The REAL Reason For Quantitative Easing
A banker named Andrew Huszar who helped manage the Federal
Reserve's quantitative easing program during 2009 and 2010 is publicly apologizing
for what he has done. He says that
quantitative easing has accomplished next to
nothing for the average person on the street. Instead, he says that it has been "the
greatest backdoor Wall Street bailout of all time." And of course the cold, hard economic numbers
support what Huszar is saying. The percentage
of working age Americans with a job has not improved at all during the quantitative
easing era, and median household income has actually steadily declined during
that time frame
<http://theeconomiccollapseblog.com/archives/10-facts-about-the-growing-unemployment-crisis-in-america-that-will-blow-your-mind>
<http://theeconomiccollapseblog.com/archives/median-household-income-has-fallen-for-five-years-in-a-row>
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 genius to figure it out,
and now Andrew Huszar is blowing the whistle on the whole thing.
From 2009 to 2010, Huszar was responsible for managing the
Fed's purchase of approximately $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 happened.
<http://online.wsj.com/news/articles/SB10001424052702303763804579183680751473884>
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 continues 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 ended, Huszar
says that it was incredibly 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 confirmed 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 finally stopped 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 Schäuble, immediately called the decision "clueless."
That was when I realized the Fed had lost any remaining
ability to think independently from Wall Street.
Of course the fact that the Fed cannot think independently
from Wall Street should not be a surprise to any of my regular readers. As I have written about repeatedly
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.
<http://theeconomiccollapseblog.com/archives/25-fast-facts-about-the-federal-reserve-please-share-with-everyone-you-know>
,
<http://online.wsj.com/news/articles/SB10001424052702303763804579183680751473884>
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
acknowledges these things. For example,
just check out what billionaire hedge fund manager Stanley Druckenmiller told
CNBC about quantitative easing. <http://www.cnbc.com/id/101046937>
"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 <http://www.cnbc.com/id/49031991>
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 conducted for the Bank of
England shows that quantitative easing actually
increases the gap between the wealthy and the poor.
<http://www.cnbc.com/id/49031991>
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. <http://www.wnd.com/2013/11/stocks-up-108-under-obama-but/>
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 tougher for
ordinary Americans. <http://www.cnbc.com/id/49031991>
While Obama has been in the White House, the percentage of
working age Americans with a job has declined from 60.6% to 58.3% median
household income has declined for five years in a row and poverty has been
absolutely exploding
<http://research.stlouisfed.org/fred2/data/EMRATIO.txt>
<http://theeconomiccollapseblog.com/archives/median-household-income-has-fallen-for-five-years-in-a-row>
<http://theeconomiccollapseblog.com/archives/29-incredible-facts-which-prove-that-poverty-in-america-is-absolutely-exploding> .
But the fact that it has been very good for Wall Street
while doing essentially 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. financial system.
In recent years, the Federal Reserve has started to behave
like the Weimar Republic Just check out the chart below...
<http://theeconomiccollapseblog.com/archives/quantitative-easing-worked-for-the-weimar-republic-for-a-little-while-too> .
<http://theeconomiccollapseblog.com/archives/federal-reserve-whistleblower-tells-america-the-real-reason-for-quantitative-easing/m1-money-supply-2013>
M1 Money Supply 2013
The rest of the world is watching the Fed go crazy, and they
are beginning to openly wonder why they should continue to use the U.S. dollar
as the defacto reserve currency of the planet.
Right now, most global trade involves the use of U.S.
dollars. In fact, far more U.S. dollars
are actually used outside of the United States than are used inside the
country. This creates a tremendous
demand for U.S. dollars around the planet, and it keeps the value of the U.S.
dollar at a level that is far higher than it otherwise would be.
If the rest of the world decides to start moving away from
the U.S. dollar and this is already starting to happen then the demand for the U.S.
dollar will fall and we will not be able to import oil from the Middle East and
cheap plastic trinkets from China so inexpensively anymore.
<http://theeconomiccollapseblog.com/archives/how-china-can-cause-the-death-of-the-dollar-and-the-entire-u-s-financial-system>
In addition, major exporting nations such as China and Saudi
Arabia end up with giant piles of U.S. dollars due to their trading
activities. Instead of just sitting on
all of that cash, they tend to reinvest much of it back into U.S. Treasury
securities. This increases demand for
U.S. debt and drives down interest rates.
If the Federal Reserve continues to wildly create money out
of thin air with no end in sight, the rest of the world may decide to stop
lending us trillions of dollars at ultra-low interest rates.
When we get to that point, it is going to be absolutely
disastrous for the U.S. economy and the U.S. financial system. If you doubt this, just read this article
<http://theeconomiccollapseblog.com/archives/a-nightmare-scenario>
The only way that the game can continue is for the rest of
the world to continue to be irrational and to continue to ignore the reckless
behavior of the Federal Reserve.
We desperately need the rest of the planet "to ignore
the man behind the curtain". We
desperately need them to keep using our dollars that are rapidly being devalued
and to keep loaning us money at rates that are far below the real rate of
inflation.
If the rest of the globe starts behaving rationally at some
point, and they eventually will, then the game will be over.
Let us hope and pray that we still have a bit more time
until that happens.
