Source – 4thmedia.org
– “…These days, few economy experts in the US mention that reckless money printing used to be regarded as an abuse if not downright criminal offense. Excessive inflow of money into the economy provokes inflation, erodes the macroeconomic balance, discourages productive activity, and has an economically polarizing impact on the society”
Corporate Welfare Queens, Quantitative Easing as Outrageous Corruption – By Valentin Katasonov
What Quantitative Easing Is About: The term “quantitative easing” is a recent addition to the economic vocabulary and would sound unfamiliar throughout the XX century. It became commonplace across the US establishment – in the White House, the US Congress, the Federal Reserve – when the financial crisis erupted in 2007-2008. Explained as simply as possible, the launch of quantitative easing meant that the US took to creating new money out of thin air with absolutely no constraints in sight.
These days, few economy experts in the US mention that reckless money printing used to be regarded as an abuse if not downright criminal offense. Excessive inflow of money into the economy provokes inflation, erodes the macroeconomic balance, discourages productive activity, and has an economically polarizing impact on the society. In most historical epochs, the emission of money was tightly controlled by governments and the mission rested exclusively with state treasuries or finance ministries. No doubt, bankers dreamed of getting hold of the money-printing press some day, and with their backing, theories proliferated proving that the only way to eliminate various abuses linked to money creation was to leave it to private banks to do the job. In the US, the Congress eventually passed in December, 1913 the Federal Reserve Act, which established the Federal Reserve System with a structure dominated by numerous privately owned banks. The Federal Reserve pursued more or less reasonable policies in the gold standard era, when the amount of money was automatically capped by the cumulative size of the private bank’s holdings of gold, but money-printing completely spun out of control with the demise of the Bretton Woods system in the 1970ies. Private banks constantly pushed for accelerated emission, and the total dollar mass swelled steadily over the past 40 years, flooding the world markets. The above should make it clear how the invention known as quantitative easing fits into the durable trend – the euphemism is supposed to help bankers cover up the mischief.
It grew into an economic axiom over the past couple of centuries that fiscal authorities should run economies mainly by leveraging the federal funds rate, thus adjusting the costs of borrowings as necessary. The problem is that, with the printing of money totally out of control, the masses of currencies – dollars, euros, rubles, etc. – are already expressed in astronomic figures, and it happens routinely that the interest rates drop below 1%. The US Federal Reserve maintained the federal funds rate within the 0-0.25% bracket during latest downturn, and in Japan the index has been zero for a decade. The economies being oversupplied with money, the funds do not work to boost economic output or to improve the people’s living standards. The federal funds rate seems to be a totally defunct mechanism and the financial market as described in textbooks is not a reality any more. The situation in no way resembles the classic capitalism or the state capitalism that came into being following World War II. Rather, what we witness is the creation of a completely regulated system creating and distributing money at its own discretion and disguising the activity as quantitative easing.
The Federal Reserve’s Quantitative Easings
The quantitative easing which took off on September 13 is the third on record. Its key ideologist Ben Bernanke, a successor to the legendary Alan Greenspan, is nicknamed Helicopter Ben for frequently citing the statement about the “helicopter drop” of money to fight deflation. Under Bernanke, the dropping campaign began in 2008 with QE1, the first quantitative easing. The stated objective in the case was to overcome the financial crisis which started raging in 2007 and peaked in the fall of 2008 when the Lehman Brothers fabulously crumbled. At the early phase, money was drained from the US budget – the bailouts total reached $1.2 trillion, but the crisis persisted. At that point, the Federal Reserve joined in. The first round of quantitative easing continued till March, 2010, with the 12 Federal Reserve banks (the biggest one in the system is sited in New York) massively purchasing mortgage-backed securities including the debt obligations of America’s two public, government-sponsored enterprises Fannie Mae and Freddie Mac. Banks used the money churned out by the Federal Reserve to offload troubled assets, signs of recovery indeed appeared by the spring of 2010, and QE1 was terminated after estimatedly pumping out $1.7 trillion.
The positive effect, however, proved short-living, prompting the Federal Reserve to undertake QE2 in the fall of 2011. The second round of quantitative easing – the absorption of $600b in long-term US Treasury bonds – lasted till mid-2011 but, again, failed to kick the economy back into action for long. With the outcome in mind, the US fiscal authorities seemed to decide in favor of moderation and any plans for a third round of quantitative easing were put on hold. Supposedly, that was due to the US Congress’s frowning on the Federal Reserve over a series of scandals as the institution drew suspicions of off-balance sheet financing, withheld information about bailout recipients, etc. In fact, a number of Congressmen called for disbanding the Federal Reserve or at least clipping its financial authority, and suggested drastic measures like tough audit if not nationalization. This was the phase of the crisis when the Occupy Wall Street movement popped up. A fairly logical hypothesis is that QE3 was rolled out only as late as this fall to reinforce President Obama’s re-election bid.
