That’s what the decision to continue Quantitative Easing 3 (QE3), the purchase of 85 billion dollars of treasuries and mortgage backed securities a month, is an admission of.
It is also a way of not causing Brazil and India’s currencies to crash out, which just the suggestion of a reduction of QE3 was causing.
It is worth reiterating that the purpose of Quantitative Easing is to make the rich richer, and that it has done. US stock markets increased 150% from their lows, one of those bull markets traders dream of. However the employment situation has not significantly improved (ignore the unemployment rate, even in absolute terms there are still fewer people employed than there were before the financial crisis.) Median household net worth is down, median income is down, but the rich are richer.
This is not to say that QE does no good for the regular economy, it does, but it does far less good than could be done with eighty five billion dollars a month. A program to, say, retrofit every single federal building for active and passive solar would employ more people and have more of a ripple effect. Eighty five billion dollars a month (970 billion a year) is a LOT of money.
Nonetheless, given its refusal to break up the large banks; the President and Congress’s refusal to actually tax rich people (thus necessitating the Fed buying treasury bonds); and a refusal to allow the housing market to settle to its actual value while supporting underwater homeowners, the Fed is in a bind. If you refuse to do anything that is primarily intended to help ordinary people, refuse to engage in sufficient measures to break the oil supply bottleneck (and no, Fracking isn’t cutting it); refuse to tax rich people (who have the money); and refuse to engage in any sort of industrial policy while funneling money to industries like banking, insurance, pharma and the military-industrial complex which are ultimately parasitical, why then, it can certainly seem like you have no choice but to continue throwing money at banks and rich people, and hoping some of it gets to the real economy.
Yellen won’t be any better, by the way. Bernanke’s job was to make sure that the financial collapse did not cause an FDR or New Deal: to make sure that the rich weren’t wiped out by the financial bubble they caused. His academic work is about this exact problem: how to make sure that a New Deal doesn’t happen: how to make sure ordinary people don’t get their share of the pie. Yellen won’t change that, no one will be picked for the Federal Reserve who would change that.
Peter Cowan
So, if the suggestion of a QE3 reduction was threatening to crash out Brazil and India’s currencies, is the corollary true that QE implies increased capital flows from the US to developing nations? I guess I don’t understand QE deeply enough get how it does what it does.
rip current
yesterday, as soon as bernanke said QE was going to continue the effing stock market took off like a rocket.
it all sucks.
sucks to high heaven.
everything since 2008 has been to restore / insulate the rich and it sucks
do the MOTU / PTB really think that all of their $$$ is gonna keep the blade of the guillotine from crashing down????
when does the 99% rise up and say enuff is enuff ???
let me know so that i can get in the front row and help.
Ian Welsh
If the Fed isn’t buying treasuries, someone else will. So instead of buying Indian or Brazilian bonds, they’ll be buying US bonds. Despite everything, US treasuries are still seen as the safest place to park your money, plus if the Fed wasn’t buying treasuries, the yield would have to go up.
Kim Kaufman
“Despite everything, US treasuries are still seen as the safest place to park your money”
Yes, the U.S. is still the best looking horse in the glue factory.
Ian Welsh
If the US dollar goes, everything goes. The US is one of two linchpin world economies (the other is China). If either of them breaks completely, the world is soooooo fucked.
jump
Ian,
Your snark is showing. 🙂
Not with a bang but a whimper.
Just sayin’
Z
The house, led by the republicans, passed a bill today to make substantial cuts to food stamps. Warning: This very well maybe another attempt to season the kabuki sausage just right in order to make it politically palatable for both sides of our two-party political cartel. The republicans have now cast obama in the role of the anguished, empathetic hero who in order to save a cherished social program (food stamps – which the republicans probably have been promised that they will never actually be forced to actually cut and hence will take little political hit for this maneuver) obama has to forsake another (social security, in the form of the inflation adjustment cuts). Saving american families from hunger in exchange for shaving a few years of the lives of our most “unproductive” old people. Compromises, compromises. Got to save someone to be hero. Meanwhile, back in the reality zone the head pr man of the plutocracy is salivating at the thought of the post-presidency rewards he’ll reap for delivering ss cuts to his sponsors. He’s been in fervent pursuit of it since day one, term one … even before to be more accurate.
In regards to qe3, on one hand we have a very large and growing number of poor people that are in need of food stamps to eat regular meals who are frequently villianized by the rich as being lazy, while on the other hand we have a very small group of rich people that are enjoying a yacht and vacation home federal subsidy … via the *fed’s qe3 fueled inflation of financial assets … that they get for producing absolutely nothing. Nice system you got there, if you own it.
If our rulers … fronted by obama … go after ss right now, they are really pushing it. But then again, obama’s a person whose belief in his ability to manipulate knows no boundaries.
*Yes, I’m aware that “theoretically” the fed and federal government are independent entities.
Z
Everythings Jake
I love this site for eloquent simple truth:
“His academic work is about this exact problem: how to make sure that a New Deal doesn’t happen: HOW TO MAKE SURE ORDINARY PEOPLE DON’T GET THEIR SHARE OF THE PIE.”
Dear Ben, IWW bitch. FU.
eclecticdog
Those sentences on Bernanke (Bernanke’s job…) really brought clarity to it all.