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QE3 = Jobs for Wall St

ilene's picture




 

So what are the Primary Dealers/banks doing with the QE money (besides bidding up commodities and stock prices)? According to Michael, they're gambling in foreign currencies and interest rate arbitrage. Essentially none of the money went into the US economy. So how's it going to create jobs? It's not. Lending for real estate? - more fiction. ~ Ilene

QE3 = Jobs for Wall St

Courtesy of Michael Hudson

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.

Ben Bernanke, the head of the Federal Reserve, announced a few days ago QE3, quantitative easing three, and now he says they’re going to continue to buy assets, multibillion dollars of purchases, until the unemployment rate goes down. He was then followed by the European Central Bank and the central bank of Japan that are introducing their own monetary stimulus policies.

Now joining us to discuss how effective all this might be is Michael Hudson. Michael’s a former Wall Street financial analyst and now a distinguished research professor of economics at the University of Missouri–Kansas City. And his latest book just out is The Bubble and Beyond. Thanks very much for joining us, Michael.

MICHAEL HUDSON, RESEARCH PROFESSOR, UMKC: Thank you very much, Paul.

JAY: So for those that haven’t followed this, explain what QE3 is, and then let’s talk about whether you think it might be effective.

HUDSON: QE3 was basically a program for the Federal Reserve to give money to the banks until Beethoven writes his 10th Symphony. There is no connection to employment whatsoever.

The QE2 was $800 billion, and all of QE2 was used by the banks to speculate on foreign currencies and interest rate arbitrage. Most was used—lent to the BRIC countries—Brazil, Russia, India, and China. You could—the banks borrowed 0.25 percent and lent money to Brazil at 11 percent and pocketed the interest rate arbitrage. All this $800 billion, so much went out that it pushed up the value of Brazil’s cruzeiro, so that banks made a foreign exchange profit on top of the interest rate arbitrage. None of this money went into the U.S. economy.

And in today—when Bernanke was told that, he argued, well, we have to give the banks enough money so they can be lending out for real estate again. This was absolute nonsense. Today’s Wall Street Journal has a chart: “Mortgage loans fall to 16-year low”. The chart shows that the banks have lent less and less in mortgage refinancing. So the banks have not lent the money either for mortgages—.

 

 

JAY: Okay. Back up just one step. So what is supposed to be Bernanke’s logic? If, I mean, they buy assets from the banks, essentially, bonds of various kinds. Is that right? And the theory Bernanke gives is this gives liquidity to the banks so that they’re going to loan money to small businesses and such and that’s supposed to create jobs. I mean, that’s what he says publicly anyway.

HUDSON: Right. The cover story of the giveaway to the banks is that if the Federal Reserve makes loans to the banks, unlimited amounts more than $800 billion for QE2, the banks will have enough money that they can afford to lend more mortgage money to bid up real estate prices to try to reinflate the bubble and that they can lend to small businesses. The reality is that ever since QE1 and QE2, every time there’s a loan, the banks reduce their loans to businesses, they reduce their mortgage loans, there’s less mortgage refinancing, and in fact, the banks use the money to gamble, mainly abroad in foreign currency and interest rate arbitrage, trying to earn the money back by lending to Brazil, Russia, India, and China.

JAY: Right. And is part of the issue here is that the underlying—or at least one of the underlying issues is there’s still such a lack of real demand in the economy that they don’t see—they’d have no inducement to make these loans, so it’s better to go speculate?

HUDSON: Well, the question is: what is demand? Certainly, small business wants to borrow. There are a lot of small businessmen that are able to borrow. The banks say: I’m sorry, we’re only lending to the big companies that have assets to foreclose upon. We’re not in the business of lending to expand production. We’re not in the business of lending to employ labor. That’s not what banks do. We lend against collateral, and your collateral mainly is real estate, and real estate is still so much a negative equity that we’re not going to lend. And, in fact, if you look at the statistics that have been quoted, the banks have lent less on real estate each year, even on credit cards. The banks have very sharply reduced their credit card exposure by 22 percent in the last few years, so that they’re not lending to the U.S. economy at all. This is all just a fiction, that the banks are going to lend.

JAY: Okay. So Bernanke sees this. I mean, it was clear from QE1 and QE2 that it didn’t have this employment effect, and he can see that. So I guess my question is: is jobs really the objective, or are they worried about another major financial collapse and this is actually more about the financial system stability than it is about jobs, even though they use that language?