This article first appeared here at the Economic Collapse
Blog
<http://theeconomiccollapseblog.com/archives/federal-reserve-whistleblower-tells-america-the-real-reason-for-quantitative-easing>
Source: Michael Snyder Activist Post, Michael Snyder is a writer, speaker and activist who writes and edits his own
blogs The American Dream http://endoftheamericandream.com/ and Economic Collapse Blog
<http://3.bp.blogspot.com/4fF3jX24YRA/UoLNuyxz5bI/AAAAAAAAV44/lvHqSUipR8U/s200/Wheelbarrow-of-Money-300x300.jpg>
4 trillion dollar theft!
http://www.zerohedge.com/news/2013-11-12/former-fed-quantitative-easer-confesses-aplogizes-i-can-only-say-im-sorry-america
Former Fed Quantitative Easer Confesses, Apologizes: "I
Can Only Say: I'm Sorry, America"
<http://www.zerohedge.com/users/tyler-durden>
Source: By Andrew
Huszar, also posted at the WSJ,11/12/2013
<http://online.wsj.com/news/articles/SB10001424052702303763804579183680751473884> .
Mr. Huszar, a senior fellow at Rutgers Business School, is a
former Morgan Stanley managing director. In 2009-10, he managed the Federal Reserve's
$1.25 trillion agency mortgage-backed security purchase program.
Confessions of a Quantitative Easer
We went on a bond-buying spree that was supposed to help
Main Street. Instead, it was a feast for Wall Street.
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 continues 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.
Five years ago this month, on Black Friday, the Fed launched
an unprecedented shopping spree. By that point in the financial crisis, Congress
had already passed legislation, the Troubled Asset Relief Program, to halt the
U.S. banking system's free fall. Beyond Wall Street, though, the economic pain
was still soaring. In the last three months of 2008 alone,
almost two million Americans would lose their jobs.
The Fed said it wanted to help through a new program of
massive bond purchases. There were secondary goals, but Chairman Ben Bernanke
made clear that the Fed's central motivation was to "affect credit
conditions for households and businesses": to drive down the cost of
credit so that more Americans hurting from the tanking economy could use it to
weather the downturn. For this reason, he originally called the initiative
"credit easing."
My part of the story began a few months later. Having been
at the Fed for seven years, until early 2008, I was working on Wall Street in
spring 2009 when I got an unexpected phone call. Would I come back to work on
the Fed's trading floor ? The job: managing what was at the heart of QE's
bond-buying spree a wild attempt to buy $1.25 trillion in mortgage bonds in 12
months. Incredibly, the Fed was calling to ask if I wanted to quarterback the largest
economic stimulus in U.S. history.
This was a dream job, but I hesitated. And it wasn't just
nervousness about taking on such responsibility. I had left the Fed out of
frustration, having witnessed the institution deferring more and more to Wall
Street. Independence is at the heart of any central bank's credibility, and I
had come to believe that the Fed's independence was eroding. Senior Fed officials,
though, were publicly acknowledging mistakes and several of those officials
emphasized to me how committed they were to a major Wall Street revamp. I could
also see that they desperately needed reinforcements. I took a leap of faith.
In its almost 100-year history, the Fed had never bought one
mortgage bond. Now my program was buying so many each day through active,
unscripted trading that we constantly risked driving bond prices too high and
crashing global confidence in key financial markets. We were working feverishly
to preserve the impression that the Fed knew what it was doing.
It wasn't long before my old doubts resurfaced. Despite the
Fed's rhetoric, my program wasn't helping to make credit any more accessible
for the average American. 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.
From the trenches, several other Fed managers also began
voicing the concern that QE wasn't working as planned. Our warnings fell on
deaf ears. In the past, Fed leaders even if they ultimately erred would have
worried obsessively about the costs versus the benefits of any major
initiative. Now the only obsession seemed to be with the newest survey of
financial-market expectations or the latest in-person feedback from Wall
Street's leading bankers and hedge-fund managers. Sorry, U.S. taxpayer.
Trading for the first round of QE ended on March 31, 2010.
The final results confirmed 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 finally stopped 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 Schäuble, immediately
called the decision "clueless."
That was when I realized the Fed had lost any remaining
ability to think independently from Wall Street. Demoralized, I returned to the
private sector.
Where are we today? The Fed keeps buying roughly $85 billion
in bonds a month, chronically delaying so much as a minor QE taper. Over five
years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly
free-market nation, QE has become the largest financial-markets intervention by
any government in world history.
And the impact? Even by the Fed's sunniest calculations,
aggressive QE over five years has generated only a few percentage points of
U.S. growth. By contrast, experts outside the Fed, such as Mohammed El Erian at
the Pimco investment firm, suggest that the Fed may have created and spent over
$4 trillion for a total return of as little as 0.25% of GDP (i.e., a mere $40 billion
bump in U.S. economic output). Both of those estimates indicate that QE isn't
really working.
Unless you're Wall Street. 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.
As for the rest of America, good luck. Because QE was
relentlessly pumping money into the financial markets during the past five
years, it killed the urgency for Washington to confront a real crisis: that of
a structurally unsound U.S. economy. Yes, those financial markets have rallied spectacularly,
breathing much-needed life back into 401(k)s, but for how long? Experts like
Larry Fink at the BlackRock investment firm are suggesting that conditions are
again "bubble-like." Meanwhile, the country remains overly dependent
on Wall Street to drive economic growth.
Even when acknowledging QE's shortcomings, Chairman Bernanke
argues that some action by the Fed is better than none (a position that his
likely successor, Fed Vice Chairwoman Janet Yellen, also embraces). The
implication is that the Fed is dutifully compensating for the rest of
Washington's dysfunction. But the Fed is at the center of that dysfunction.
Case in point: It has allowed QE to become Wall Street's new "too big to
fail" policy.
4 trillion dollar theft!
http://www.zerohedge.com/news/2013-11-12/former-fed-quantitative-easer-confesses-aplogizes-i-can-only-say-im-sorry-america
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