The Fed Is Expected to Launch QE3 Next Week ... Which Would Help the Rich and Hurt the Little Guy

George Washington's picture

Many speculate that the Fed will launch QE3 next week.

But independent economics and financial experts say this would hurt – rather than help – the economy.

Dallas Federal Reserve Bank president Richard Fisher said:

I firmly believe that the Federal Reserve has already pressed the limits of monetary policy. So-called QE2, to my way of thinking, was of doubtful efficacy, which is why I did not support it to begin with. But even if you believe the costs of QE2 were worth its purported benefits, you would be hard pressed to now say that still more liquidity, or more fuel, is called for given the more than $1.5 trillion in excess bank reserves and the substantial liquid holdings above the normal working capital needs of corporate businesses.

William F. Ford – former president of the Federal Reserve Bank of Atlanta – notes:

One of the overlooked consequences of the Federal Reserve’s recent rounds of monetary stimulus is the adverse impact those policies have had on the interest income of savers. The prolonged and abnormally low interest-rate structure put in place by the Fed has made life particularly difficult for retirees and others who depend on conservative interest-sensitive investments. But the negative effects do not stop there. They spillover into the overall performance of the economy.


Our estimates show that these negative effects, resulting from the Fed’s two rounds of quantitative easing (QE1 and QE2), are sizable and may help account for the lackluster character of the current recovery.




By lowering interest rates to historically unprecedented levels, the Fed’s policy deprives savers of interest income they normally would have earned on the interest-sensitive assets they hold. Thus, there is an income channel that no one is talking about, and its negative impact can be powerful.




Table 2 below shows our estimates of the possible losses in spending power, output, and employment generated by the Fed’s artificially low interest rates. Even by our most conservative estimate, which only looks at the $9.9 trillion in assets most directly affected by depressed yields on Treasurys, the losses are impressive. The average yield on Treasurys in June 2010 was 2.14 percent compared to an average of 7.07 percent in the previous nine recoveries, a difference of 4.93 percentage points. The projected annual impact of this loss of interest income on just $9.9 trillion of rate-sensitive assets translates into $256 billion of lost consumption, a 1.75 percent loss of GDP, and about 2.4 million fewer jobs. (Our calculations assume that the recipients of interest income face a 25 percent average income tax rate and consume 70 percent of their after-tax income.)


RR20110704 2 The Fed Is Expected to Launch QE3 Next Week ... Which Would Help the Rich and Hurt the Little Guy


Had these jobs not been lost, the unemployment rate would be 7.5 percent, instead of the current 9.1 percent, and this is the minimal effect we estimate.




As the estimate of the total of affected interest-sensitive assets gets bigger, the negative effects of depressed yields becomes even more striking. Using our mid-point estimate of $14.35 trillion of interest-sensitive assets, a 4.93 percentage point reduction in interest rates annually cost the economy $371 billion in spending, 3.5 million jobs, and 2.53 percent of GDP. This is a sizable effect, given that during this time GDP grew by only 2.33 percent and the economy added only 870,000 jobs.


With the additional jobs that might have been created by higher interest income levels, the unemployment rate could fall to 6.8 percent. And output could grow more than twice as fast as it has. The resulting GDP growth rate of 4.86 percent would then be closer to the average second-year growth rate of the past nine recoveries, and the U.S. economy would be well on its way to a vigorous recovery, rather than struggling as it is now.


This midpoint appraisal is our best estimate of the likely effect of the Fed’s policy. It may still be on the low side.


The numbers do not account for any so-called multiplier effects. Additional spending by recipients of interest income creates revenues for businesses, which in turn increases the income of their owners and employees, who themselves spend more. This, in turn, could boost overall spending and employment by more than the gain in interest income alone would suggest.




The housing market has not even begun to recover since the QE initiatives were created. U.S. auto sales and the stock market also remain well below pre-recession levels. And the sharp decline of the U.S. dollar has not created an export boom. But it has put upward pressure on the cost of our food and energy imports.


And tens of millions of U.S. savers, largely the elderly, still are facing strained circumstances created by Fed-driven abnormally low interest rates across the entire Treasury yield curve.


The negative impacts on output and employment caused by quantitative easing through the interest income effects shown here are large. In fact, they may outweigh the expected, but hard-to-document, positive effects of the QE program.

In fact, it has been thoroughly-documented that quantitative easing is great for the wealthy, but terrible for the little guy.

As the Guardian reported last year, quantitative easing increases inequality:

Quantitative easing (QE) … have contributed to social unrest by exacerbating inequality, according to one City economist.


As the Bank of England considers unleashing a fresh round of QE, Dhaval Joshi, of BCA Research, argues the approach of creating electronic money pushes up share prices and profits without feeding through to wages.

“The evidence suggests that QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it,” Joshi says in a new report.


He points out that real wages – adjusted for inflation – have fallen in both the US and UK, where QE has been a key tool for boosting growth. In Germany, meanwhile, where there has been no quantitative easing, real wages have risen.

The Washington Post reported last month:

How might a third round of quantitative easing (QE3) affect the already-wide levels of inequality in the United States? Across the Atlantic, the Bank of England has come in for some criticism this week after it released a new report showing that its own quantitative easing efforts have disproportionately benefited the wealthiest:

The richest 10% of households in Britain have seen the value of their assets increase by up to £322,000 [$510,000] as a result of the Bank of England‘s attempts to use electronic money creation to lift the economy out of its deepest post-war slump. …


The Bank of England calculated that the value of shares and bonds had risen by 26% – or £600bn – as a result of the policy, equivalent to £10,000 for each household in the UK. It added, however, that 40% of the gains went to the richest 5% of households.

It’s not hard to see why this happens. One way the bank’s quantitative easing program works, in theory, by pushing up asset prices in order to support the broader economy. And, according to the Bank of England, the median British household only holds about $2,370 in financial assets. So the direct benefits largely accrue to wealthier households.


What about the United States? Much like in Britain, the distribution of financial assets are also heavily skewed. As you can see on page 26 of this Fed report (pdf), the median American family in the middle income bracket has about $19,900 in financial wealth. By contrast, the median family in the top income bracket has $423,800 in financial wealth. So any move by the Fed to push up asset prices is likely to increase wealth inequality in the short term.


There are other effects, too. As The Wall Street Journal has reported, the Fed’s efforts to bring down interest rates have mainly helped better-off Americans with good credit scores. For instance, it’s exceedingly cheap to get a mortgage right now — for a small number of people. (The folks at Zero Hedge, who are no fan of Bernanke’s stimulus efforts, have compiled a much longer list of links on how the Fed’s quantitative easing program benefits the wealthy.)

Indeed, Bernanke knew in 1988 that quantitative easing doesn’t work.  But he keeps caving in to the super-elite, and implementing it anyway.

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Zero Govt's picture

"...Bernanke knew in 1988 that quantitative easing doesn’t work..."