HUDSON: They are worried about Mr. Obama’s job. The Wall Street Journal pointed out today that for the first time—in the past, the Federal Reserve has always flooded the economy with money whenever a Republican president was up for reelection. So they used to joke that the Federal Reserve was the 13th—the 13th district was the Republican National Committee. This is the first time that the Federal Reserve is flooding money trying to get a Democrat reelected. So the objective is not jobs for employees; it’s jobs, really, for the current administration and its campaign contributors.

JAY: But for it to have that effect of reelecting President Obama, it would have to have some impact on people’s lives. I mean, there have to be some effect of all this liquidity in terms of jobs or something, or otherwise why would anyone reelect President Obama?

HUDSON: Well, the liquidity is not going into the U.S. economy, it’s not going into the industrial market, it’s not going to small business, it’s not going to real estate. And all of this is available every quarter in the Federal Reserve’s own balance sheets of U.S. economy. They trace what the banks are lending for, and it’s not to create jobs. Once again, that’s not what banks do.

JAY: So this is what I’m getting at, then, then. For Bernanke to throw more money at the banks this way—and what I’m asking is ’cause they fear a really deep global recession, given what’s happening in Europe and other—you know, in general a slowdown, and somehow they’re throwing money into banks ’cause they’re worried about banking collapse more than jobs. I mean, do you think what I’m saying makes sense?

HUDSON: No, it’s not a bank. The banks are in no danger of collapse for the insured things. The banks that are in danger are the five big banks that made huge derivative gambles. Eighty percent of the derivatives are done by the five largest banks, and they are—they’ve made a big gamble that stock markets and real estate prices are going to go up.

But at the same time, the banks are looking forward to a depression. For them, the financial crisis we’re having today in Greece and the eurozone is a bonanza for the banks. In fact, yesterday’s Financial Times came out and had the head of the privatization unit in Greece saying he’s now offering a bonanza to the creditors, European creditors, to come and buy Greece’s oil and gas rights and its export sectors and tourism sectors.

And The New York Times yesterday pointed out that all of the €31.5 billion in new aid is not going to be spent on the Greek people any more than the American QE3 is spent here; it’s going to be given to the Greek banks to help pull them out of their negative equity and all of their bad real estate mortgages. And that really is the same situation here.

The big banks weren’t able to stick all of their customers and their counterparties with all of the junk mortgages that they bought, and they’re still stuck with the junk mortgages that they thought they could cheat their customers on. So you’re bailing out their ability, really, to profiteer off the economy and sell all of the junk mortgages that they’ve got from Countrywide Financial and the other big fraudulent, criminalized financial agencies.

So what is happening is just it’s as if the crooks have taken over the economy and are trying to bail themselves out of the mess that they’re in, so that they can somehow re-bid up real estate prices to restore the happy bubble economy that led to all these problems to begin with. So it’s just let us do it all over again. And, of course, the end of this will be yet another bailout in QE4 and QE5, and we’re still going to be waiting for Beethoven to write the 10th Symphony.

JAY: Thanks for joining us, Michael.

 

Note: My blog has largely moved to the Market Shadows website. ~ Ilene 

 

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Wed, 09/26/2012 - 13:20 | 2832707 boiltherich
boiltherich's picture

Cougar, if class war it be then there can only be one of two outcomes in the long-term. One is anger fed by the former middle class and working poor who find themselves robbed, and as in Russia in 1917 or France at the end of the 18th century, rise and do to the elite what history shows is not only possible but likely. Less likely but still possible is a modern return to feudalism made possible only by private armies and incredible technologies that the masses have no idea already exists. But, the latter requires a very large reduction in population because feudalism requires that the 99% ruled by the 1% be at subsistence levels, and the carrying capacity of such a system is far lower than the current population, less than half at least.

Wed, 09/26/2012 - 12:55 | 2832594 cougar_w
cougar_w's picture

The US housing market was inflated by monetary policies in the '80s and '90s. Said housing market will now be bought off the banks holding the paper using inflated fiat printed for the purpose.

This is somewhat circular, notice. It's almost not even interesting. Where it becomes interesting is that home owners paying loans are paying into a huge bubble with wages stagnated back to some time in the '70s.

So in some ways, the housing bubble ends up being a way to sponge up the excess capital of the middle-class, who don't know how to use capital anyway. That would certainly be the reasoning of the banker class who afterall invented money and capital in the first place and for their own uses, not ours.

Not sure where that line of thought was headed. But I do sense a pattern of asymetric class warfare at play.

Wed, 09/26/2012 - 12:43 | 2832546 PTDBDucks
PTDBDucks's picture

Concepts that have been abandoned by the unelected financial aristocracy:

A level playing field.

Mark to Market accounting.

