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Quantitive Pain

Janet Yellen - The Face of Pain

Janet Yellen – The Face of Pain

Ben Bernanke out, Janet Yellen in. But, don’t worry, the same failed fiscal policy will continue chugging along.

For those playing catchup, since 2008 the Fed has been using a practice called “Quantitative Easing” or QE. Since the interest rates have already been at or near 0%, it’s the Fed’s way of inflating the money supply. The theory goes that by buying financial assets, businesses will have access to easy credit and easy cash, then they’ll open factories, hire employees, and that will get the economy going again.

As it happens, there are two big problems with this plan: the capital is straight out of Wonderland, and everyone knows it.

When the Federal Reserve prints cash to buy assets, business hasn’t improved, there’s no extra demand needing to fill, and there’s no reliable projection to indicate it’s going to get better anytime soon. No decent businessperson is going to expand operations today, knowing they won’t have the magic money tomorrow. In other words, no one is going to take on additional liabilities without confidence they’ll have the revenue to cover them tomorrow.

Much to the contrary, it’s a very dangerous fiscal policy to follow, and one we’re all to familiar with.

When we throw good money after bad, we create an artificially large market: or, a bubble.The problem with bubbles is that they cannot be sustained forever. Already the Fed owns over $2 trillion worth of bonds and other financial assets under QE, but the Fed cannot continue to buy tens of billions of dollars worth of assets every month. The money runs out, and the bubble bursts.

Instead of the markets returning to their natural levels, investors will attempt to avoid losses and pull their cash out as well. The market contracts below its natural growth and the economy contracts. In other words, we go into recession.

This isn’t some big secret. Investors have been paying close attention to the Fed in the hopes of pulling out their cash before the QE fountain runs dry. Companies know it as well, and have been reluctant to grow, knowing the contraction which will eventually follow.

Instead of growing the economy, the Fed’s policy creates a bubble in financial markets which is not reflected in economic growth. Instead of investors being able to judge profits and growth based on customer demand, they play a game of beat-the-Fed, and businesses grow slower than they otherwise would.

Contrary to growing the economy, Quantitative Easing only slows recovery.

If you doubt it, just ask yourself why the Stock Market has hit record highs in 2013, yet unemployment remains at 7.3% and labor participation remains at a 35 year low.

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  1. WillofLa says:

    You cannot print absolutely worthless paper and use it to give to your banking friends to spend doing their daily business with their foreign investor buddies when everybody knows that the money is worthless paper that came from nothing and nowhere. It’s disgusting and a criminal act to have the mints monitize not only the budget, but the real damage starts when you start monitizing the whole economy!

    Berneckey’s giving this money to the major banks is money for them to do business because they cannot do business on a “normal” basis from making loans, and things like regular banking transactions are not taking place due to Obama’s disastorous economic policy decisions that have all but halted business in this country. Where else are the banks suppose to get money? Where can they make money from? What can the banks do to make money, even the insurance companies are going to go broke under ObamaCare?

    So Berneckey comes up with the idea to have the mints just print the money the banks would be making if the economy would be making if the economy was healthy. Just print the money and he’ll just give it to the banks.

    Can you spell…economic collapse!

  2. WillofLa says:

    What I want to know is how much damage has been done to the value of our dollar from Berneckey’s 85 billion a month the mints have been printing for him to give away to his banking and foreign investor buddie’s? Also, you did know that the big banks and foreign investors have been playing the derivitive game and never did stop altogether after the collapse in ’08?

    I’ll guarantee you these bums never did learn their lesson because of Berneckey’s finagling Paulsen’s taking all the money out of our Treasury to pay off all the major banks and all the foreign investor’s dollar on the dollar adter they lost trillions of dollars in the first time they were playing this disastorous game with our economy.

    If you’ll remeber Paulsen was given “full autonmy” from investigation from even the Supreme Court as to who and where all the money from our treasury went. Then when Bush left office and everyone went their way, and hedge fund corpoations had fallen by the wayside Paulsen started one of his own and opened the doors with 750 million in the bank! Where’d he get that money? And by Presidential Directive no one can ask him a single thing about it.

    And what did Berneckey get the “golden parachute” to this time? As far as I’m concerned the only place Berneckey should be going is the Super Max, him and Paulsen. And recend the autonomy clause that protects his money and find ourt where our money, 81/2 trillion dollars, went to and who did he give that money to? Would that get the money back? Of course not, but it would tell ud who to cut off when we abolish the Fed. And before they go we ought to get our 8.5 trillion back and give every American a check. That was our money Paulsen, Bush, Berneckey or anyone had no right to!