we told him GW, but he just wouldn't listen would he

80miltrustfundkid's picture

It's only a matter of time until, our specie deploys into space. Ironically NO one stops to think about; resources, global warming, population control, and ultimately social sustainability. i Spaceships are the next i Phone fad mark my words or i Bunkers. It's funny that the American people, including the FEEBLE American FEDERATION think thy cannot turn into the biggest MEXICAN PINATA laughing stock of all time.  I say teach Highschool Student's to be actively involved in Markets. Destroy the Wealthy that want to live a man-croaked benifiting from compounding money supply.  Stimulate the market, Trade Options, Trade Stocks. Make Money $$$ Get a FIX.  Fire 50% state/federal/military employee's. Regulate, sorry i mean scrutinize teachers, educator's, universities, professors, collages. RID of BULLSHIT scamming schools such as University of Phoenix, ITT, Devry ETC..De-regualte the Market’s. allow U.S citizens to lever up 500:1 on forex exchange trading accounts, lower margin requirements on commodity’s. Regulate BREEDING for crying out loud. & help young people that want to stimulate the ecomony, and of course educate the LAZY, and IGNORANT. so they can 2 participate in a Speculate in The Monopoly. Force U.S corporations to manufacture in THE U.S if not, BAN THEM from existence, or tax them to the shit "laxative" return the power to the MIDDLE CLASS. PROMOTE SMALL BUSINESS. regulate employers, and their operation practices.  Let's just all trade Options, Forex, and make fortunes. as you all say "Banksters" they are only winning because they have edge. Id like to see what would happen if everyone used the same tactics against them. ha  I almost left out! .....Make it illegal for Actors, Pornstars, porn company’s, RAPPERS, BIGGY FAT TAILS. VOLATILE SPEARS, Fever Kid, Douche Prince Fag -- I buy OTM PUTS on that flaming homosexual fadster bastard, English piece of shit.  BAN AMERICAN IDOL, MTV, INFOMORTIALS, and sec..uffs, America's next top model... and fucking FOOTBALL, and sports regulate the comps, not like they are publicly traded teams anyways. Put on a death penalty for the distribution of narcotics, FIRE ALL IF NOT ALL POLICE FORCE..... I cannot believe they make $4,000 salary's for eating donuts, driving dodge chargers, eating pizza while st they indulge in lard, carbs, and we pay for it...haha yea..right! END THE TOTALITARIAN Plutocracy

trace2trade's picture

According to the history, There is no sign of real recession. the S&P index and 10-Yr treasury bond yield rate notable haven't touched worrying tipping poing. From both S&P indx and the bond yield, it's likely less possibility to pushing formal QE. Somehow, they might pressing dollar lower to thow a spanner in ECB bond-buying plan I think.

tony bonn's picture

ALL actions of the fed are designed to benefit the wealthy by facilitating plundering and allowing those with pricing power to thrive while others see the value of their currencies plummet....i do not want to be in the court on judgment day when verdicts and sentences are rendered by the great and powerful yahushua....

currency debasement continues on whether it is qe, fx swaps, or other clever contrivances of the criminal kleptocrats running this barbaric nation.....

on the other hand, there are some practical limits to raw qe - namely that the price of gold will continue its march, this time on a far longer leash than the criminals have ever allowed before....they have lost 40,000 tons minimum which decreases their shorting power accordingly....

all of the arrogant voodoo pronouncements to the contrary, gold supports the towering superstructure of paper and it is flowing inexorably to the east.....he who owns the gold makes the rules....

the gold scandals to emerge in the coming months, as well as past ones, will make qe an impossibility given the massive shorts of the kleptocrats....

iran is being targeted for military invasion for its oil to buy some gold and plunder whatever iran has, but that will prove to be an utter folly and disaster....

we are in the last 15 years of the wicked gentile dispensation - and what you are witnessing is the concentration of 2 and one half millenia of hubris to be dealt with in a single hour.....

endicott glacier's picture

If I read the FED report right, the top 10% have only 78.6K out of 423.8K total in stocks which is 18% of their assets, rest are in other instruments. All wall street portfolio allocations emphasize much higher % of portfolio in stocks, never seen them suggest anythign below 20%. The reality seems very different though...

Translator's picture

LOL YEP!!!!!


QE this week and $5 a gallon gas by election day!

dannynewmexico's picture

didn't I read in the not so distant past the the Chiniese would consider the fed moving forward with QE3 would not be taken as a friendly act....

Dr. Gonzo's picture

Those are the token goyum opinions at the Fed. They don't matter. They're not in the clannish club. The Hebrew opinion is to print and let the new money flow to the clan first.

Ned Zeppelin's picture

A vote for either Oromney or Robama is a waste of time. 

