Quantitative Easing Benefits the Super-Elite … And Hurts the Little Guy and the American Economy

User Forum Topic
Submitted by sjk on December 13, 2012 - 9:06am

I'm soooooooo.......sick of the FED, and there on going bailout of big banks.......this is noting more then an extraction of money from those with little to those with more.....

Posted on December 13, 2012 by WashingtonsBlog
Quantitatitve Easing Is Not “Liberal” Economics

http://www.washingtonsblog.com/2012/12/q...

The Fed has just announced its fourth round of “quantitative easing”.

While the mainstream financial press pretends that quantitative easing is a “liberal” economic policy, nothing could be further from the truth.

As we’ve repeatedly explained, quantitative easing is a bailout for the super-rich, at the expense of the little guy. It increases inequality and fails to stimulate the economy. (And it destroys the savings of retirees.)

Indeed, Fed boss Ben Bernanke knew 24 years ago that quantitative easing doesn’t help.

Forbes’ Lawrence Hunter explains:

The Federal Reserve … operates its own financial Laundromat for troubled, in some cases criminal banks. The Fed’s loan laundry and downscale resale consignment shop first takes in the wash by purchasing non-performing, and therefore largely worthless financial assets (loans and loan-backed securities) to remove them from the books of private banks. (Another variant is for the Fed to swap the banks’ bad paper at face value for federal debt instruments, which replaces the banks’ non-performing assets having little, if any, resale value, with safe, interest-paying and highly marketable assets.). The Fed then launders the loans by reselling them back to the same group of banks at a fraction (10 percent or less) of the face-value price it paid the banks for them. Once the banks repurchase the spiffed up dirty loan laundry, it not only has turned a nifty 90-percent-or-more profit on the turn around, it also has a new asset it can put back into the stream of financial commerce at a price reflective of its true value.

The Fed is a perfect vehicle to transform bad assets into good. It is weakly overseen without an independent audit and thus is able to intermediate the transformation of bad, illiquid assets into money (and near money) and then back again into valuable financial assets, all done secretly and anonymously. Unlike the polite, don’t-ask-don’t-tell fiction of private hedge-fund money laundering, however, the Fed says outright, “Don’t ask, because we aren’t telling,” even when asked again and again.

Immediately after the 2008 financial meltdown, the Fed laundered more than $2 trillion in worthless assets held on the balance sheets of private banks. According to a watered-down 2011 audit of the Fed by the Government Accountability Office (GAO), there have been $16 trillion in Fed bailouts to banks and corporations around the world since the financial meltdown in 2008. Since that report, Bloomberg has reported on an additional $9 trillion in secret, off-balance-sheet Fed transactions that the central bank refuses to discuss. Now, Ben Bernanke is ginning up assembly-line washing machines at the Fed with QE∞ to spin an opened-ended, $40-billion-monthly cleansing campaign to purchase worthless mortgage backed securities from banks at face value, which could run to an additional $1.3 trillion loan laundering accompanied by downscale resales.

Indeed, the Fed:

Gave huge bailouts to foreign banks, including Gaddafi’s Libyan bank, the Arab Banking Corp. of Bahrain, and the Banks of Bavaria, Korea and Mexico;
Bailed out hedge funds, McDonald’s and Harley-Davidson
Threw money at “several billionaires and tens of multi-millionaires”, including Christy Mack, the wife of Morgan Stanley’s John Mack, billionaire businessman H. Wayne Huizenga, and Michael Dell, co-founder of Dell Computer, hedge fund manager John Paulson and private equity honcho J. Christopher Flowers
Hunter continues:

QE∞ is no mere financial Laundromat; it is a full-service loan laundry and downscale resale facility that not only cleans the banks’ balance sheets but also sterilizes the entire operation to prevent it from producing immediate price inflation. It illustrates the way the Fed’s loan laundry and downscale resale facility works:

After the Fed buys (at face value) and resells (at pennies on the dollar) the bad mortgage-backed securities with newly minted electronic digits that it places into the banks’ Federal Reserve accounts, it then sterilizes the entire operation to prevent the new money from transmitting the dread inflation virus. The Fed does so by, in effect, quarantining inside the banking system the new toxic money used to launder the dirty loans. [I've explained the mechanism for the Fed's action before.] To affect this quarantine, the Fed wields both a carrot and a stick to keep this newly minted digital money from seeping out into the economy through new loans and igniting inflation: It pays the bank interest on its Fed reserves as long as the bank keeps the funds on deposit at the Fed (the carrot); and it tightens reserve requirements by raising the amount of money the bank must keep on deposit at the Federal Reserve (the stick).

