Fed Ends QE
by Stephen Lendman
On October 29, A Federal Reserve press release said in part:
The Open Market Committee (FOMC) “decided to conclude its (QE) asset purchase program this month.”
It’s “maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.”
“This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.”
Months earlier, former Reagan administration Office of Management and Budget Director David Stockman called QE “high grade monetary heroin.” One day, it’ll “kill the patient,” he said.
Over the last quarter of a century, “(w)hat has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway, and the sway of the three great branches of government which are domiciled there – that is, the warfare state, the (corporate) welfare state and the central bank.”
“What is failing, by contrast, is the vast expanse of the Main Street economy where the great majority has experienced stagnant living standards, rising job insecurity, failure to accumulate any material savings, rapidly approaching old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut.”
“And what is positively falling is the lower ranks of society whose prospects for jobs, income and a decent living standard have been steadily darkening.”
Current conditions reflect a dystopian new normal, he believes. Historic patterns no longer apply. America is a “foundering leviathan.”
It can’t save the economy or society. It’s “fallen victim to its own inherent shortcomings,” mismanagement, and “inefficiencies.”
It’s “dysfunction(al) and incoheren(t).” It operates on “continued flows of maniacal monetary stimulus.”
Monied interests run things. So do powerful lobbies representing them. Private looting takes precedence over popular interests. Things go from bad to worse.
“Washington’s machinery of national governance is literally melting down,” said Stockman. It’s victimized by Wall Street controlled Fed greed and ineptitude. Compounded by congressional malfeasance.
Budget and debt ceiling battles are theater. What’s ongoing reflects the tip of the iceberg. Years of monetary heroin show how far off the rails the Fed strayed.
It’s “the next best thing to bank robbery,” said Stockman. “(A) stunning case of bureaucratic mission creep. (With) virtually no statutory mandate. And dubious economics is only the half of it.”
Out-of-control debt isn’t resolved by more of it. Doing so leaves less for goods and services. Economies suffer.
In 1988, Bernanke knew QE didn’t work. Two Fed economists explained. Seth Carpenter and Selva Demiralp headlined “Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?“
“In the absence of a multiplier, open market operations, which simply change reserve balances, do not directly affect lending behavior at the aggregate level.”
“Put differently, if the quantity of reserves is relevant for the transmission of monetary policy, a different mechanism must be found.”
“The argument against the textbook money multiplier is not new. For example, Bernanke and Blinder (1988) and Kashyap and Stein (1995) note that the bank lending channel is not operative if banks have access to external sources of funding.”
“The appendix illustrates these relationships with a simple model. This paper provides institutional and empirical evidence that the money multiplier and the associated narrow bank lending channel are not relevant for analyzing the United States.”
QE doesn’t work. It could if properly used. It hasn’t been. Boosting aggregate demand is needed. Doing so requires putting money in consumers’ pockets.
Money printing madness doesn’t stimulate growth. Or create jobs. It flows to bank balance sheets. For speculation, high salaries, big bonuses, buying competitors, and consolidating to greater size.
Helicopter Ben dropped lots of money on Wall Street. Doing so sent financial asset prices soaring.
None went to Main Street where it belongs. Dire economic conditions remain. Things go from bad to worse. Nothing ahead looks promising.
At near zero short-term interest rates, money printing madness handed Wall Street around $3.5 trillion in free money. On top of trillions more in bailout funding.
As much as $23.7 trillion, according to former Troubled Asset Relief Program (TARP) administrator Neil Barofsky. Grand theft by any standard.
TARP didn’t require recipients to report or internally track funds used. Accountability wasn’t mandated. Nor fraud prevention standards.
Banks took full advantage. Near-free money didn’t stimulate economic growth. Main Street was sacrificed for Wall Street.
Banks hoarded cash. Acquired other financial institutions. Paid off debt. Speculated. Knowing plenty more help was there for the asking.
Economist John Williams says QE failed because bank balance sheets remain toxic. They’re not lending. Reported economic growth overstates reality.
Third quarter 3.5% growth reflects “guessed-at” trade numbers. Plus resurgent defense spending for Obama’s wars.
Williams expects “significant downside revisions” ahead. Chickens have a way of coming home to roost.
Money printing madness since 2008 kicked significant financial crisis conditions down the road a few years.
Protracted Depression already affects Main Street. No end in sight looms. Not as long force-fed austerity substitutes for stimulative economic and jobs growth.
Fed governors pretend things are OK. Truth-telling isn’t a central banker’s long suit. For sure not in America or Eurozone.
On October 29, the Wall Street Journal headlined “Former Fed Chief Greenspan Worried About Future of Monetary Policy.”
He said QE fell short of its goals. Bond-buying was a mixed bag. It lifted asset prices hugely. Lowered borrowing costs.
Did little for the real economy. “Effective demand is dead in the water,” he said. Bond buying didn’t help.
“I don’t think it’s possible” for easy money to end trouble-free, he added.
“We’ve never had any experience with anything like this, so I’m not going to sit here and tell you exactly how it’s going to come out.”
“I think that real pressure is going to occur not by the initiation by the Federal Reserve, but by the markets themselves.”
“Recent episodes in which Fed officials hinted at a shift toward higher interest rates have unleashed significant volatility in markets, so there is no reason to suspect that the actual process of boosting rates would be any different.”
Greenspan failed to explain how much he contributed to today’s debacle. He chaired the Board of Governors from August 11, 1987 until January 31, 2006.
Supporters praised his steady hand. Critics called him Maestro of Misery.
“Secrets of the Temple: How the Federal Reserve Runs the Country” author William Grieder ranked him “among the most duplicitous figures to serve in modern American government.”
Using “his exalted status as economic wizard (to) regularly corrupt the political dialogue by sowing outrageously false impressions among gullible members of Congress and adoring financial reporters.”
Exceeded by Ben Bernanke. His Fed tenure was deplorable.
Betraying the public trust and then some.
His agenda was ruthlessly anti-populist. Doing more to thirdworldize America for profit than any of his predecessors.
Handing Wall Street crooks multi-trillions of dollars. Facilitating the greatest wealth transfer in history.
Creating a protracted Main Street Depression. Making poverty, unemployment and underemployment growth industries. Wrecking millions of lives. Unapologetically to this day.
Naked Capitalism’s Yves Smith believes Fed governors know “QE was largely a failed experiment. (They) never gave Congress an adequate explanation of the logic and expected effects of QE so (they) could be held accountable” for their actions.
Former fed official Andrew Huszar witnessed Bernanke’s scam firsthand. He managed its $1.25 trillion mortgaged-backed security purchase program.
“I can only say: I’m sorry, America,” he said after resigning. “(O)ut of frustration, he explained.
“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 continues to (disingenuously) spin QE as a tool for helping Main Street.” It was “a feast for Wall Street.”
America’s 1% never had it better. Banks, major corporations, big investors, and high net worth individuals alone benefitted. They did so at the expense of ordinary Americans.
Unemployment, poverty, homelessness, hunger and overall human needs remain at Depression era levels.
“The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn’t getting much cheaper.”
“QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.”
Other Fed managers voiced concerns. “Our warnings fell on deaf ears,” said Huszar. QE was “an absolute coup for Wall Street.”
It did nothing for Main Street. “The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn’t getting much cheaper.”
“QE (is) the largest financial-markets intervention by any government in world history.” It did pathetically little to stimulate growth. It wasn’t designed for that purpose.
It sacrificed Main Street for Wall Street. Fed chairmen and governors lied claiming otherwise. A day of reckoning looms.
Noted investor Jim Rogers believes it. “We’re all going to pay a terrible price” for money printing madness, he said.
Conditions are deplorable. No wonder Paul Craig Roberts calls America’s economy “a house of cards.”
Corrupted. Controlled by Wall Street. Lock, stock and money supply. Casino capitalism.
Socialism for bankers, other corporate predators and rich elites. Free market capitalism/law of the jungle for ordinary Americans.
According to Roberts, “(t)he US economy no longer is based on education, hard work, free market prices and the accountability that real free markets impose.”
It reflects fraud, grand theft, market manipulation, front-running, pumping and dumping, scamming investors, buying politicians, bailouts with taxpayer money, and eventually stealing it from depositor accounts.
Wall Street transformed America into an unprecedented money making racket. Facilitated by government collusion. At the expense of popular interests.
Ordinary people suffer most. Never recovering from 2008. Left unemployed or underemployed. Increasingly on their own.
One missed paycheck from homelessness, hunger and despair. It’s the new normal.
It bears repeating. Nothing ahead looks promising. Expect hard times to get harder.
Stephen Lendman lives in Chicago. He can be reached at email@example.com.
His new book as editor and contributor is titled “Flashpoint in Ukraine: US Drive for Hegemony Risks WW III.”
Visit his blog site at sjlendman.blogspot.com.
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