US Federal Reserve policies confront a closing door

Financial Events


Index Nov12.pngThe blog’s friends at the American Chemistry Council used a very relevant quotation recently from Alexander Graham Bell, who invented the telephone and numerous other modern wonders:

“Sometimes we stare so long at a door that is closing that we seek too late the one that is open.”

It is a theme taken up recently by Bill Gross, who runs Pimco, the world’s largest bond fund. And it is confirmed by this month’s IeC Boom/Gloom Index, above:

• The Index itself (blue column) which measures sentiment in financial markets, has been going nowhere since early this year
• Similarly the US S&P 500 Index (red line) has also gone nowhere since April. It was at 1408 at the end of March, and 1412 at the end of October

This probably tells us something tells us very important about the ineffectiveness of the US Federal Reserve’s latest QE3 programme of quantitative easing.

It, like its predecessors, is explicitly aimed at increasing asset prices. The idea is that investors will feel wealthier, and will spend more. This will then encourage companies to invest to supply this new demand, causing the economy to rebound.

Nice theory, shame about the lack of results. As Gross points out:

“Surely by now, if the Bernanke model was as advertised, we would be seeing a pickup in investment as a percentage of GDP and a willingness to start saving?”

Instead, capital spending has been falling for the entire 3 years of the Fed’s QE programmes. And as Gross concludes:

“Over the past three years, our net national savings rate has been negative, and lower than it has ever been in modern history. The last time this occurred was in the Great Depression…..We are in a “New Normal” world where the negative effects of private sector deleveraging are only being weakly addressed by monetary and fiscal authorities (whilst) …fiscal policy is in the hands of a plutocracy more concerned about immediate profits as opposed to long-term vitality.”

Policy makers remain focused on the door that is closing. Companies need to avert their gaze, and focus instead on the New Normal opportunities that are developing around them.


China's infrastructure lending jumps $1.1tn before Congress


Its never easy interpreting China’s statistics. Partly this is due to the ...

Learn more

G-20 richest nations still lack a 'Plan B'


Hands-up those who remember the G-20? Well done, Mexican readers, you get full p...

Learn more
More posts
Economic risks rise as the lockdowns end

It is now 13 years since I wrote the first post here, in June 2007. A lot has happened since then: ...

China’s property sector is at the epicentre of the crisis

A branch of Centaline Property Agency in Hong Kong © Bloomberg Indebted Chinese property developers...

“They may ring their bells now, before long they will be wringing their hands”

The wisdom of Sir Robert Walpole, the UK’s first premier, seems the only possible response to ...

Will stock markets see a Minsky Moment in 2020?

Few investors now remember the days when price discovery was thought to be the key role of stock mar...

Chart of the Decade – the Fed’s support for the S&P 500 will end with a debt crisis

Each year, there has been only one possible candidate for Chart of the Year.  Last year it was the ...

$50bn hole appears in New York financial markets – Fed is “looking into it”

Most people would quickly notice if $50 went missing from their purse or wallet. They would certainl...

China’s renminbi and the global ring of fire

China’s property bubble puts it at the epicentre of the ring of fire © Reuters  China’s de...

Stock markets risk Wile E. Coyote fall despite Powell’s rush to support the S&P 500

How can companies and investors avoid losing money as the global economy goes into a China-led reces...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more

Uncover exclusive industry upates from ICIS

Interested to uncover more articles related to this topic? Explore additional news, insights and intelligence, tailored to the markets you are interested in by accessing exclusive content from