There are much better ways to stimulate the economy, but the Fed is only interested in maintaining the status quo for its owners. And see this.

Submitted by flu on December 13, 2012 - 9:14am.

Not my problem.....

I was against all this "tax people more (particularly "quasi-rich"), so we can spend even more then we collect"...But apparently a lot of voters thought it was a good thing...Because after all, it's always rich people's fault....

Not my problem, not my concern... Now where are my refinance papers again....

Submitted by SD Realtor on December 13, 2012 - 9:36am.

Obviously Bush is behind all of this, even QE4, 5, 6 and 7!

Submitted by flu on December 13, 2012 - 10:14am.

SD Realtor wrote:
Obviously Bush is behind all of this, even QE4, 5, 6 and 7!

It's not possible Bush is behind it... Because many people think Bush is intellectually challenged and can't count that high.

Submitted by sjk on December 13, 2012 - 10:22am.

flu wrote:
Not my problem.....

I was against all this "tax people more (particularly "quasi-rich"), so we can spend even more then we collect"...But apparently a lot of voters thought it was a good thing...Because after all, it's always rich people's fault....

Not my problem, not my concern... Now where are my refinance papers again....

Enjoy your place setting at the captain's table flu, it will be in do course, as your on the Titanic.....

Regards,

Submitted by SK in CV on December 13, 2012 - 10:29am.

SD Realtor wrote:
Obviously Bush is behind all of this, even QE4, 5, 6 and 7!

I'm quite sure nobody has ever claimed that Bush is behind it. It's as ridiculous a claim as that which charges this is Keynesian economics at work. It's not. Keynes, at most, was agnostic on monetary manipulation as a means of economic stimulus.

I'm not so sure that it doesn't benefit the economy as a whole, but there's no question that the biggest beneficiaries are debt holders. That's the big banks. Is there a better way to do the same thing or better for the economy as a whole without particularly benefitting the banking industry? I could be convinced, but I haven't seen any ideas that meet the requirements.

Submitted by livinincali on December 13, 2012 - 10:30am.

I'm just waiting for the never could have seen it coming. We're about there now. Almost 4 years of various QEs and nothing bad has happened yet, so nothing bad will happen in the future. The only real question now is how and when it comes unglued.

Submitted by livinincali on December 13, 2012 - 10:47am.

SK in CV wrote:

I'm not so sure that it doesn't benefit the economy as a whole, but there's no question that the biggest beneficiaries are debt holders. That's the big banks. Is there a better way to do the same thing or better for the economy as a whole without particularly benefitting the banking industry? I could be convinced, but I haven't seen any ideas that meet the requirements.

In my view the primary purpose of QEx is to allow the government to deficit spend over a trillion per year. The government would probably have to pay too much to incur that much debt without it. The fundamental problem is every economist/policy maker is focused on the demand side of the equation and how to create more debt to stimulate demand. It's an idea that has run it's course, but it doesn't stop them from trying it's the only thing they know.

Submitted by Diego Mamani on December 13, 2012 - 11:47am.

There is no "FED." Fed is short for Federal Reserve Board. You can write FRB if you like acronyms, but most people who know what the institution is write "Fed."

Submitted by AN on December 13, 2012 - 12:23pm.

sjk wrote:
flu wrote:
Not my problem.....

I was against all this "tax people more (particularly "quasi-rich"), so we can spend even more then we collect"...But apparently a lot of voters thought it was a good thing...Because after all, it's always rich people's fault....

Not my problem, not my concern... Now where are my refinance papers again....

Enjoy your place setting at the captain's table flu, it will be in do course, as your on the Titanic.....

Regards,

Why wouldn't you. If you know you're on the Titanic and it'll crash some day. Why not sit at the captain's table AND secure your own life vessel when the time comes. What's the point of running around in the boiler room complaining the captain is going to kill us all.

Submitted by scaredyclassic on December 13, 2012 - 9:34pm.

individualsand business sometimes are headed for bankruptcy and things aren't cataclysmic; they emerge healthier after the process.

i don't know, but is it possible everything could be ok?

Submitted by SD Realtor on December 13, 2012 - 10:09pm.

Anything is possible.

It is possible I will win the lottery. Highly improbably but possible.

