Wednesday, August 26, 2015

Misguided Calls for More QE

Misguided Calls for More QE

by Stephen Lendman

Former US Treasury Secretary Larry Summers and other US financial community members urge more money printing madness - duplicitously suggesting current market turmoil conditions warrant it. 

Reckless monetary policy instituted by the Fed and other major central banks bears full responsibility for what’s unfolding - how severe for how long remains to be seen. More on what Summers said below.

Three rounds of Fed quantitative easing (QE) did nothing to create jobs or put money in the pockets of ordinary people who spend it, generate economic growth and create a virtuous circle of prosperity lifting all boats equitably.

Just the opposite. It generated unprecedented speculation - letting corporate and super-rich interests amass enormous wealth at the expense of a protracted Main Street Depression with no end in sight or intent to institute responsible policies to change things.

Former Reagan administration budget director David Stockman calls QE “high grade monetary heroin” eventually “killing the patient.”

Others call money printing madness the mother of all Ponzi schemes. Noted market analyst Marc Faber expects Fed policy to “destroy the world.” A great unraveling looms. It just takes time.

QE creates money out of thin air electronically - by buying US treasuries and/or mortgage backed securities in fixed amounts monthly. They’re held in banks’ reserve accounts at the Fed - not used for lending to stimulate economic growth.

Michael Hudson explains banks aren’t lending money to companies “to invest and build equipment and hire people.” Just the opposite. They facilitate speculation.

They “lend money mainly to transfer ownership of real estate.” They finance corporate raiders to take over companies, downsize work forces, cut benefits, “grab pensions,” substitute temp for full-time employees, offshore labor to low-cost countries, and try to “squeeze out more work” for greater productivity and profits.

The dirty scheme involves benefitting America’s 1% hugely at the expense of most others. The result: an unprecedented wealth transfer upward - from the pockets of ordinary people to super-rich elites already with too much. It’s the largest tax ever imposed on an unwitting public.

In 1988, Ben Bernanke knew before becoming Fed chairman QE doesn’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?"

Their conclusion:

"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."

Fed-style QE doesn't work. It could if properly used. It hasn't been. It's done nothing to boost aggregate demand. Doing so requires putting money in consumers' pockets.

Money printing madness hasn’t stimulated growth to create jobs and prosperity. Funds created flowed to bank balance sheets - used for speculation, high salaries, big bonuses, buying competitors, and consolidating to greater size.

QE is financial aggression. Helicopter Ben and Janet Yellen dropped lots of money on Wall Street. It sent financial asset prices soaring. Nothing went to Main Street where it belongs. Dire economic conditions for millions don’t matter. 

Tout TV talking heads explain nothing about protracted Depression-level unemployment and poverty levels - reflecting national policy against the interests of millions of people in duress.

Three rounds of QE created enormous global financial market bubbles. More money printing madness assures greater trouble than already.

Larry Summers lost credibility long ago. As treasury secretary, he pushed banking deregulation to the extreme - ignoring massive industry fraud. 

He supported corporate consolidation, promoted anything goes, spearheaded Glass-Steagall repeal and enactment of the Commodity Futures Modernization Act - responsible for creating a current $1.5 quadrillion derivatives time bomb guaranteed eventually to explode disastrously.

He now favors more QE, more monetary heroin, more wrongheaded policy than already. He suggested it on Twitter saying:

“It is far from clear that the next Fed move will be a tightening. As in August 1997, 1998, 2007 and 2008, we could be in the early stage of a very serious situation. Right now problems are not overconfidence or investors oblivious to risk, so no need for Fed to send shock across investors’ bow.”

Reckless Fed policy runs counter to its 1978 Humphrey-Hawkins Full Employment Act mandate: to pursue “maximum employment, production, purchasing power," price stability, and balanced trade cooperatively with private enterprise.

Policies followed under Alan Greenspan, Ben Bernanke and Janet Yellen have been polar opposite - creating an unprecedented central bank facilitated money making racket - casino capitalism on steroids.

Summers and other financial community members want more of the same - no matter how harmful to ordinary people.

Stephen Lendman lives in Chicago. He can be reached at 

His new book as editor and contributor is titled "Flashpoint in Ukraine: US Drive for Hegemony Risks WW III."

Visit his blog site at 

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