The headline is slightly sarcastic, but according to conventional wisdom, David Einhorn may, in fact, be a ‘right-wing, tea-bagging’ libertarian Republican. For some reason, QEIII has become a large political issue. Democrats seem to support the Fed’s policies, and Republicans oppose it. Nothing can be farther from the truth (except for party hacks), as David Einhorn a self proclaimed Democrat, demonstrates (and the fact that Ben Bernanke is a Republican, but we will ignore that for now).
David Einhorn is one of many prominent self identifying Democrats who oppose QEIII and Ben Bernanke’s policies. Mitt Romney has said that if elected he will not reappoint Ben Bernanke as Federal Reserve Chairman. Mitt Romney has also issued a critique of QEIII. Ron Paul is also a strong opponent of the Federal Reserve, hence the title which uses derogatory terms some Democrats use to label Republicans, especially those ‘who lean to the right’, on economic issues. David Einhorn also likes gold, which Ron Paul and Ron Paul supporters tend to own. Barack Obama supports Ben Bernanke and his policies.
Yesterday, we posted David Einhorn’s third quarter letter. In the hedge fund managers’ letter to investor, he issued a scathing rebuke of Ben Bernanke’s QEIII. David Einhorn also spoke at the Buttonwood conference today, where he reiterated his distaste for QEIII. David Einhorn is more diplomatic than his complete takedown of Bernanke yesterday and in earlier comments. David Einhorn talks about his op-ed in Right now, David Einhorn thinks that quantitative easing is now actually slowing down the economy. David Einhorn believes that lower rates drive up food and oil costs, which takes income out of peoples’ pockets. Additionally, it causes people to hoard savings, because they cannot earn anything from banks. Einhorn notes that lower rates can help the economy, but now the return is actually negative. Economists with data sets who do not live in the real world miss the point.
No companies are not building because rates are too high, and no one is not buying a home because rates are too high. However, the risks have created enormous tail risks.
David Einhorn agrees with Robert Shiller on the whole wealth effect argument. David Einhorn believes that now changing policy would be very difficult, since many financial firms are overleveraged and would ‘blow up.’ A Transition would require some careful moving, but the move would help in the end.
Einhorn disagrees that this move would be akin to 1937, where the economy slowed as the Federal Reserve raised rates too quickly according to many observers. The policies of today are ‘more extreme than in 1937.’ The tail risks created ‘are enormous.’ He notes that small businesses are getting the credit they need. The banks, however, still need to be capitalized more in order to lend more.
David Einhorn also discusses monetary policy a bit in the Q&A segment.
The full video is embedded below (H/T Zero Hedge).David Einhorn starts speaking at approximately 56 minutes into the video:
