Friday, September 14, 2012

Randazzo & Barker on Barnanke's Disastrous Policies

With yours truly throwing in my own two cents...

The decision is in: Unlimited quantitative easing.

That was the announcement from the Federal Open Market Committee [yesterday] afternoon, launching a third round of purchases of securities in a bid to boost the economy and reduce unemployment.

A bid doomed to failure - and this failure will carry a heavy cost in terms of debt and inflation!

Ben Bernanke is not a stupid man. Nor are the men and women backing this insanity. Therefore... why are they doing this?

This time, Federal Reserve Chairman Ben Bernanke and crew are pledging to buy $40 billion per month until the economy improves.

To buy "what"... this I'll address down the page...

The Fed's policy committee also extended its zero-interest rate policy until “at least mid-2015.” If QE3 lasts that long, the Feds will be printing at least another $800 billion to buy mortgage-backed securities.

Ah... and so we're getting to the heart of the matter.

No... Bernanke and crew aren't simply stupid! They're not dense! They're crafty! This is yet another bailout of the banks!  

It won’t be a surprise to read conservatives lambasting this as unconventional monetary policy meant to help re-elect President Obama.

Unfortunately this "monetary policy" is the opposite of "unconventional." No. This is simply a continuation of the failed Bush polices that have become - doubled down upon... on steroids - the failed Obama policies!

My friends... this is the policy of the Oligarchy!

And inflation hawks have already started screeching.

Folks... it's only because the media (including so-called "conservative media") largely ignore it that most Americans don't recognize the inflation that already exists... the inflation that has been adversely impacting savings and skewing investment and diminishing American lifestyles since at least 2005!

But the loudest cry of “for shame” should be coming from the Occupy Wall Street movement.

Yeah. Right. And next we should expect the return of the anti-war movement during an Obama administration...


Quantitative easing - a fancy term for the Federal Reserve buying securities from pre-defined 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.


How is the Federal Reserve contributing to regressive redistribution, income inequality, and manipulated markets? Let’s flesh this out a bit.

Last month, Bernanke said that quantitative easing had contributed to the rebound in stock prices over the past few years, and suggested this was a positive outcome.

It's not. Bernanke et al are deliberately re-inflating an artificial bubble... and as insiders, chances are that they'll take their profits and run just before the bubble pops again.

“This effect is potentially important, because stock values affect both consumption and investment decisions,” Bernanke argued, apparently under the belief that the Fed has a third mandate to support rising stock prices.

It does... only the "mandate" is not on paper and it's not "official." This "third mandate" is about serving the interests of the Oligarchy - of which Bernanke as well as Tim "The Tax Cheat" Geithner are members in good standing.

This is ironically a trickle down monetary policy theory, where rising stock prices mean more wealth and more consumption that trickles down the economic ladder. One problem with this idea is that there is a gigantic mountain of household debt - about $12 trillion worth - that is diverting away any trickle down.

Bingo! Debt piled upon debt piled upon debt piled upon debt...

An even worse assumption is that the stock market really reflects what is going on in the real economy.

Ah... but this isn't the point! Indeed, this is beyond the point... contrary to the point even! The real point is to allow the insiders the opportunity to gain commission income and utilize their insider knowledge, connections, and influence to rig the game. (Which they've done!)

Where the Occupy movement should really be teed off is when you consider that most equity shares in America are owned by the wealthiest 10%. That is not inherently a problem — wealthier individuals with more disposable income will have more ability take ownership stakes in companies than those in lower income brackets. And it is not a call for class warfare. However, it does mean that when the Fed engages in quantitative easing it is providing a benefit to a very narrow segment of society at the expense of others (either through future inflation or through the cost of raising taxes to pay for increased federal debts). That is the definition of crony capitalism.

Yep! Inflation aids debtors (the bigger the debts, the more the benefit) and hurts savers. And in terms of regressive injury... those with the least disposable income are obviously hurt the most by inflation.

One caveat: Those on the doll... those receiving direct government "aid"... government tends to "adjust" such aid to take account of inflation much more generously than does the private sector. Therefore, those who are working but barely getting by... those who earn too much to receive direct government payments or major subsidies... these are the folks who are hurt the worst by inflation.

When you're making a quarter-million dollars a year or more... well... the price of a gallon of gas or a pound of Boar's Head roast beef just doesn't effect you the way it effects a New York suburban couple living on $80 (or less) a year.

At the same time, all Americans have seen the prices of basic goods increase over the past few years in large part due to rising commodities prices. The whole idea of QE is to drive investors out of lower risk investments like mortgage backed securities and government debt and get them to put that money in “more productive” use — lend it, build skyscrapers, invest in technology, etc. Since there is little confidence about the future of the economy, many investors have crowded into the stock market with their money, and still others have invested in commodities.

Exactly! The government can't "force" investment to go into productive areas but can "force" a situation where likely malinvestment - and the creation of bubbles, be they stock bubbles or real estate bubbles - is literally the only game in town!

The problem is that investing in commodities can push up prices on things like gas, meat (because of feed corn prices), bread (because of wheat prices), and even orange juice.

There certainly have been other contributors to commodities prices going up, but if the Fed has boosted stocks, they've boosted commodities too. So not only are the cronies gaining from quantitative easing, there is a negative wealth effect too.


The cronyism doesn’t end there. In a Dallas Fed paper released in August, OPEC chief economist William White points out that easy monetary policy favors “senior management of banks in particular.”

Ya think! (Sorry... didn't need a "study" to figure that one out!)

And even Bernanke himself suggested (as if it was a good thing) that quantitative easing purchases “have been found to be associated with significant declines in the yields on both corporate bonds and MBS.”


Translation: the Federal Reserve has made it artificially cheaper for corporations to borrow money and has pushed up the prices of houses (benefiting homeowners but hurting homebuyers).


Correct me if I’m wrong, but I thought cheap loans allowing businesses to leverage up and juiced housing prices were key parts of what got us into this mess?


All of this might be acceptable to some if quantitative easing was helping the American economy recover. The reality is that quantitative easing has made it cheaper for the government to borrow, has artificially propped up the housing market (making it take longer to recover), and has dramatically manipulated the distribution of capital in financial markets.

Oh... one more thing...

And the economy has not been in recovery.


The plans announced today will exacerbate pre-existing malinvestment and income inequality.

And seriously, folks... if I know this... don't you think Bernanke knows this? Don't you think Barack Hussein Obama and his buddy Jon Corzine know this?

What is this continuous round of purchases going to do?


Oh... and of course it'll take bad mortgage paper off the balance sheets of the banks... enriching the banks and the bankers... while adding the bad mortgage paper to the pile of debt already shoulders by...

Wait for it... wait for it...


...the American taxpayers!

It won’t get banks lending any more than they already are.

Nope. (Except perhaps to politically connected companies here and abroad...)

And even if it did, households and small business still have a lot of debt that will keep them in a de-leveraging state for a while.

It won’t help the housing market bottom out, clear away toxic debt, and end the wave of foreclosures that need to process.

It is not going to push up incomes, create new jobs, or change the technological revolution that is altering the face of employment in America.


To put it simply: More quantitative easing is not going to move the dial much on the growth meter.

Except where the meter is focused on the interests of the Oligarchy! The super rich and super powerful will get even richer and more powerful! (I fear that's the point...)

Taken together, the crony capitalism and negative wealth effects of quantitative easing should clearly give pause.

Oh... it should do more than "give pause." Frankly I hope and pray that someone or some group of someones far braver and more capable than I take direct action to at least attempt to derail this latest effort by the oligarchs to suck the lifeblood out of the American People.

I pray daily that Bernanke dies. Short of that... there's little hope of stopping what's happening.

The fact that QE promotes activities that led to the housing bubble should have stopped its progression as an idea a long time ago, especially since these problems are greater than any gain that would come from this now perpetual pace of money creation.

But "gain" is the point! Look at who gains by inflating the housing bubble again... by inflating the stock market bubble... but artificially inflating artificial bubble after artificial bubble...

If there is a time to head down to Zuccotti Park and raise some cardboard in opposition to the continuation of such a devastatingly failed policy, it is now.

No, my friends... I'm afraid it's going to take more than cardboard placards and empty slogans shouted out over bullhorns if we're to stop the Oligarchy.

1 comment:

MikeD said...

Hon. Ron Paul voices his displeasure on QE3.