Earning interest on savings.

Retirement

Realizing losses on bad investment.

The two tier society of super-rich and everyone else has been established and is creeping into the day to day. BBC had an interesting radio topic discussing line queing and the stratification of rich/poor. At some theme parks you can buy priority wrist bands which will get you to the front of the line quicker without having to stand in line. Of course you pay a lot extra for that. A clogged highway has priority speed lanes used only by those that can afford to pay extra. Priority seating on airplanes. Special passes that get you quickly through the usual Custom lines when crossing a border. And so it goes.

Soon we will see priority gasoline lanes for those with monthly passes. 

With unlimited money creation comes unlimited price rises. The very wealthy where money is no object will still sustain their lifestyle. As for the rest of us..... we are just another abandoned concept.

Wed, 09/26/2012 - 10:56 | 2831974 boiltherich
boiltherich's picture

What they have done, TPTB, Bankers and Fed with tacit but full support from the political sphere, is create out of nothing but ink and paper (electronic blips or real cash) a permanent over class which includes around 1% of the population that is so far beyond the rest of us in both annual income and untaxed dynastic wealth that we all might just as well shrug our collective shoulders and admit once and for all that they are in every respect an aristocracy and we are their property, except that in aristocracies of old there was an obligation on the part of the nobility to take minimum care of the populations under them and that is no longer the case.

Now I see the relevance of the book/movie, The Hunger Games. What Suzanne Collins did in that book was to take the sectors of our society and equate them to actual geographic locations, there were the districts 1 thru 13 (12 really with district 13 having been intentionally destroyed as a demonstration of power by the elite) and the Capital populated by what we would call the 1%. The districts all had a specialty in their utility, District 12 for example was the region once called Appalachia and provided the coal, it was also the poorest district, but the Capital kept all 12 districts poor.

The analogy doesn't stop there, good read, though written with a teen audience in mind. Parts of it resonated with what we all discuss every day here, and I honestly believe that the recent moves by the Fed are both an admission that the world as we knew it failed, and partly as the poison to kill that world in which upward mobility and a vibrant middle class thrived. And whether it was an accidental death by misadventure or a deliberate murder plot they still killed the economics of justice and equality and freedom.

What we are facing is the irreversible termination of an "experiment" in economics that lasted a couple hundred years and which worked beautifully for a while, but which also ultimately proved it had no defenses against greed. My personal sentiment is that we could have kept the economic miracle alive, but the day the first "free trade" deal was struck was the step we took over the edge of the slippery slope that demanded we go ever further downward, and the process will take just long enough that memories of how good we used to have it will have faded to the point where we no longer can rely on those remembered happier days to motivate rebellion against the greedy aristocrats who have enslaved us. It is sad to see GenX graduating from college with tens or hundreds of thousands in debt they will never be able to pay off and they accept it as if it is NORMAL. Even if a few malcontents who see what is happening to us post at places on the web like ZH it will not reverse what they have done, and I am glad I will not live to see the world they are making.

Wed, 09/26/2012 - 10:35 | 2831876 Snakeeyes
Snakeeyes's picture

The only segment of today's housing report that was positive was the rise median new home sales, but only for expensive housing. Can you say NEW YORK and WASHINGTON DC???????????

QE-Elite!

http://confoundedinterest.wordpress.com/2012/09/26/new-home-sales-fall-slightly-median-new-home-sales-rise-for-500k-750k-homes-mortgage-refi-index-rises-again/

Wed, 09/26/2012 - 17:32 | 2833705 LMAOLORI
LMAOLORI's picture

 

 

Good one QE-Elite I don't know why the whole thing is not put together by some enterprising reporter and broken on the nightly news oh wait I guess I do know why they obviously report what they are told now days.

Federal Reserve policies favor the rich

http://money.cnn.com/2012/09/20/news/economy/federal-reserve-rich/index.html?iid=Lead

Wed, 09/26/2012 - 10:19 | 2831777 Arnold Ziffel
Arnold Ziffel's picture

4th year of record high Banker Bonuses coming up....i can smell it.

Wed, 09/26/2012 - 10:38 | 2831752 OneTinSoldier66
OneTinSoldier66's picture

But, but, but... as long as The Fed is around, your S.S. and Medicare will always be there for you, and the price of your home will never come down.

 

Well, I suppose two out of three isn't bad. The Fed will just have to steal from the future to make the S.S. and Medicare thang work. After all, what have future generations ever done for us? But it'll be there for you!

