Time for a talk about QE and the Recovery

[Savannahmann]

QE or Quantitative Easing is a complicated procedure that few understand. What most people do understand is that this program is keeping the stock market growing, and driving the Recovery. Now, I am not an economist, and I'm sure that people with economics degrees will tell me I have it all wrong and that the reality is after a long discussion, somewhat different than I am able to explain. That's fine, I hope to learn as well as explain what I do understand if imperfectly

So here goes my explanation. Under QE, the Treasury is printing money. The Federal Reserve Bank is borrowing money from the Treasury, and then using the money to buy T-Bills, or Treasury Bonds. That allows the Treasury to sell the bonds at a favorable price, and for a low inflation rate, but it is obviously artificial. By at a favorable price, I mean that the Treasury Department doesn't have to offer outrageously high interest rates to sell the T-Bills. We have all heard about other nations offering theirs at 15% or even 20% interest to try and get some money into the coffers now, and that is just as obviously undesirable.

http://www.washingtonpost.com/blogs/govbeat/wp/2013/11/18/in-many-states-the-recovery-is-worsening-the-income-gap/

I read that article, and decided it was time, perhaps past time to start a discussion on QE. We cheered Yellen when she was appointed to Chair of the Federal Reserve, and her policy is to continue this practice for the future. http://en.wikipedia.org/wiki/Janet_Yellen

We cheered her because we trust President Obama and trust that he knows what we are doing, and why. But the question begs to be answered, if the income gap is getting worse, why are we continuing the policies that drive that worsening gap?

I'm on record as being less in favor of Socialist government than many here. I am on record as being soundly in favor of Liberal Democracy, with a high preference of Human Rights. So why am I wary about QE and the procedure it represents?

Tell you what, walk into any Bank, say Bank of America that is hugely profitable. Tell them you want to take out a loan, and you'll use that loan to buy Bank of America Stock, and you'll pay the loan back with the earnings of the stocks. The bank people will think that is so funny they may have to change their underpants. I'm not sure, it might even be illegal for me and thee.

But the result of this policy is obvious for everyone to see. The Stock Market continues to rise, and the rich who invest in the market are getting even richer, but the unemployment that is pegged at 7% for propaganda purposes doesn't get much if any better. We are adding a few jobs to the economy, but the result is that the 1% continue to get far more, and it's funded by the Government through the Stock Market. If you think I am totally wrong, and the stock market is rising because of other factors think about this. One of the Fed Board members who voted for QE is apologizing, and said that when they discussed withdrawing it, just the discussion, the stock market dropped. http://www.cnbc.com/id/101192690 Worse, he accurately described it as Trickle Down economics, and admitted it isn't working because the truth is that a majority of us don't own stock.

So now is where we get to the tricky part. There are those who will look at this, realize that the system is in fact seriously problematic and they can't deny it, always their first choice, and will come back with a complaint that I offered no solution to the problem. That is flatly the most asinine thing in the world to say at that point. Imagine you're on the Titanic. You are one of the guys in the basket thing on lookout. You see the iceberg right ahead, and your call is to the bridge. Instead of the shouted warning of Iceberg right ahead, you shout out. "Left full rudder, back full port shaft, sound collision." Nobody would obey one of those orders. What I see myself as is one of those lookouts, watching our flanks, trying to see the danger and sound the alarm. I believe that we on DU, and in the Democratic Party, have some pretty smart people, and once we recognize the danger, we should be able to come up with something given enough time to think.

Because QE is what is driving this economy we are in, which means most of our jobs are tied to it. But it is also driving the expanding wealth gap by artificially inflating the stock market, which means that we will never get caught up. So we have a choice, we can examine the situation and consider the alternatives and try to find a more equitable means of stabilizing the economy, or we can join Boris Johnson in lauding the super-rich as awesome and really having it tough. http://www.independent.co.uk/news/uk/politics/boris-johnson-says-superrich-are-putupon-minority-like-homeless-people-and-irish-travellers-8946661.html

[cali]

1. thank you for this very informative post on a topic I need to be informed on.