The effects of QE3 (Quantitative Easing 3, a stimulus program by the Federal Reserve) on the economy are likely to be felt fully on a time scale longer than the election, which is seven weeks away. But presumably Tapen thinks the S&P will go up before then, and with it Obama’s approval rating. Is this really true?
The challenge here is one of unraveling causes and effects, which is a topic of active research. The correlation between the two graphed quantities is undeniable. Tapen’s conclusion would be right, if on a seven-week time scale the chain of causation goes like this:
QE3 >>> S&P prices >>> Obama approval by voters
But what if it’s really like this?
S&P prices <<< economic conditions >>> Obama approval by voters
where S&P prices and Obama approval are downstream effects of other economic causes. In this case, S&P prices are a correlate, not a cause, and boosting stock prices mainly pleases the investor class. That includes only a minority of people, many of whom won’t become aware for many weeks that their investments have risen.
However, the investor class does include Mitt Romney and many cable/television personalities. Maybe they’ll ease up on Obama.
This is not an area where I add special value. But I am curious for reader reaction, since I know many of you are expert in this area.
Update, 2:12pm: the effect of QE3 might be faster than I thought, as indicated by this simulation…though still longer than seven weeks. Here is a projection showing a remarkably fast rate of decreasing unemployment expected from the measures taken.
Thanks, Tapen and Olav.