QE and 2012 election

[jaichind]

I guess I am still bitter about the results of the 2012 election, especially when I feel that Bernanke pretty much worked, consciously or not, to re-elect Obama with all this QE QE2 and QE3.  To see what I mean see



 

This is a graph of the 30 year yield deflated by the expected inflation rate from Nov 2010 to now.  So any point on the graph represents the expected after inflation rate of return for buying at 30 year treasury at that point in time.  Note the dive around July 2011 due to the government shutdown crisis.  Then in March 2013 it took another dive to pretty much zero throughtout the election and did not start rising until April where it surged to 1.1% today.  The long historical after inflation return on 30 year treasuries has been about 1.5% so we have more to go.  I just find it annoying that it went to zero at the time of Obama's reelection campaign which merely pushed up equity markets via artificial means since yields were de facto zero and gave people a false sense economic confidence.  And now after the election the yields starts heading back up.

BTW, I feel the same thing took place in 1972 which helped to reelect Nixon although he would have won without it. 

[jaichind]

BTW.  This is the 10 year treasury version.  Same story with March 2012 with real 10 year yields going from an absurd -0.5% to -1.0% by Aug 2012 and staying there beyond the election until april 2013.

[opebo]

Lets hope they do the same in 2016.

[Beet]

I don't really see a political dimension here- given the (continued) weakness of the job market, the economic case for QE has been more than sufficient throughout this period. If anything, they haven't been aggressive enough. Also, Bernanke is a Republican who had already been reappointed in early 2010, but had no desire to serve out another term. So he had no incentive either from a partisan or personal standpoint to manipulate policy in this way. And since you conclude by pointing out the effect on the equity markets, it should be pointed out that the rally after the election was faster and sharper than the rally before the election.

The Fed should continue QE but it should also watch out for the impact on the housing market. We are seeing a re-inflation of the bubble and that is very inflationary, even if the CPI does not count it.