Monday, July 25, 2011

QE2 Boosts Profits Of Large U.S. Companies

Despite a stagnant economy, profits of companies in the S&P 500 are soaring.

The main reason for this disconnect is QE2. Inflationary policies usually boosts prices more than wages, meaning that real wages are lowered while profit margins are boosted.

Perhaps even more important for most companies in the S&P 500 is that the weak dollar caused by QE2 raises the dollar value of profits in foreign subsidiaries and enables export companies to boost their margins.

5 Comments:

Blogger Jim Slip said...

Why is QE inflationary?

it merely switches a less liquid asset with a more liquid one.

http://pragcap.com/mechanics-qe-transaction

If anything, it is deflationary as it removes interest from the private sector.

The whole notion that an expansion of bank reserves will lead to inflation is clearly mistaken because:

a) banks are never reserve constrained.

b) the FED pays interest on these excess reserves anyway.

I guess if two decades of Japanese QE with no inflationary results have not convinced Austrians, then nothing will.

Central Banks cannot control the money supply. Only fiscal policy can.

5:08 PM  
Blogger stefankarlsson said...

Jim Slip, in case you haven't noticed, money supply growth (regardless if you follow the M1, M2 or MZM definitions) has in fact soared after QE2 started-and not coincidentally the dollar has dropped sharply while commodity prices have soared.

7:52 AM  
Blogger Benjamin said...

I see no inflation--indeed, the CPI core is up 1.6 percent YOY, and that may overstate inflation.

Unit labor costs are flat to down. All rents, retail, office, industrial, are soft.

The S&P 500 is lower than in 1999.

This is inflation?

6:35 AM  
Blogger Саша said...

>> Central Banks cannot control the money supply. Only fiscal policy can.

but QE is one of those things which allows government to lead such loose fiscal policy (without increasing interest rates).

QE restructured prices in economy in a way where prices of commodities & food grow faster than others

And, yes, it's just a fact that money supply soared after declaring and starting of QE2

Also QE slows correcting malinvestments

9:19 AM  
Blogger stefankarlsson said...

Benjamin, the core CPI and unit labor costs are lagging indicators of inflation, not to mention how lagging and irrelevant for the evaluation of a policy that has gone on for less than a year a 10-year number is.

Look at the causal factor behind inflation, M2/MZM money supply, and you can see that it is increasing fast. The same goes for other leading indicators of inflation, like the U.S. dollar price of foreign currencies and commodities.

8:39 PM  

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