Quantitative easing is not so much an “easing“ of anything. It‘s more like a semi-focused explosion of fiat money. The economy dips, the Fed blasts more money into the system with a keystroke. It lowers the Fed Funds Rate, sometimes buys assets banks want off of their books (through the Treasury), but most importantly the Fed buys back the Treasury bills banks buy when they get flush from selling assets to the Treasury, which the banks then sell at a “profit” to the Fed and at basically no risk. The Fed even tells the banks how much they are going to buy and when, making sure the Fed gets the absolute worst price possible. Then, in essence the banks get to play with the nearly free money in the world markets making billions while the rest of us exist in the world of mortals where gravity still works and the sun rises in the east.
QE “works” for the rich and the connected. But for those of us in the real economy it’s a raw deal. Grandma’s CD is earning 1%. Not going to be much left at that rate when she’s gone. But hey your 401k is almost back to even, so I guess that’s something.
In the below article Peter Schiff explains succinctly why quantitative easing is reckless and what needs to happen for the economy to become healthy again. I totally agree with his analysis, but his prescription for economic health involves pain. Humans don’t like pain.
In his widely anticipated speech at Jackson Hole last week, Fed Chairman Ben Bernanke sounded a supremely optimistic note: “It seems clear, based on this experience, that such (easing) policies can be effective, and that, in their absence, the 2007-09 recession would have been deeper and the current recovery would have been slower than has actually occurred.”
The simple truth however, is that our economy has a disease that all the quantitative easing in the world can’t cure. And while the wrong medicine may make us appear healthier in the short term, we will continue to deteriorate beneath the surface. Not only should the Fed not provide additional QE, but it should remove the accommodation currently in place. Although these moves would most certainly send us back into recession, it would simultaneously provide a needed course correction that would put us finally on the road to a sustainable recovery.