Quantitative Easing

We Are All Modern Monetary Theorists Now

As a consequence of loose monetary policy with a fiat currency, the United States is rapidly descending into an economic reality of Modern Monetary Theory, or MMT.  While MMT (also known as Chartalism) is typically associated with its Keynesian predecessor and the policies of the Left, new developments reveal that both parties are responsible for the slip into a brave new economic world.

Essentially, there are four preconditions in Modern Monetary Theory:

1) Money enters the economy through government spending, as the total amount of money is constrained not by gold but by the total output of the national economy;
2) Government spending is speculative as it prints as much money as it needs to control production and, as a byproduct, employment, and spending beyond productive capacity leads to inflation;
3) Taxes do not pay for expenditures but are instead a way to throttle private sector demand; and
4) The government is the issuer of the currency, sovereign governments that issue their own currency are never insolvent, so debts essentially don’t matter.

QE3: A Nice Kickback For Bankers

Merely two weeks after Ben Bernanke announced one more round of quantitative easing (QE3), the results are already becoming apparent. And once again, it shows how the culture of “too big to fail” is both immoral and economically devastating.

The immorality of QE3 can be summarized by this quote, from Businessweek: “It’s very good to be a mortgage originator right now,”

Gosh, I wonder why? Is it perhaps because QE3 is benefiting banks/bankers…to the detriment of everyone else? But I thought our president wanted the top 1% to “pay their fair share”! So how do bankers and loan originators end up cashing in on yet another bailout? Yes, I realize I shouldn’t be shocked by a politician saying one thing…and doing the opposite. But I am.

Since images often speak louder than words, here’s an illustration of why it’s “…very good to be a mortgage originator right now”.

This is what Bernanke imagines QE3 is doing:

And here is what is ACTUALLY happening:

I rest my case.

A candid moment from a member of the FOMC

Federal Reserve Chairman Ben Bernanke just announced Operation Twist, a new combat operation that will supposedly fix our market woes. Supposedly. (Hey, pass the vodka, will you? I need a drink before I listen to this guy.)

I am not a financial markets expert, and I have not heard that much on the actual details of Operation Twist, but, courtesy of CNN, here’s a brief explanation:

NEW YORK (CNNMoney) — The Federal Reserve announced “Operation Twist” Wednesday, a widely expected stimulus move reviving a policy from the 1960s.

The policy involves selling $400 billion in short-term Treasuries in exchange for the same amount of longer-term bonds, starting in October and ending in June 2012.

 

While the move does not mean the Fed will pump additional money into the economy, it is designed to lower yields on long-term bonds, while keeping short-term rates little changed.

The intent is to thereby push down interest rates on everything from mortgages to business loans, giving consumers and companies an additional incentive to borrow and spend money.

So basically, they’re selling bonds and buying bonds. Nothing exactly Earth shattering here. And definitely not anything that will get us out of this rut.

Interestingly, some members of the FOMC agree with my assessment, and one of them had a speech about it. Mr. Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas, had this to say about recent monetary policy, using a Nordic weather station as a metaphor:

Today in Liberty: Obama’s approval rating tanks, Kerry deals with “apartheid” fallout

“Your mountains are breathtaking, your coffee is fair trade, and everywhere you go you hear the sound of f**king ukuleles. That’s all very charming until you waste tens of millions of dollars of taxpayer money on a website that doesn’t work.”John Oliver on Oregon’s Obamacare website

— WaPo/ABC poll brings bad news for Obama: A new Washington Post/ABC News poll released this morning finds that President Obama’s approval rating has taken a nosedive. “The poll shows Obama’s approval rating is down to 41 percent, a point below its previous low of 42 percent, in November,” the Washington Post reports. “The president’s disapproval rating is at 52 percent, three points lower than the previous high. Six percent have no opinion on Obama.” #PANIC #DOOM

— Yeah, that Obamacare “boost” is gone: the WaPo/ABC News poll also found that the boost President Obama got from the Obamacare enrollment numbers is gone, just a couple weeks after he spiked the football at a White House press conference. “Following some rare good news about the law — including meeting its sign-ups goal despite a rough launch— 44 percent of voters approved of his handling of it. That number is now down to 37 percent, with 57 percent disapproving,” the paper explains. “Views of Obamacare overall have also dropped after a slight boost. While 49 percent approved of the law last month, 44 percent approve of it this month — the lowest that number has been since November. Forty-eight percent of Americans disapprove of the law.”

House Democrat welcomes “stealth socialism” in America

Alan Grayson

Rep. Alan Grayson (D-FL) says that “stealth socialism” has been “created” in the United States through the Federal Reserve’s bond buying program, which essentially monetizes the government’s debt. What’s more he’s happy about it.