Zero Govt's picture

imagine endorsing a system that gives you a 1 in 20 million chance of haviing an influence on the system. It's called voting

but it gets worse, you don't even get to decide the menu (policy manifesto), you're given 2 menus decided by 2 groups of socio-economic retards (politicos)

anyone thinks/peddles this looks like 'democracy' needs heavy medication and decades of reality training

MFLTucson's picture

Isnt this happening during the Obama adminsitartion?  You know the man who want a level playing field?  This is a fuckin disgrace and I am shocked just how stupid this country is.

buzzsaw99's picture

we all know that qe is about bank balance sheets, period. the fed doesn't give a flying fuk about anything else but bankster bonuses and fraudulent ponzi schemes.

rbg81's picture

Yup, no doubt about it:  Low interest rates rob savers of income and depress GDP.  However, they also make it easier for Government to finance the exploding deficit.  With ZIRP, the deficit can go much higher and interest payments will stay the same.  With NIRP, the Government will actually make $$ off the deficit.  And make no mistake:  NIRP IS ultimately where we are headed.  All of this is a savage, backdoor tax on savers.  Those who save are, in effect, being taxed to preserve their capital in a risk-free environment.  If they actually want to grow their capital, they'll need to take some risks (corporate bonds or stock market).

While GDP will go down, there is a BIG upside for politicians.  That is:  it becomes ever easier to mint new clients and pay people to do nothing.  While people may outwardly complain about not having a job, methinks many of them secretly relish staying at home, sleeping late and choking the bishop (or whatever else it is they do all day).  This goes a long way toward explaining why Obama is besting Romney in the polls even thought the Economy is still in the toilet.  After all, dependent clients are loyal voters.  And while savers may be taking it in the shorts, there is no politician to directly blame--the only group to blame are the un-elected boogeymen at the FED.  There are no laws being passed that caused this situation so politicians can plausibly shrug and claim:  "It's not my fault".  It also has the effect of boosting the stock market as desperate savers migrate their in search of some kind of yield.  As long as the stock market is going up, many of the sheeple will just continue to bleep happily.

Once NIRP fully kicks in, the last constraint politicians have on spending will be removed.  For a while, it will be a spending Nirvana.  It won't last forever, but it will last a while.  And when it comes crashing down, look out below.  By that time, most of the population will be hopelessly dependent on the State.  When the checks stop flowing, it will be the social equivalent of a Zombie Apocalypse. 


nathan1234's picture

The only thing Ben can do now is to Fart and ease himself.

MillionDollarBoner_'s picture


Is that the Financial Asset Re-hypothecation Treaty ?;o)

lakecity55's picture

...and, also, Soros dumped all his stock in the top 4 TBTF banks and bought GLD.

How about an idea on the dollar index, George? At what point below 80 does it go boom?


Arnold Ziffel's picture

$3,000 ?

When do i get my $3,000 ?

Dan Watie's picture

This vile beast Bernanke could give two shits about "the Elite" The elite are morons who think they are immune. But their day will come as well. Who will buy their tires? Who will buy their food? Computer? iGadget? Oil? cars? who? When the consumer is unemployed and destitute will not industry falter and fail? Todays elite will be the destitute of tomorrow.
There's only one Master in this Shit Circus and He is never spoken of. All you elite that appear on CNBC, all you high ranking generals and admirals, all you worthless scumbag politicians are but CHATTEL to him. And why not? Aren't you totally fuckin' bought lock,stock,and barrel?

Elite...give me a break. psst maybe elite slaves....LMFAO!

strateshooter's picture

guys this argument is stale...PEOPLE KNOW THAT QE IS ABOUT RECUING THE BANKS ( cheap digitally created cash being exchnaged  for crap securities  to be paid for over time by the tax payers).


We know it.Our pols know it but they allow it...hence they are CRIMINAL too.


The solution is political...but will take time.

Meanwhile takes names for the future trials for crimes against the people.

Earl of Chiswick's picture

help the rich




just don't drive an Audi in Mayor Bloomberg's NYC on fASHIOn'S nITE out

Bringin It's picture

As the Guardian reported last year, quantitative easing increases inequality:

I generally agree with the premise, but like some things in physics, under extreme conditions, the accepted norm no longer applies.  In this case, our current case, w/o additional qe, it is unfortunately, the ghetto that will most likely brn first.