 

I don't know about anyone else but I fully trust the Government. All those people in the three branches of Government pledged their sacred honor, family fortunes, their very lives, in order to gain and keep power. It's not like a few Corporations gave them tons and tons of campaign money(way above what I as a living breathing person am allowed to donate) in order to gain influence and power.

 

</sarc>

Wed, 09/26/2012 - 09:11 | 2831475 Meesohaawnee
Meesohaawnee's picture

its a criminal wealth transfer mechanism done right under the sheeps noses. But hey.lookey over there! Iphones for everyone.

Wed, 09/26/2012 - 09:04 | 2831436 RiverRoad
RiverRoad's picture

Nailed it.

Wed, 09/26/2012 - 08:49 | 2831390 SAT 800
SAT 800's picture

Beethoven? Isn't he a little old to be writting Symphonies? Geez, we might have to wait a long time for that tenth Symphony. Did he even start working on it yet?

Wed, 09/26/2012 - 10:50 | 2831950 rustymason
rustymason's picture

Shhhh! The maestro is decomposing!

Wed, 09/26/2012 - 08:39 | 2831360 azzhatter
azzhatter's picture

Brazil's "cruzeiro"?  Try "real"

Wed, 09/26/2012 - 08:56 | 2831344 LMAOLORI
LMAOLORI's picture

 

 

QEternity in reality = Unlimited MONEY for Wall St. Cronies at a HUGE Bargain even the LameStreamMedia is conceding that fact (see below) but as I pointed out several times on site this was planned months ago for connected insiders like warren buffoon and obamas pal and supporter life long democrat lloyd blankfein.

Fed Actions Help Lenders’ Profits More Than Homebuyers

http://www.businessweek.com/news/2012-09-25/fed-helps-lenders-profit-more-than-homebuyers-mortgages#r=bloomberg

Warren Buffett: I’d Buy Up 200,000 Homes, Houses Better Investment Than Stocks At Today’s Rates

and

About 6 million borrowers will lose their homes in the next five years because of inability to pay their mortgages, creating demand for as many as 4 million new rental households, according to Scott Simon, head of mortgage bonds at Pacific Investment Management Co. in Newport Beach, California. If funds spend $6 billion on foreclosures, that buys only about 40,000 homes at $150,000 apiece, leaving plenty more for investors of all size to buy rental housing, he said.

&

Investors With Ties To Buffett, Soros, Obama Plan Mortgage Eminent Domain Grab

http://www.futureofcapitalism.com/2012/06/investors-with-ties-to-buffett-soros-obama-plan

MORGAN STANLEY: We Could See QE4 By The End Of The Year

http://finance.yahoo.com/news/morgan-stanley-could-see-qe4-135126762.html

 

A Huge Housing Bargain -- but Not for You

 

NEW YORK (RealMoney) -- The largest transfer of wealth from the public to private sector is about to begin. The federal government will be bulk-selling the massive portfolio of foreclosed homes now owned by HUD, Fannie Mae and Freddie Mac to private investors -- vulture funds.

These homes, which are now the property of the U.S. government, the U.S. taxpayer, U.S. citizens collectively, are going to be sold to private investor conglomerates at extraordinarily large discounts to real value.

 

You and I will not be allowed to participate. These investors will come from the private-equity and hedge-fund community, Goldman Sachs (GS ) and its derivatives, as well as foreign sovereign wealth funds that can bring a billion dollars or more to each transaction.

In the process, these investors will instantaneously become the largest improved real estate owners and landlords in the world. The U.S. taxpayer will get pennies on the dollar for these homes and then be allowed to rent them back at market rates.

On Wednesday, the Federal Housing Finance Agency (FHFA), the Department of Housing and Urban Development (HUD) and the U.S. Treasury Department issued a Request for Information(RFI) concerning the disposition of the inventory of foreclosed homes owned by the federal government.

An RFI is ostensibly a way for the federal government to get input from the private sector on how to accomplish the goals laid out in the request. But that's really just a facade, as the RFI was structured by the investors to begin with.

more http://www.thestreet.com/story/11224917/a-huge-housing-bargain--but-not-for-you.html

 

 

 

 

 

 

 

Wed, 09/26/2012 - 06:16 | 2831109 bank guy in Brussels
bank guy in Brussels's picture

Fascinating that among the severest critics of the Fed and QE, those who see it as part of a process of disaster leading to hyper-inflation -

Those like the great investor and gold guru Jim Sinclair, yet say that Bernanke really has no other choice now except to follow his un-avoidable road to disaster.