Just in case I don't though I am trying to take some measures to be prepared. I think having land and water is a good first step.

Submitted by paramount on December 13, 2012 - 11:28pm.

A lot could be said, instead take a look at this expose of a Detroit school:

http://www.businessinsider.com/photos-of...

Detroit Decline:

http://www.businessinsider.com/the-incre...

For many areas of the country, I'm afraid these are pictures of the future.

"Our entire economy is a giant mirage. Our prosperity has been purchased by stealing from the future. A few people have been warning that we have completely destroyed our future in the process, but both major political parties just continue to do it and the mainstream media just continues to cheer them on.

At some point this con game will end and this economic mirage will disappear. When that happens, millions of people all over this country are going to become very angry and very desperate.

I hope that you have a plan for what you will do when that happens."

Submitted by scaredyclassic on December 13, 2012 - 11:56pm.

i guess ive just expected the jig to be up for so long that now Im thinking the jig will stay down probably till i'm dead. the jig is uncertain after that.

reps with 235 today, masterfully, if I do say so myself. physical ability may matter more int he future.

Submitted by ucodegen on December 14, 2012 - 3:14am.

squat300 wrote:
i guess ive just expected the jig to be up for so long that now Im thinking the jig will stay down probably till i'm dead. the jig is uncertain after that.

reps with 235 today, masterfully, if I do say so myself. physical ability may matter more int he future.

If you are planning for the future, make sure you get some work in on the upper body too...

Personally I am consider that they are going to 'inflate' their way out of it... It causes the house prices to rise to the values of the underlying notes, and allows the gov to spend like crazy.

Submitted by SD Realtor on December 15, 2012 - 8:43pm.

I think getting in good physical health is a good thing to do. I agree that the can has been kicked down the road so long that it is easy to form an illusion. Inflating our way out of the mess will not work given the quantity of debt we are carrying. While the value of the notes that are held decrease due to the currency approaching what will be turd wipe status, each bond auction will require a higher and higher interest rate. Similarly price inflation without wage inflation will be very tough to handle.

With very few exceptions, conditions will be much harsher for our children then they have been for us.

Submitted by scaredyclassic on December 15, 2012 - 10:10pm.

but they may be happier. in fact, I suspect there will be more happiness in the future.

and i am the most negative, pessimistic person in a 500 foot radius.

i am willing to bet that the average person will be happier 40 years from now in america than the average person was in 1994.

Submitted by ltsdd on December 15, 2012 - 11:15pm.

I am also pretty sure 40 years from now, the average adult will be complaining about how the "younger" generation are lazy, ungrateful, and have this sense of entitlement.

Submitted by scaredyclassic on December 16, 2012 - 12:24am.

my kids are at least three time better adjusted than I was...yup the trendline is up

Submitted by flu on December 16, 2012 - 7:38am.

ltsdd wrote:
I am also pretty sure 40 years from now, the average adult will be complaining about how the "younger" generation are lazy, ungrateful, and have this sense of entitlement.

Yeah, but short of the generation that came before Baby Boomers, I'd say that's the majority of america right now, including baby boomers.

Submitted by flu on December 16, 2012 - 7:40am.

.

Submitted by ltsdd on December 16, 2012 - 10:42am.

flu wrote:
ltsdd wrote:
I am also pretty sure 40 years from now, the average adult will be complaining about how the "younger" generation are lazy, ungrateful, and have this sense of entitlement.

Yeah, but short of the generation that came before Baby Boomers, I'd say that's the majority of america right now, including baby boomers.

What makes you believe that's the case? The younger generation has more work cut out for them not because of their lack of motivation and laziness but rather due to the increased in competition both internally, due to population increase, and externally from other countries that only in recent years began to shed itself the effects of decades of wars and colonial rules.

During the 50's what and who did we really have to compete against? Japan, Russia and Europe were in rebuilding mode after the war. China was still fighting a civil war. Korea was a backward third-world country in the midst of a civil war. India just barely got its independence. Most of the rest of the world were still under colonial rule.

I don't want to take away the accomplishments of our previous generations. But at the same time let's not be too harsh and sell the younger generation short, either.

Submitted by flu on December 16, 2012 - 12:54pm.

ltsdd wrote:
flu wrote:
ltsdd wrote:
I am also pretty sure 40 years from now, the average adult will be complaining about how the "younger" generation are lazy, ungrateful, and have this sense of entitlement.

