Quantitative easing occurs when the Federal Reserve buys Treasury bonds, which represent an IOU from the U.S. Government. When the Fed buys Treasury bonds in the open market, it’s like the US Government buying back its own IOU with newly created money. This is about as close to pure money printing as it gets.
Pulling on a Donkey that Doesn’t Want to Move Won’t Make him Walk
The following factors have the greatest influence on turning this economy:
1. Consumer attitudes towards spending and credit
2. Bank attitudes towards lending
3. Bank capital constraints
4. Businesses willingness to expand
By printing money, the Federal Reserve will pump more paper currency into the economy….and they are hoping we’ll borrow and spend like drunken sailors. Alas, but they’re forgetting one very important factor: if the consumer is unwilling to spend and borrow, there not a darn thing the Federal Reserve or the US Government can do about it!
They can’t lower interest rates any further, so there’s little doubt some the Fed will keep at quantitative easing until it “works”. The problem is the Fed already printed almost $200 trillion dollars buying mortgages in an effort to revive the back bone of the economy – housing. IT DIDN’T WORK. So what makes them think printing money is a good thing?
No Bullets in the Gun
The Fed is powerless at this point. It cannot:
- Create jobs
- Force banks to lend
- Force consumers and businesses to take on more credit
- Make you spend your money
Quantitative easing is no more likely to spur job creation, bank lending, and consumer spending in the United States than it did in Japan (which is to say none at all). The Federal Reserve is already stuck with all those mortgages it purchased with Monopoly money, and we got no closer to Boardwalk than Baltic Avenue. Now it’s going to be stuck with untold trillions in Treasury Notes while we all sit on the money under our mattress, refusing to pass “Go”.
So what can the Fed do? It can keep shooting blanks into the economy at the risk of your future and your children’s future.
Jefferson had it Right
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson
Great leadership begins with acting in the manner one wishes its followers to adopt. Let us not forget the eloquent words of great leaders like Jefferson, who was adamant about avoiding the evils a central bank would impose upon society. Or the witty quip from Ronald Reagan - ”To say Congress is spending like drunken sailors is an insult to drunken sailors.”
We worked hard to create the greatest country on earth (or should I say our Founding Fathers and Servicemen), so why give it away by putting back in the hole with more debt? If we don’t de-leverage the American household, we will not succeed.
And that goes for our Government too.
Your $200 trillion should be more like $3 trillion. That’s what the FED admitted was on their balance sheet (they never have made it public) plus bonds purchased from Bear and others during 2008 plus the other treasuries they bought before.
I think another idea is why don’t we propose the Federal government issue an annual financial statement. This would show negative capital because of all the entitlement net present value obligations. Let the CBO audit it to keep the cost down rather than a private firm. This negative equity would be huge, although not as huge as it would be when FASB/GASB fixes the accounting so the liability isn’t so understated (off balance sheet, isn’t it funny how this hiding of liabilities isn’t discussed).
Also, if the FED wishes to maintain the illusion of independence (which is why they don’t want to publish their own financial statements and show the huge equity they create by printing money) then they shouldn’t be allowed to buy Federal debt in large chunks. Small ones to feed or drain liquidity is fine. Buying large chunks just allows the Federal government to raise cash without immediate pain. No pain and it will get out of control eventually.
Scott
The alleged Jefferson quote, while reflecting some of his sentiments, is not authentic. It is not found in any of his writings, nor in the writings of his contemporaries. The terms “inflation” and “deflation” had not come into use in reference to economics. “Inflation” is documented first in 1838, 12 years after Jefferson’s death. “Deflation” first appears in 1920.
200?? trillion? That’s more like the unfunded liabilities for the next few decades – promises of future goodies stolen from your neighbors and given to you. Reality is that it’ll be stolen from everyone who pays taxes and doled out to those who live long enough to get some of it.
Welfare and social security appeal to the larceny in degenerate mankind’s black little greedy hearts.
Thanks for the comment. Jefferson wrote the following in a latter to John Taylor dated May 28, 1816: “And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
Apparently, this quote has been expanded to include the language I posted – I’m not sure, but it seems you may be correct. The point, however, isn’t lost on Jefferson’s quote from the letter cited above. Although not directly indicated, the concept of inflation is clearly indicated in his thoughts concerning the banking system.
In this post, I addressed the then current spending efforts – which included printing money to fund the purchase of mortgages by the Fed. And I agree concerning the unfunded liabilities – whose funding in the absence of austerity requires stealing from the very population who have been mislead to believe in the very benefits provided.