For Sinclair, the derivatives monster has already destroyed the Western world financial system ... our doom is sealed, and there is no path of escape even if Bernanke was not a corrupt tool of the bankster class. Sinclair writes:

« QE1 and QE2 were not failures. Do you have any idea what the world would have looked like if every major bank in the Western financial world broke?

It is easy to be a naysayer and say let the banks go broke, but you have no idea how hard it would have hit you and yours and maybe gold and silver.

This is not to say that Debt Monetization, which QE represents, is correct, but it was the only tool available to central banks that would create infinite cash for the Fed and Treasury to use in a totally discretionary manner. Governments, because of the size of their debt, were incapable of applying the better tool for reviving economic activity, which is fiscal stimulation.  ...

Please stop listening to those that tell you QE will have no effect. They are "Ignorant to Infinity." QE3 is going to have an unprecedented effect, as it is now simultaneous and global in scope. ...

OTC derivative manufacturers and distributors sold fraudulent paper to almost every entity as clients of the Western world financial system. Inherently the OTC derivatives manufacturers and distributors had part of the transaction on their books. No problem as long as the entire scam was a "Daisy Chain," a connected set of transactions that has the appearance of risk but when all netted out equals almost zero.

Until Lehman was flushed, and flushed it was, most all OTC derivatives could have been netted to zero in a derivative resurrection bank. Losers would have rejoiced and winners would have declared war. However when Lehman was forced into bankruptcy it broke the "Daisy Chain" (a chain of near risk-less transactions when netted) of the OTC derivatives scam. At this point winners had won huge and loser had lost huge and there was no longer a means of repair to the quadrillion dollar scam. The problem has no practical solution other than transferring all losing paper to the balance sheet of the Federal Reserve ... »

- Jim Sinclair, MineSet

Wed, 09/26/2012 - 12:29 | 2832473 ebworthen
ebworthen's picture

"Do you have any idea how much worse it would have been if we hadn't given XYZ that next fix of methamphetamines?  Why, there would have been robberies, broken windows, arguments.  No, we could not let XYZ go through a night without his/her fix, we had to get more methamphetamines to address their addiction."

Uh-huh.

Wed, 09/26/2012 - 10:03 | 2831679 MrBoompi
MrBoompi's picture

The people who are supposed to be protecting the American people's money and assets have been reduced to liars and charlatans, who tell us their gift to the favored few is for our own good.  When the truth is too dangerous to be spoken in public, it's obvious these private institutions are no longer a public benefit.

Wed, 09/26/2012 - 10:18 | 2831772 DaveyJones
DaveyJones's picture

I agree with everything but the word reduced

Wed, 09/26/2012 - 10:34 | 2831868 OneTinSoldier66
OneTinSoldier66's picture

+1 and +1

Wed, 09/26/2012 - 09:10 | 2831471 ChanceIs
ChanceIs's picture

"Fight Club" full video is now up (for free) on YouTube:

http://www.youtube.com/watch?v=BToXI5_aFus&list=FLXfLwG72sUCtnhPEj5XsFvA...

What a hoot.  Was up until 3:00 last night.  It is all so clear now.

Wed, 09/26/2012 - 08:30 | 2831328 disabledvet
disabledvet's picture

I would agree a BANKRUPTCY of this magnitude (nobody goes "broke" in a fiat system. Bailouts are the norm.) would have a sight to behold. Our political classes have intentionally denuded our Judicial Branches of their very real technical expertise's in this regard...they were able to get through the Lehman incineration...at great labor from what I've read. The beauty of a bank however is that they're not that complicated. Once the bond holders are declared worthless then the pain stops for everyone and we can all go about the business of lending at TRUE reduced risk....namely with collapsed prices and less money. Interest rates we now know were going to zero anyways. Instead the you know who have gone "full on keep the debt super-cycle alive!" Is this the most expensive recovery in History? Obviously yes. It's also one of the least thought through ironically enough. We're at war but "if the system collapses it will be a war in the Streets"? Really? Not plausible. So now instead of banks going bankrupt (as is normal in the world of TRUE free market capitalism) we have California. Huh? Have we STILL not thought this through? Oh, I forgot. "The thought police have got this all figured out....

Wed, 09/26/2012 - 09:29 | 2831526 Oracle of Kypseli
Oracle of Kypseli's picture

About the 10th symphony,

I think that just as the world is deleveraging, Beethoven is decomposing

Wed, 09/26/2012 - 10:08 | 2831715 DaveyJones
DaveyJones's picture

Beethoven is a great analogy given that our leaders are deaf

Wed, 09/26/2012 - 11:23 | 2832119 Assetman
Assetman's picture

Whut???

Do NOT follow this link or you will be banned from the site!