Yeah, but short of the generation that came before Baby Boomers, I'd say that's the majority of america right now, including baby boomers.

What makes you believe that's the case? The younger generation has more work cut out for them not because of their lack of motivation and laziness but rather due to the increased in competition both internally, due to population increase, and externally from other countries that only in recent years began to shed itself the effects of decades of wars and colonial rules.

During the 50's what and who did we really have to compete against? Japan, Russia and Europe were in rebuilding mode after the war. China was still fighting a civil war. Korea was a backward third-world country in the midst of a civil war. India just barely got its independence. Most of the rest of the world were still under colonial rule.

I don't want to take away the accomplishments of our previous generations. But at the same time let's not be too harsh and sell the younger generation short, either.

Interviewing them.... Some of them really are still in la-la-la land...

I was phone screening some interns recently from college. No experience, and frankly sucky skills. and was asking some rudimentary technical questions (which they couldn't answer BTW). But nevertheless, I thought...Ok local person, maybe the person will surprise me with some "mark of intelligence..." Well a few more minutes in the middle of the interview... I get a "can you hold on, someone is sending me a message on twitter?"...

I don't know, but when I graduated and jobs were scarce, and I had limited work experience (which at the time was a hell of a lot more than some of these jokers), I took every opportunity I could to try to get every possible position rather than fvcking around on the BBS chatting to people at the same time...

Guy had the nerve to call back and ask when to start. I almost flipped out and was gonna say what I was thinking "are you fvcking kidding me?", only to be held back with the flashes of the word "liability".... hell no did I want to make this person a millionaire via some stupid lawsuit..
So I bit my tongue and referred him to HR to get an update on his/her status.

I hate to say this, there's a reason why a lot of these high tech jobs are going to H1-B's these days...Apparently a lot of them take their work more seriously. The economy is *that* bad , people are complaining they can't find jobs. And yet you have still a lot of arrogant people who are still in la-la-la land, when they don't know crap, and demand to be compensated as if they're an expert with absolutely no experience. Great, I guess if they create facebook app, that will lead them on the road to riches...Like Zygna...Oh, wait.... nevermind.

Submitted by SD Realtor on December 16, 2012 - 10:46pm.

I love the logic. So let me get this straight. When our kids grow up they will have less opportunity to get quality jobs. They will live in a country that is riddled with debt and could have by then defaulted. They will live in a society that does not enjoy the same benefits as the society that their parents lived in at both the state and federal levels. They will have a currency that is worth less then it was when they were kids. They will have to compete much harder for jobs. They may have advance degrees but may have to settle for jobs that do not require them.

However your argument is that they will be happier? That logic is based on what? That they will be happier because they did not know what it was like to live in a better society?

So if you never got to live through better times, you will be happier living in crappier times.

Awesome logic man... just awesome.

Submitted by CA renter on December 16, 2012 - 11:17pm.

SK in CV wrote:
SD Realtor wrote:
Obviously Bush is behind all of this, even QE4, 5, 6 and 7!

I'm quite sure nobody has ever claimed that Bush is behind it. It's as ridiculous a claim as that which charges this is Keynesian economics at work. It's not. Keynes, at most, was agnostic on monetary manipulation as a means of economic stimulus.

I'm not so sure that it doesn't benefit the economy as a whole, but there's no question that the biggest beneficiaries are debt holders. That's the big banks. Is there a better way to do the same thing or better for the economy as a whole without particularly benefitting the banking industry? I could be convinced, but I haven't seen any ideas that meet the requirements.

If we had allowed deflation to work its magic back in 2008, I think we'd be better off today. Jobs would have been lost, wages would have fallen, but asset prices would probably have fallen faster and further, leaving Joe Sixpack with more purchasing power. It would also have reduced the income/wage gap that is destroying our economy.

Debtors would lose their homes, but they would also be freed from thousands, or hundreds of thousands, of dollars in debt. Creditors would lose, but higher interest rates going forward would help mitigate some of the pain.

Interest rates would be higher, rewarding savers and making spenders think more wisely about their purchases. The government could have avoided taking on all this debt and we would have a smaller the debt burden, one that cripple us for many, many years to come since we took on so much debt to save the bankers/wealthy -- especially when (if) interest rates rise.

We could have stimulated the economy by putting more money into our infrastructure and R&D funding. Stimulus is good, but not when it's directed at keeping asset prices abnormally high.

Just MHO.

Submitted by flu on December 16, 2012 - 11:52pm.

