Spin and Turn

Talking 'bout your troubles and you never, never learn
Ride a painted pony let the spinnin' wheel turn
--Blood, Sweat & Tears

At the end of the last post, we posed a question about the risks of QE. Minyanville's Peter Atwater has been discussing who in particular stands to get (or is already getting) hurt from QE. The hurtful include:

Small banks. Spreads are shrinking between cost of funds (not changing) and investment yields (coming in).

Low income households. Commodities of all sorts are screaming higher, meaning upward price pressure on necessities. Rising commodity costs tend to fall disproportionately on lower income households.

Savers and the elderly. Savers are clearly penalized when planners hold interest rates well below market. The elderly, who in particular depend on fixed income froms savings vehicles, are being taken to the woodshed.

Defined benefit plans. Pension plans and their ilk are coming nowhere near their estimated 7-9% returns. Unfunded liabilities are likely to grow.

Endowments. Having to cut back on their 4-5% annual draws.

It should be apparent that an important downside consequence of QE is the likelihood of lower standard of living for at least some groups. It should also be apparent that a subset of people in these groups may try to compensate for their situation by taking on more, perhaps enormous, risk.

As such, downside possibilities from QE include: less competition in banking (as small firms go bust or get taken out), more poor people on food stamps, less saving and more risk taking--particulary among elderly trying to compensate for loss of income, increased likelihood of pension plans going broke, less resources from charity coming from endowments.

Any balanced discussion of QE should include a discussion of the above risks that are already being realized to a significant degree.

position in commodities, Treasuries, USD