is the wrong solution no matter what they buy. The trouble with QE was that it took the assets out of the economy and left the liabilities in. It was the liabilities that created the problem to begin with, excessive liabilities -- liabilities created by the unsustainable growth of debt.

The Fed decided to buy up assets when the one thing that would have solved the problem quickly would have been to pay off the liabilities. The asset-holders would have got their money just the same. But we would have found some relief from the costly burden of excessive debt. And that is the key that would have allowed economic growth to resume with vigor.

But no. The supply-side mindset puts all the focus on the asset side, with not a wisp of concern for the liability side of things. Therein lies the problem.

Koning seems to have missed it completely.