CA renter wrote:
SK in CV wrote:
SD Realtor wrote:
Obviously Bush is behind all of this, even QE4, 5, 6 and 7!

I'm quite sure nobody has ever claimed that Bush is behind it. It's as ridiculous a claim as that which charges this is Keynesian economics at work. It's not. Keynes, at most, was agnostic on monetary manipulation as a means of economic stimulus.

I'm not so sure that it doesn't benefit the economy as a whole, but there's no question that the biggest beneficiaries are debt holders. That's the big banks. Is there a better way to do the same thing or better for the economy as a whole without particularly benefitting the banking industry? I could be convinced, but I haven't seen any ideas that meet the requirements.

If we had allowed deflation to work its magic back in 2008, I think we'd be better off today. Jobs would have been lost, wages would have fallen, but asset prices would probably have fallen faster and further, leaving Joe Sixpack with more purchasing power. It would also have reduced the income/wage gap that is destroying our economy.

Debtors would lose their homes, but they would also be freed from thousands, or hundreds of thousands, of dollars in debt. Creditors would lose, but higher interest rates going forward would help mitigate some of the pain.

Interest rates would be higher, rewarding savers and making spenders think more wisely about their purchases. The government could have avoided taking on all this debt and we would have a smaller the debt burden, one that cripple us for many, many years to come since we took on so much debt to save the bankers/wealthy -- especially when (if) interest rates rise.

We could have stimulated the economy by putting more money into our infrastructure and R&D funding. Stimulus is good, but not when it's directed at keeping asset prices abnormally high.

Just MHO.

um...How does deflation help a nation that is so knee deep in debt? Those IOU's sure end up costing a lot more when things are in a deflationary environment. And with that much credit the our government keeps spending on, how can we possibly be deflationary in the long term?

I don't get it.

Submitted by CA renter on December 17, 2012 - 1:16am.

Mass default.

In my scenario, the government would not have taken on all that debt -- certainly not to prop up asset prices, which is totally unproductive and does nothing to grow the economy in a sustainable way. It was a choice that was made to benefit the few at the expense of many.

What ultimately matters is the purchasing power of those at the bottom of the economic pyramid. When wealth is concentrated at the top, everything crumbles.

The Fed/govt has only been addressing asset prices, increasing the purchasing power/control of resources of the most wealthy, while those at the bottom steadily lose more ground. The only reason Joe Sixpack isn't taking on even more debt in order to maintain purchasing power (what the Fed has been trying to push) is because he can't. All income is being spent, and there is nothing left over from which he can make new purchase or take on more debt. That's why interest rates are so low right now -- to make the debt burden a little lighter for J6 so that he can take on even more debt so he can spend more. This is not sustainable, and will end up making our problems much, much worse (which they already have, IMHO).

BTW, the only kind of inflation that makes payments less burdensome is wage inflation. We are not getting that outside of a few industries. Cost inflation, without wage inflation, is very, very destructive...far more destructive than deflation, IMO.

Submitted by scaredyclassic on December 17, 2012 - 7:29am.

SD Realtor wrote:
I love the logic. So let me get this straight. When our kids grow up they will have less opportunity to get quality jobs. They will live in a country that is riddled with debt and could have by then defaulted. They will live in a society that does not enjoy the same benefits as the society that their parents lived in at both the state and federal levels. They will have a currency that is worth less then it was when they were kids. They will have to compete much harder for jobs. They may have advance degrees but may have to settle for jobs that do not require them.

However your argument is that they will be happier? That logic is based on what? That they will be happier because they did not know what it was like to live in a better society?

So if you never got to live through better times, you will be happier living in crappier times.

Awesome logic man... just awesome.

Money doesn't buy happiness.

We have a currency worth a lot less than when we were kids.

And things are better.

I don't have any particular argument why they will be happier. Just a feeling. A hunch.

Could just be dumb optimism.

Submitted by scaredyclassic on December 17, 2012 - 7:34am.

A man will be far happier with a loaf of bread, some cheese he brought home to loving children by bicycle than steaks served by a bitter wife and eaten with ungrateful welps he picked up in a Ferrari.

Submitted by scaredyclassic on December 17, 2012 - 7:46am.

I'm not sure what makes one nations people happier than another.

Expectations?

Submitted by flu on December 17, 2012 - 7:47am.

squatt300 wrote:
Money doesn't buy happiness.


But it sure can come pretty damn close.
:)

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.