By the end of last August, Bernanke indicated that, finally, QE3 was on the horizon. It was officially inaugurated on September 13 by the Federal Open Market Committee (FOMC), a body within the Federal Reserve System, with no deadline set and the agenda centered around fostering employment across the US economy. The objective, it must be noted, is listed among others in the law on the Federal Reserve but somehow has been consigned to oblivion for a century. In 2008, 8% of the US working-age population were reported jobless, and the QE3 plan is to inject up to $40b into the US economy monthly until the unemployment level apparently goes down. In other words, QE3 may continue indefinitely, and, by the way, the financial infusions will have a form of purchases of mortgage-backed securities as in the framework of QE1.
Anticipated Results of QE3
The impression is that QE3 evokes little optimism in the US. The truth is not deeply hidden that the round of quantitative easing is only an extra narcotic doze meant to temporarily relieve the pains caused by the agony of the US economy. It does make sense to count on a short-term positive effect – tentatively, an improvement holding out for 3-6 months – that would generate a better background for the Democrats in the run-up to the presidential poll.
In any case, the arguments produced by politically motivated commentators may not be taken at face value.
First, the macroeconomic benefits of QE3 will dwindle in no time. Secondly, the US is to implement a sweeping fiscal reform in 2013, spending reductions and tax hikes being parts of the package, which means that employment will be seriously undercut. Thirdly, there is hardly any realism in pledges that the US will benefit and the nation will benefit – as always, some surely will, but others will lose. Fourthly, the world is watching the US scene, and other countries will not tolerate that the US economy is revitalized at their expense. Days ahead of the official start of QE3, the European Central Bank passed debt-buying decisions of comparable proportions which can be read as Europe’s own quantitative easing. Watchers actually say that the European Central Bank increasingly mimics the Federal Reserve style and lightheartedly prints new money. The British and Japanese central banks unveiled their de facto quantitative easing plans over the past two months. A few days after QE3 went online, the Bank of Japan said it would add 10 trillion yens (slightly under $130b) to the total of its financial interventions which, therefore, will jump to 80 trillion yens. While Europe cites its urgent internal problems as the cause behind the turn to a brand of quantitative easing, Japan is open that the purpose of the liquidity injection is to prevent the appreciation of the yen vs. the US dollar.
Skeptics visibly prevail among the US experts discussing QE3. Congressman Ron Paul, a vocal critic of QE3, wrote: “We are weakening the dollar. We are trying to liquidate our debt through inflation. The consequence of what the Fed is doing is a lot more than just CPI (Consumer Price Index). It has to do with malinvestment and people doing the wrong things at the wrong time. Believe me, there is plenty of that. The one thing that Bernanke has not achieved and it frustrates him, I can tell— is he gets no economic growth. He doesn’t do anything with the unemployment numbers. I think the country should have panicked over what the Fed is saying that we have lost control and the only thing we have left is massively creating new money out of thin air, which has not worked before, and is not going to work this time” («Ron Paul: “Country Should Panic Over Fed’s Decision”» // Inforwars.com, Sept 14, 2012). Moreover, Ron Paul urges the US to altogether get rid of the Federal Reserve which he deems an unconstitutional institution. Egan-Jones, a rating agency, says: “The FED’s QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality. Issuing additional currency and depressing interest rates via the purchasing of MBS does little to raise the real GDP of the US, but does reduce the value of the dollar (because of the increase in money supply), and in turn increase the cost of commodities (see the recent rise in the prices of energy, gold, and other commodities). The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US….” (Michael Aneiro. Egan-Jones Welcomes QE3 By Cutting U.S. Credit Rating // Barron`s, September 14, 2012).
Believe it or not but occasionally even Bernanke sounds like a skeptic. Chances are he was simply afraid to look stupid, but what he said was: “I want to be clear — While I think we can make a meaningful and significant contribution to reducing this problem, we can’t solve it. We don’t have tools that are strong enough to solve the unemployment problem” (Michael Snyder. 10 Shocking Quotes About What QE3 Is Going To Do To America // Activist Post, September 15, 2012). Given that, one is left wondering why the QE3 program had to be adopted if its objective – unemployment reduction – is a priori out of reach.
Why Quantitative Easing Programs Had to be Adopted
Rest assured, the Federal Reserve is not sowing money uniformly all over the US economy. Freshly created, it lands in major US banks burdened with tons of mortgage-backed securities. The financial market giants happily swap toxic assets for cash which – contrary to the claims made by the economists on the banks’ payroll – does not trickle down to the wider economy to revive demand, spur investments, or pop up jobs. The banks have deeply entrenched habits which they have no intention of giving up – the money is being relayed to the financial and commodities markets which promise maximal yields, with next to nothing spilled elsewhere. The accompanying expansion of the job market will not even offset the natural growth of the workforce.