“The one good thing that’s happened in the past five years, in the sense of making people hopeful that the economy might survive a collapse, is that the Federal Reserve’s unconventional monetary policy put us back on a low-level track toward growth,”Grayson, a far-leftist firebrand, told Salon.com in a recent interview. “They showed that monetary policy in extremis can work to some degree.”

In a surprise move, the Federal Reserve announced last week that it would continue the bond buying program, known as “quantitative easing,” in hopes that it would stimulate an economy that is still struggling to recover from the 2008 recession. This is the third round of quantitative easing (QE3) since 2009, bringing the Federal Reserve’s balance sheet, according to the Los Angeles Times, “to nearly $3.7 trillion from about $900 billion in mid-2008.”

“We’ve had a government takeover of the bond market. Stealth socialism’s been created. Government simply ends up owning more and more and more,” he said. “If government had taken over the steel industry, maybe it would have been more noticeable. They’ve taken over the financing of housing industry as well, with a desired result.”

Paul Krugman for Treasury Secretary?: WORST. IDEA. EVER.

Paul Krugman

This weekend, MoveOn.org pushed a petition written by economic policy expert actor Danny Glover asking President Barack Obama to appoint Paul Krugman to serve as the next Treasury Secretary. The petition, which has garnered nearly 200,000 signatures, states, “Press speculation has centered on candidates likely to support the Wall Street agenda of cuts to Social Security and Medicare benefits and other domestic spending rather than government policies to create jobs.”

“We want President Obama to nominate Nobel prize-winning economist Paul Krugman, who opposes austerity and wants the government to focus on creating jobs.”

While one may not put it past Obama to make such an appointment, there is next to no chance that Krugman would win confirmation from the Senate. If you though Timothy Geither has been worthless in his role as Treasury Secretary, Krugman would be a disaster, based on things he’s said since President Obama has been in office.

Here’s a sample of The Crazy™ from Krugman:

Ron Paul: Fed’s QE3 is a Detachment from Reality

See Video

Quantum of Easing

With apologies to Ian Fleming, American Crossroads released a new web-ad today about President Barack Obama, economic supervillain:

Is it time to end the Federal Reserve?

Federal Reserve

Since the Federal Reserve announced its third-round of quantitative easing (QE3), a monetary policy move which essentially involves the central bank buying up debt,  Americans are beginning to wondering what impact it will have on them.

The goal of QE3 is ultimately to bring down the unemployment by one-percent, but it would also raise commodity prices and may even have some affect on housing market, though that impact may be marginal.

Questions remain whether the launching the program was wise, especially when one considers that the two previous rounds of quantitative easing and Operation Twist, have done little to ease the slow growth the economy has experienced.

The Federal Reserve, which has printed money and loaned trillions to national and foreign banks, has been under increased scrutiny since the 2008 financial crisis. Over the last four years, Rep. Ron Paul (R-TX) has led the push in Congress to audit the United States’ central bank. As George Will recently said, the Federal Reserve has become the fourth branch of government, taking questionable steps with little oversight. Others wonder if the United States even needs the Fed since its creating more problems than anything else.

In a new video from Learn Liberty, Lawrence White, a professor at George Mason University, explains that the United States could indeed survive and prosper without the Federal Reserve, which, as he notes, has frequently become impediment to economic growth:

Federal Reserve to monetize more debt

Ben Bernanke

The Federal Reserve announced a third-round of quantitative easing (QE3), during which the central bank will purchase $600 billion bonds in hopes that the debt monetization will stimulate the economy and thus bring down the unemployment rate by one-percentage point.

The move has already been met with derision by GOP vice presidential nominee Paul Ryan (R-WI), who called the Fed’s actions “insidious” during a speech in Florida on Saturday. Before the Federal Reserve announced its decision last week, the Wall Street Journal reported that many economists expressed doubt that another round of quantitative easing would do anything to stimulate the economy. And if they do manage to do anything, it could be as, Neil Cavuto explains, “substituting bubbles”:

The risk with forcibly keeping interest rates low is you create another bubble, which is odd because we’re in the fix we’re in because we burst out of a real bad financial bubble.

My fear is that we’re substituting bubbles.

We’re encouraging the very reckless hedging and leveraging that brought on the last financial meltdown.

I’m not saying that happens again. But you don’t have to be Nostradamus to see where this kind of stuff goes. It’s inflationary, for one thing, and likely prompts a continued run-up in commodity prices that had stalled for a while.

 


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