At some point, the dynamic must switch from ... more qe fake money so we can keep the looting going, to ... more qe or they'll be coming for us.

Great stuff as usual GW.

cranky-old-geezer's picture



QE helps the rich and hurts the little guy? 


I just figured it out.  GW is an 7th grade civics teacher.  Ok, maybe 8th grade.  Explains the grade-school level of his nonsensical articles.

He's an embarrassment to ZeroHedge though, sorta like Leo was.

MilleniumJane's picture

Listen C-O-G, I normally like your posts, but this one goes a little overboard.

GW's posts are about awakening people who may not be tuned into what is already going on or who are in the beginning stages of the awakening.  Think of his posts as Math 101 Algebra versus Math 414 Number Theory.  We may already know a lot about what he says but I always get something useful out of his posts.  IMO he is a gem on ZeroHedge.  And no, I didn't down-arrow you as you are entitled to your opinion.  I only down-arrow someone here if they are obscenely racist or downright stupid.

lakecity55's picture

What he said. Your posts are usually good, COG.

GW explains a lot of good stuff. Is he right all the time? No. Nobody is.

But he is trying to be a helpful person.

We need all we can get.

Ned Zeppelin's picture

Here's my vote: NO QE3 (actually QE4, but who's counting?)

They can't - the jig will be up as everyone knows it will be ineffective to address the problems they supposedly worry about (the phony Twin Mandate) and the Banksters are happy for now with the S&P.  No QE, no way.  Mark it. After that, it's off to the sidelines for Ben and his merry band of financial criminals pending the election.  Either candidate, of course, and they win - the trick is to hid behind the curtain and disappear for a while from the public stage.

This is the playbook: be ready for a fairly modest drop in the S&P/Dow on the heels of the Fed "non-announcement."  But at roughly the same time the German High (as in price to be bought out) Court will approve the ESM (more alphabet jack off soup), which will give another temporary, illusory boost to equities, such that these two events may cancel each other out! But then, as the news filters out the the ECB phony bond buying program is an illusion - the Europeans and Wall Streeters are kind of dumb in a way - expect more disappontment, but the equities market has been inflated to handle the 10%-15% drop.  The world will not end.  Just stumble on.

Trade accordingly.  This is actually easy.



fukidontknow's picture

They hang on Ben's every word, when will confidence be lost?

bilejones's picture

The Federal Reserve is the only organization that outdoes the military in effecting the transfer and concentration of wealth into ever fewer hands.

strannick's picture

If the ''little guy'' would wake up from his hopium, and realize that Obama along with his power mongering fellow sociopath cronys dont have his back, but is a banksters bitch every bit as much as Romney, then the ''little guy'' might turn off sentimentalist hogwash like Oprah, turn onto sites like Sovereign Man and sos stop writing off Libertarians as conspiracy theorist wackjobs and go get himself some bullion, and thus let the Bernank make him rich with the big guys.

AurorusBorealus's picture

Isn't Sovereign Man Simon Black's site?  If so, the only thing that the "little guy" will learn there is how the rules of his life do not apply to rich jet-setting trust-fund babies.

strannick's picture

Like I said, get some silver, food, ect...

lakecity55's picture

Southern Gun Show Report

LC55 worked the gun show yesterday. More crowded than 2 mos. ago. Arms and ammo, silver, supplies, were all streaming out of the venue at a torrid pace.  At least 5000 paying visitors.

One LE assoc. said one part of the state was already organized into militias. NOT redneck, anti-govt groups, just people who want to live their lives lawfully and be left alone with their 1st and 2nd Amendment rights intact.

He asked me 1 question. "Look at these folks. You want to disarm them?"

I said, no. None of us will obey illegal orders. We will not harm Americans lawfully exercising their rights.


roadhazard's picture

I hope the Fed does QE3 next week, I am so sick of hearing about it. Then we can start talking about QE4. I love to laff at "Capitalists" whining for free money. Yeah, it's those fucking "liberals" killing AmeriKa.