QE3 thus serves to redistribute the public wealth in a manner that benefits the rich, mostly in the financial sector. All others in the US will be confronted with the imminent inflation and see their living standards plummet.
“Quantitative easing – a fancy term for the Federal Reserve buying securities from predefined financial institutions, such as their investments in federal debt or mortgages – is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality formed by crony capitalism. And it is hurting prospects for economic growth down the road by promoting malinvestments in the economy”, wrote economist Anthony Randazzo (Anthony Randazzo. How Quantitative Easing Helps the Rich and Soaks the Rest of Us… // Reason.com, September 13, 2012).
US billionaire Donald Trump bluntly said about QE3 in a CNBC interview: “People like me will benefit from this” (Robert Frank. Does Quantitative Easing Mainly Help the Rich? // CNBC, 14 Sep 2012). “The Fed is just propping up the banks”, argues independent watcher John Williams. (Hyperinflation is Virtually Assured – John Williams. By Greg Hunter’s // USAWatchdog.com, 12 September 2012).
The list of the recipients to whom the Federal Reserve dishes out money and the amounts in question arouse a lot of curiosity among the US policy-makers and general population, but the information is being carefully kept under wraps. New York City mayor Michael Bloomberg submitted to the Federal Reserve an inquiry concerning the lucky banks but it was turned down. Bloomberg made another attempt to find out – in court, with a reference to the US Freedom of Information Act – but the Federal Reserve stayed immune, the justification being that the scope of the legislation is limited to US government agencies, the Federal Reserve not being one of them. Bloomberg, US congressmen, and others should realize, based on the case, who is the boss in the US, and the favorites of destiny will continue to rip the benefits of QE3 incognito. Likely, those are a cohort of recognizable “too big to fall” Wall Street banks. Anyhow, the third round of the global-scale scam is set in motion…
Prof. Valentin Katasonov (D.Sc. (Economics) is an economist and the chairman of the S.F. Sharapov Russian Economic Society
1. Jeffrey Rubin. The Fed Is Pushing on a String // The Huffington Post, September 20, 2012.
2. Rick Newman. Why Wall Street Loves Quantitative Easing // US News & World Report September 12, 2012.
3. Thomas R. Eddlem. Bernanke Touts Quantitative Easing in Jackson Hole Speech // New American, 02 September 2012.
4. New round of QE could warm stock markets in November // guardian.co.uk, 19 September 2012.
5. James K Galbraith. Quantitative easing isn’t magic. It is unrealistic to expect central banks like the Fed and the ECB to solve our deep economic problems // The Guardian, Thursday 20 September 2012.
6. J.D. Foster, Ph.D. Bernanke’s Quantitative Easing: Wrong Medicine for an Ailing Economy // The Heritage Foundation // Issue Brief #3729, September 13, 2012.
7. Charles Scaliger. QE3: Quantitatively Easing America Further Into Inflation // The New American, September 16, 2012.
8. Michael Snyder. 10 Shocking Quotes About What QE3 Is Going To Do To America // Activist Post, September 15, 2012
9. Anthony Randazzo. How Quantitative Easing Helps the Rich and Soaks the Rest of Us And why the Occupy movement should be up in arms. // Reason.com, September 13, 2012.
10. Michael Snyder. 10 Shocking Quotes About What QE3 Is Going To Do To America // Activist Post, September 15, 2012.
11. Robert Frank. Does Quantitative Easing Mainly Help the Rich? // CNBC Friday, 14 Sep 2012.
12. Hyperinflation is Virtually Assured – John Williams. By Greg Hunter’s // USAWatchdog.com, 12 September 2012.
13. Michael Aneiro. Egan-Jones Welcomes QE3 By Cutting U.S. Credit Rating // Barron`s, September 14, 2012
14. «Ron Paul: “Country Should Panic Over Fed’s Decision”» // Inforwars.com, Sept 14, 2012
Quantitative Easing & The Corruption Of The Fed Exposed
A banker named Andrew Huszar that helped manage the Federal Reserve’s quantitative easing program during 2009 and 2010 is publicly confessing for what he has done. He says that quantitative easing has taken care of next to nothing for the common person on the street. Alternatively, he says that it has been “the greatest backdoor Wall Street bailout of all time.” And of course the cold, challenging economic numbers support what Huszar is saying. The rate of working age Americans with a job has not improved at all during the quantitative easing era, and median household earnings has in fact steadily declined during that time frame. Meanwhile, U.S. stock prices have doubled overall, and the stock prices of the big Wall Street banks have tripled. So who benefits from quantitative easing? It doesn’t take a wizard to figure it out, and now Andrew Huszar is blowing the whistle on the entire thing.
