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Bernanke Knew Back in 1988 that Quantitative Easing Doesn't Work
Ed Yardley notes:
Two
economists, Seth B. Carpenter and Selva Demiralp, recently posted a
discussion paper on the Federal Reserve Board's website, titled
"Money, Reserves, and the Transmission of Monetary Policy: Does the
Money Multiplier Exist?" [Here's the link.]
[The
study states:] "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."
Did you catch
that? Bernanke knew back in 1988 that quantitative easing doesn't
work. Yet, in recent years, he has been one of the biggest proponents of
the notion that if all else fails to revive economic growth and avert
deflation, QE will work.
Yardley is right. But he's only got half the story.
On a deeper level - as I pointed out in some detail in March - the Fed is intentionally locking
up "excess bank reserves" so that they will not be loaned out into the
economy. Specifically, in an ill-conceived attempt to prevent
inflation, the Fed has been paying sufficiently high rates of
interest on reserves deposited at the Fed by the big banks to encourage
banks to lock up their reserves at the Fed instead of lending that money out to borrowers who need it.
So
on this level, all the quantitative easing in the world won't increase
lending, because the banks will just continue to stockpile their money.
(On the deepest level, banks actually create credit out of thin air. See this, this and this.
In other words, the commonly-accepted process for money creation is
false, and banks don't need any reserves to create credit).
Indeed, multiple lines of evidence demonstrate that quantitative easing helps the biggest companies, but not the little guy or the American economy as a whole.
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The ECRI's previous decline put the index in 'certain recession territory' according to some observers. David Rosenberg said it had forecast an 80% chance of a GDP contraction.
The actual creators of the ECRI were forced to even publicly counter these kinds of affirmations, saying that its decline was not an indicator of a new recession, but that didn't stop its continued use as a double-dip indicator.
Now the ECRI is rebounding:
Pragmatic Capitalism:
The ECRI’s Leading Index of economic growth hit a two week high at 122.5, but remains at a level that is consistent with sluggish growth according to the Institute. The index’s annualized growth rate rose to -7.8% from -8.7% last week. This is a dramatic improvement from the recent lows.
The ECRI's behavior over the last few months is fitting the thesis that we just experienced a mid-year slow-down, not the beginning of a double-dip GDP recession... also known as 'what the guys who built the indicator had said.'
Read more: http://www.businessinsider.com/the-ecri-is-rising-again-and-the-silence-from-bears-is-deafening-2010-10#ixzz11F9Qq73k
Let say your premise is true, and we avoid the double dip scenario.
I would think that the Fed would really have to stretch there reasoning to justify QE 2.0, then.
In that case, I hope you're right.
And Business Insider is all about making up shit about how great things are. Tell it to the folks in line at Walmart at 11:55 pm the last day of the month.
Dude, I don't know where you're getting your information on the Baltic Dry Index, but you should really apply yourself a bit more and use up-to-date quotes. It's currently sitting at the second lowest level in past 52 weeks. Second only to the recent low of early July.
Maybe the FED wanted the collapse, and is currently aggravating it consciously. Why? Only time will tell... but it ain't gonna be pretty.
Easy, the Fed is buying/owning homes/land/etc and goods cheap. Thus stealing back actual items with value while leaving US citizens broke and (more than ever) at the Fed's begging. The Fed knows the dolar and other items have no real value and cost the Fed ZERO to produce, yet homes/land/etc have actual value.
Exactly. Money is not wealth. It is a merely a means to obtain wealth. Wealth is real estate, cars, guns, tools, etc.....Hard assets.
Ok. So what's the goal? What's Bernanke trying to achieve?
While I won't deny the likelihood of most of the suspected nefarious ulterior motives by the Fed (or their PTB masters) the fact remains that the people with good credit don't want to borrow and the people who do want to borrow are mostly poor credit risks. Put simply, interest on excess reserves is enough of a disincentive to keep the banks from extending more loans to deadbeats (one of the tipping points to the depression kickoff in 2008). This includes small business as well as individuals. Bertwinkie hopes this will allow him to inject enough liquidity into the system to keep that system from being poisoned by its own waste as that waste is flushed. Now continue with the discussion of the incidental higher order objectives...
The accumulation and centralization of power.
His game is as old as the hills, and as morally perverted and sociopathic as it was for Xerxes, Ghenghis Khan, the Conquistadores, Napoleon, Hitler and Mao. Don't let the fact that the game is now more often fought in the financial arena rather than on the field of battle distract you ---- it is still fundamentally the same sad, sick story of serfs and slaves being forced to submit to the insatiable power-lust of their masters and overlords.
Well, Xerxes had a thing for personal body piercings, at least according to that movie "300." That may explain his particular thirst for power.
Or maybe not.
I think the movie "300" took some historical liberties with Xerxes' appearance, but it is a fact that the kings of the Achaemenid Persian Empire did go to elaborate lengths to publicly portray themselves as god-kings. The movie did capture that aspect of Xerxes rather well.
excellent question gracie.
I think you are right. If the Banks started to lend it would create inflation and possibly higher interest rates. People would start to spend again and create inflation.
But, by continuing with the statis quo they can in a stelth operation continue to transfeer all of Americans Assets to the Banks thru Monitization. They can limit the Peoples ability to purchase, thus keep inflation down. The FED can then charge all of the Americans higher Taxes to pay the interest and the Principal (HA, HA, HA) for the Money printed and handed over to the Banks.
At some point they will raise rates and this will Bankrupt America, as the interest alone will be far greater than the GDP. What happens then is anyones guess. But, I am sure it is in their plan.
Think about it the Federal Reserve is a Private Enity made up of Bank shareholders. By them printing Money from 0 they receive the interest on that Money from American Taxpayers. The FED has been printing Money and Monitizing the Debt to give the proceeds to the Private Banks that are part of the FED.
In essence they are printing Money and giving it to themselves and making the average American pay for it thru National Debt and Interest.
It is just crazy when a private enity (the FED) can print Money and give it to themselves and then make all of the Americans pay for it.
Used to be called Slavery when you took other peoples labor and benifited from it.
Globalisation of money created new leaks for capital
70% of US GDP is consumption on credit
If the credit stops where is the money to spend???
that is why the soup-line foodstamps and unemployment checks are vital
But think about all the chinese sponsoring foodstamps for US citizens
they work hard for >10 hours a day earn a dollar and send 30 cents to US
That's the way the cookie crumbles!
OK, but lets go deeper. Is it as simple as handing money to the insiders, or is there a chess game going on?
Not much of a chess game going on, spinone.
With QE in place, the Fed is giving the Treasury a prime change to finance its fat deficits AND allow the banks to play the Treasury/free money spread.
If the Fed wanted instant recovery, they would have mechanisms in place to encourage banks to lend. But that isn't happening... reserves continue to build.
The bottom line is that is really NO need for QE. And there is really minimal risk deflation, as the Fed could increase money velocity at a drops of a hat if it wanted to-- all they would need to do is force the lending issue thing on the banks.
This is a shell game, and we morons are the patsies.
Wouldn't it be funny, though, if the currecny markets collapsed on the announcement of the next QE?
Everybody in clinton's administration said the recapitalising Zombie banks won't work and should separate good bank from bad bank books for early recovery of lending.
Now the Economic theory has changed once US is in trouble
Pseudo-scientology geeks!