Even The Fed Admits QE Is a Failure

Phoenix Capital Research's picture


Central Bankers will never openly admit that they or their policies have failed. Moreover, they do not rush into sudden tightening (more on this in a moment). But one can begin to notice subtle changes in their language and actions that indicate they have noticed what’s happening in Japan (the failure of the BoJ’s “shock and awe” QE program to generate growth).


Nowhere is this more clear than at the US’s Federal Reserve or Fed. Indeed, starting in August 2013, various Fed officials began questioning the efficacy of QE.


First came the San Francisco Fed with a study revealing that QE generally doesn’t appear to generate economic growth:


Asset purchase programs like QE2 appear to have, at best, moderate effects on economic growth and inflation. Research suggests that the key reason these effects are limited is that bond market segmentation is small.


Moreover, the magnitude of LSAP effects depends greatly on expectations for interest rate policy, but those effects are weaker and more uncertain than conventional interest rate policy. This suggests that communication about the beginning of federal funds rate increases will have stronger effects than guidance about the end of asset purchases.




A few months later, the former Fed official in charge of the Fed’s first round of QE, penned a Wall Street Journal article stating that QE was in fact a Wall Street bailout.


I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time…


It wasn't long before my old doubts resurfaced. Despite the Fed's rhetoric, my program [QE] wasn't helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn't getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.




Around this time, the Fed began to taper QE first by $10 billion in December… and another $10 billion in January. By this point even uber-dove Fed President Bill Dudley (he formerly claimed inflation is low because iPads are getting cheaper) even admitted the following:


We don't understand fully how large-scale asset purchase programs work to ease financial market conditions—is it the effect of the purchases on the portfolios of private investors, or alternatively is the major channel one of signaling?




At this point, Ben Bernanke handed off the reins for Fed Chairman to Janet Yellen. Yellen has since continued Bernanke’s tapering projects, reducing the monthly QE spend from $65 billion to $55 billion.


The failure of the Bank of Japan’s massive QE program and the Fed’s decision to taper are not unrelated. Take a look at the timeline.


·      April 2013: Japan announces a “shock and awe” QE program.

·      August 2013: San Francisco Fed economists (where future Chairman of the Fed Janet Yellen is President) write a study showing QE is ineffective at generating economic growth.

·      November 2013: Former Fed officials admit QE was not meant to help Main Street.

·      December 2013: the Fed begins to taper its QE programs by $10 billion

·      January 2014: Bernanke’s last FOMC as Fed Chairman, Fed announces another $10 billion taper

·      March 2014: Janet Yellen takes over at the Fed and announces another $10 billion QE taper.


This represents a tectonic shift in the financial markets. It does not mean that Central Banks will never engage in QE again. But it does show that they are increasingly aware that QE is no longer the “be all, end all” for monetary policy.


Investors take note. One of the primary market props of the last five years is being removed. What happens when the markets finally catch on?


This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html.


This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.


Best Regards


Phoenix Capital Research


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Thu, 08/07/2014 - 16:40 | 5061024 Ban KKiller
Ban KKiller's picture

Death, by law, to Banksters. Or nailguns. 

Thu, 08/07/2014 - 17:15 | 5061009 savedeposit
savedeposit's picture

- 1 =

Thu, 08/07/2014 - 16:37 | 5061008 savedeposit
savedeposit's picture

Well I am mainstreet, those low interest rate policy helped me.

I paid 5.2% interest on my home-hypo, and now I am paying 2.25% saving me almost 450 Euros per month.

Thu, 08/07/2014 - 17:01 | 5061121 Bossman1967
Bossman1967's picture

But the bank owns your house they will take it like they stole mine in 08. Wake up little less interest cost you everything in the end

Thu, 08/07/2014 - 17:13 | 5061165 savedeposit
savedeposit's picture

Well my house is still worth double the hypo loan I have, and I use the QE 450 Euro profit to do the repayment

When everything goes according to plan I will be hypo\loan free in 7 to 9 years, which leaves me a lot more money to consume, enjoy and invest.

Thu, 08/07/2014 - 16:35 | 5061001 Debeachesand Je...
Debeachesand Jerseyshores's picture

Will anybody go to JAIL for massive theft of money from the Middle Class...?????

Sadly,I don't think so......

Thu, 08/07/2014 - 16:16 | 5060898 RaceToTheBottom
RaceToTheBottom's picture

QE = "Look, squirrel"

While we save WS from their derivative mistakes.


Thu, 08/07/2014 - 16:11 | 5060867 kchrisc
kchrisc's picture

If they are admitting the truth, then some other lie and debacle is head the way of their perennial victims--Better "duck and cover."


"I prefer it when they lie, as then they are just hiding the truth. When they tell the truth, they are hiding the fan and shit."

Thu, 08/07/2014 - 16:11 | 5060864 SilverRoofer
SilverRoofer's picture

tick tock tick tock the clock never stops to the end game

Thu, 08/07/2014 - 16:09 | 5060854 Elliptico
Elliptico's picture

A QE exit will be counter balanced by expectations of war and the resulting flight to safety.

Thu, 08/07/2014 - 16:08 | 5060844 Marco
Marco's picture

QE was about keeping interest rates low and kicking the can, global destabilization has temporarily provided an alternative.

Thu, 08/07/2014 - 16:07 | 5060839 BullyBearish
BullyBearish's picture

It worked better than anyone could have imagined: the greatest intergenerational transfer (theft) of wealth in human history, most of it being used to finalize the absolute control they have over every institution that exerts control over us.

Thu, 08/07/2014 - 15:58 | 5060791 MFL5591
MFL5591's picture

Ask Jamie Dimon if he thinks QE was a faiure? 

Thu, 08/07/2014 - 15:52 | 5060753 Mercuryquicksilver
Mercuryquicksilver's picture

Bull shit. QE was intended to shift wealth from a majority of the earths population to an infinitesimally small minority of bankers and their wall street minions. The US government (primarily) and many foreign governments (secondarily) are complacent at best and accessories at worst as they skim wealth during this act of theft.

QE is a game of confidence


The Fed's QE has worked very well, but what is their exit strategy?

Thu, 08/07/2014 - 15:50 | 5060741 LoneCapitalist
LoneCapitalist's picture

QE is a failure, but the debt monetization is working! So far.

Thu, 08/07/2014 - 16:57 | 5061107 Bossman1967
Bossman1967's picture

Are you kidding me its all failing cause people like me. The hard working self employed pulled out of this joke of an economy and have cleaned off and out of debt. No purchasing and living stress free. How will they pay these losers benefits like that much less there own salaries Fuck Them I say

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