From 2009 to 2010, Huszar was responsible for operating the Fed’s purchase of roughly $1.25 trillion worth of mortgage-backed securities. At the time, he thought that it was a dream job, but now he is apologizing to the rest of the country for what transpired …
I can only say: I’m sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed’s first plunge into the bond-buying experiment known as quantitative easing. The central bank remains to spin QE as a tool for helping Main Street. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.
When the first round of quantitative easing wrapped up, Huszar says that it was unbelievably obvious that QE had done very little to benefit average Americans but that it had been “an absolute coup for Wall Street”…
Trading for the first round of QE ended on March 31, 2010. The final results validated that, while there had been only trivial relief for Main Street, the U.S. central bank’s bond purchases had been an absolute coup for Wall Street. The banks hadn’t just benefited from the lower cost of making loans. They ‘d also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed’s QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.
You ‘d think the Fed would have eventually discontinued to question the wisdom of QE. Think again. Only a few months later– after a 14 % drop in the U.S. stock market and renewed weakening in the banking sector– the Fed announced a new round of bond buying: QE2. Germany’s finance minister, Wolfgang SchÃ¤uble, immediately called the decision “clueless.”.
That was when I realized the Fed had lost any remaining ability to think separately from Wall Street.
Of course the fact that the Fed can not think independently from Wall Street should not be a surprise to any of my regular readers. As I have written about frequently, the Federal Reserve was created by the Wall Street bankers for the benefit of the Wall Street bankers. When the Federal Reserve serves the interests of Wall Street, it is simply doing what it was designed to do. And according to Huszar, quantitative easing has been one giant “subsidy” for Wall Street banks …
Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2 % of them now control more than 70 % of the U.S. bank assets.
But Huszar is certainly not the only one on Wall Street that accepts these things. For example, just check out what billionaire hedge fund manager Stanley Druckenmiller told CNBC about quantitative easing …
“This is fantastic for every rich person,” he said Thursday, a day after the Fed’s stunning decision to delay tightening its monetary policy. “This is the biggest redistribution of wealth from the middle class and the poor to the rich ever.”.
“Who owns assets– the rich, the billionaires. You think Warren Buffett hates this stuff? You think I hate this stuff? I had a very good day yesterday.”.
Druckenmiller, whose net worth is estimated at more than $2 billion, said that the implication of the Fed’s policy is that the rich will spend their wealth and create jobs– essentially betting on “trickle-down economics.”.
“I mean, maybe this trickle-down monetary policy that gives money to billionaires and hopefully we go spend it is going to work,” he said. “But it hasn’t worked for five years.”.
And Donald Trump said essentially the same thing when he made the following statement on CNBC about quantitative easing …
“People like me will benefit from this.”.
The American people are still being told that quantitative easing is “economic stimulus” which will make the lives of average Americans better.
That is a flat out lie and the folks over at the Federal Reserve know this.
In fact, a very interesting study administered for the Bank of England shows that quantitative easing actually increases the gap between the wealthy and the poor …
It said that the Bank of England’s policies of quantitative easing– similar to the Fed’s– had benefited mainly the wealthy.
Specifically, it said that its QE program had boosted the value of stocks and bonds by 26 percent, or about $970 billion. It said that about 40 percent of those gains went to the richest 5 percent of British households.
Many said the BOE’s easing added to social anger and unrest. Dhaval Joshi, of BCA Research wrote that “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it.”.
And this is exactly what has happened in the United States as well.
U.S. stocks have risen 108 % while Barack Obama has been in the White House.
And who owns stocks?
The wealthy do. In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans.
Meanwhile, things have continued to get even more challenging for ordinary Americans.
While Obama has been in the White House, the percentage of working age Americans with a job has diminished from 60.6 % to 58.3 %, median household income has declined for five years in a row, and poverty has been positively bursting.
But the fact that it has been very good for Wall Street while doing practically nothing for ordinary Americans is not the biggest problem with quantitative easing.
The biggest problem with quantitative easing is that it is destroying worldwide faith in the U.S. dollar and in the U.S. monetary system.
At this point, most global trade involves US dollars. The rest of the world has their eyes on us and beginning to openly wonder why there is so much faith in our financial system. If these countries lose complete faith in our dollar, we are going to see devastating effects in the US and around the world that we might not ever been able to revive ourselves from.
Hopefully this article wakes people up and puts more pressure on the Fed to quit playing games with the American people. They will win until we demand them to stop. And they don’t believe you have the guts to do it. So the cycle continues.