Meesohaawnee's picture

agree. the day i never hear QE again will be the happiest day of my life.

strannick's picture

It actually is the fucking liberals killing Amerika, along with the fucking Capitalists because they are the same fucking assholes.

''Ronbama/Obamney 2012!'' yeaaaa. Go team go. Shish boom bah.

max2205's picture

Your interest has been turned over to the banks at 20x leverage for the last 4 years. The frog has boiled. It's too late

Tombstone's picture

What the FED will really be launching:  QECB3.

Tombstone's picture

Hopefully,  it never reaches escape velocity.

Blue Horshoe Loves Annacott Steel's picture

I love how all these economist fucktards are afraid of "deflation".   As if prices going lower is bad for the economy.  Duh.  Lower prices is what U NEED to get a consumer-centered economy moving again.

Who out there among normal people hates lower prices on things?  Has anyone ever seen how sales drive Americans wild?

Umh's picture

Deflation can be good thing for you if you are set up for  it. Most people just can't adapt to the logic changes. When prices have gone up for as long as someone can remember they cannot imagine the result of prices going down on a long term basis. We can start with salary reductions...

the tower's picture

Sales have nothing to do with deflation. Deflation means structurally lower prices.

Here in Switzerland we have deflation because of the strong Franc.

It's effects are still largely invisible: stagnating wages, less hiring, more unpaid overtime to compensate for the inability to hire new personnel.

If it continues: lay-offs and companies moving to cheaper locations.

Meesohaawnee's picture

gee what a wonderful gift to the american people it would be if ben just came out and said no. Forget it. Not gonna happen.Move on. see what happens to crude then...oh well. one can dream cant they?

Ned Zeppelin's picture

Not a gift.  The Fed does not want to be seen as ineffective - it kills the Bully Pulpit tool. They will not take a chance right now on a dud QE3.  So it's not for us that they make this decision, it's for them and their owners, the TBTF banks.

AurorusBorealus's picture

Why is it that, when the subject was exporting American productive capacity to Chinca, "lower prices" were wonderful for everyone, but when the subject is deflation, lower prices are just awful?

the tower's picture

Because back then the lower production cost meant higher profits even though prices dropped.

Deflation is cutting into profits as there are no means to lower costs, so lower prices in a deflationary spiral means less jobs and lower spending power.

Bennyandthejets's picture

Ben purports to fear the spiral, like it's the day after Christmas every day of the week.  I remember the tail end of QE2, riots in the middle east, gas prices soaring, food prices doing the same...I can't comprehend how a QE3 will lead to more job creation?  I don't get it at all.  There has to be another side to the argument, I just don't know what it is?  Can anyone hear play devils advocate?

Tombstone's picture

Don't pay no mind to the FED, it is all  part of Obama's shared prosperity program.  Your share shall be arriving momentarily.

diogeneslaertius's picture

the common illusion is that it is "let it happen on purpose" or "let it happen out of ignorance"

the reality is "made it happen on purpose" carrying out orders consequent with a specific Design

ZeroAvatar's picture

Umm, HUH?


WTF did you just say?

diogeneslaertius's picture

QE is ONLY good for organizing and crystallizing the force of the fraudulent control grid

its not good for the little guy because he never sees the logistical upside and its not even good for the fat cats who toady the NWO system, it even hurts the 3cpo's et al. and fawning luminaries, but they take it on the chin for their greater good like proper sycophants and acolytes

QE is for one thing and one thing only, to extend, codify, and otherwise reinforce the foundation of an Economic Deathstar engineered by madmen

this $7Q holographic simulation is a Machine they use to blow up entire GDPs at will, they have fundamentally decoupled entire metrics of entire sectors, replacing the matrix of input/output with a false signal generated by the machine

this is not economics, it is Geopolitics

the endless Waterloo 2.0 ing isnt about securing more capital... theyve already got it all, it is about taking away any power productive individuals have to resist the implementation of the agenda one world government, one world currency etc.

the spiders web was created as a preliminary means before totally crystallizing the THX-1138 borg beehive endlessly bragged about and sought after by NWO luminaries for at least 2 centuries