On Why More QE, a Manifesto for Economic Sense and an Ayurvedic Approach to Sleep Disorders – Part 7!

From: aditya rana
Date: Sat, Jun 30, 2012 at 2:20 PM
Subject: On Why More QE, a Manifesto for Economic Sense and an Ayurvedic Approach to Sleep Disorders – Part 7!


The impact of Quantitative Easing operations undertaken by Central Banks in the developed world is an intensely debated topic and has sharply polarised opinions across academia, financial markets and the popular media. However, as with the debate on austerity versus spending, the discussion tends to get clouded by firmly held ideological biases rather than focusing on empirical based arguments. With that aim in mind, I summarise below a recent note

by Roger Farmer, head of the economics department at UCLA, which argues why central banks should do a lot more to reduce unemployment and boost economic growth: (http://blogs.ft.com/economistsforum/2012/05/central-banks-should-do-much-more/#axzz1zG3dvA1I)

-In a series of recent academic work , Professor Farmer has argued that there is a stable, and causal, relationship between the stock market and the unemployment rate. And that the stock market crash of 2008, triggered by a collapse in housing prices, caused the Great Recession, and therefore the Fed can do a lot more to lower the unemployment rate by impacting the stock market..

-The chart below illustrates that in normal times the Fed’s balance sheet consists mainly of treasury securities, and that after the Lehman shock of 2008 and the ensuing freefall of the stock market, its balance sheet went from $800BN to over $2 trillion in the space of a month, as it engaged in a variety of lending programmes.

-As the chart also clearly shows, the stock market rally began in March 2009 when the Fed began purchasing mortgage securities, and began to fall once the QE1 programme ended a year later. The market then began its ascent In August 2010 when the Fed announced QE2 at its annual Jackson Hole conference.

-Fed policy not only influences markets, it has a big impact on the average citizen as all forms of wealth tend to move up and down together. A person’s wealth is tied-up in his future earnings, and when the stock market plummets the prospects of the average worker decline as well. His research has shown that when the stock market rises, unemployment falls and when the stock market crashes a recession ensues.

-Suppose an economist working in the 1970s was trying to predict the unemployment rate three months forward by looking just at the average unemployment rate and the real value of the stock market in the previous two quarters, his predictions would have been very accurate in that era as well as the more recent era.

-The observation that the value of the stock market precedes changes in the unemployment rate does not imply a causal relationship. However, this has been proven by his recent academic work based on data since 1929. http://rogerfarmer.com/

-Market are moved by sentiment, but these movements have a big impact on our lives through the job market – as plunges in financial wealth can lead to devastating job losses. The Fed can do a lot more.

An interesting empirical argument which illustrates that central bank actions to expand balance sheets can positively impact the stock market as well as the real economy. While an environment of deleveraging and zero short-term interest rates can limit the full impact of monetary policy, it is all the more necessary to take aggressive monetary action, particularly given that governments across the developed world are constrained by their inability to do more on the fiscal front. Aggressive balance sheet expansion lowers the real interest rate (by increasing inflationary expectations) which is a powerful tool to boost aggregate demand and increase investment spending. It is therefore inevitable that the Fed and the ECB will have to do a lot more to buoy the stock markets and the economy, as the process of deleveraging and fiscal constraint continues.

The European Summit marked an important step in the long-term resolution of the European crisis by breaking the “vicious circle between sovereigns and the banks” by allowing direct recapitalisation of the banks by the ESM. However, the devil is in the details and we can expect renewed bouts of nervousness in the weeks and months ahead. As Gavyn Davies points out in the FT, the ESM has been asked to do more without the addition of funds (which are currently inadequate to fund Spain and Italy’s financing needs over the next two years) and many details are obscure. Use the dips to add to exposure to risk assets, as the fat tail risk of a Euro break-up has receded significantly.

Lastly, Professors Krugman (Princeton) and Layard (LSE) have brought out an important “Manifesto for Economic Sense” which summarises the faulty ideas currently prevalent in policy responses to the crisis which started four years ago, and have directly led to a continued state of depressed economies in the developed world. These ideas were also widespread in the 1930s, causing the Great Depression, but were eventually rejected leading to a long period of economic prosperity. The purpose of the manifesto in to develop better evidence-based policies and people who agree with its arguments can support this by registering their agreement at www.manifestoforeconomicsense.org. “The whole world suffers more when men and women are silent about what they know is wrong”.

An Ayurvedic Approach to Sleep Disorders – Part 7 (Dr. Vasant Lad):

This week we shall turn to snoring, which is one of the several causes of sleep disorders. When a person sleeps on his back, gravity acts on the loose tissue in the upper respiratory passage and the tongue falls backwards into the throat, which can create snoring. Snoring is particularly common in men, because they have a more oval vocal cord than women who have a more round vocal cord. It also occurs in obese people and those with upper respiratory disorders.

Causative factors:

-Sleeping on the back.


-Upper respiratory congestion

-Heavy consumption of alcohol prior to sleeping

-Sleeping pills

-Insufficient sleep


-A soft mattress.

-A pillow which is too high or too low


-Sleep on one side, particularly the left side which promotes digestion.

-Ensure sufficient sound sleep

-Sleep on a form mattress and appropriately sized pillow.

-Elevate the head-end of the bed by 2 or 3 inches by placing a brick under it.

-Oil drops with medicated oil or ghee.

-Inhale steam with eucalyptus oil.

-No smoking

-Avoid drinking alcohol in the evenings.

-The following herbal formula should be taken thrice a day: sitopaladi 500 mg, talisadi 400mg, mahasudarshan 300mg, abhrak bhasma 200 mg.

-One tsp of bhumi amalaki before bed time.

To end this note, in the context of the recently concluded Euro Summit, by quoting the lyrics of the great mathematician and game theorist John Nash (via Gavyn Davies):

There are more questions than answers
Pictures in my mind that will not show
There are more questions than answers
And the more I find out the less I know
Yeah, the more I find out the less I know




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