Former Federal Reserve Official Apologizes for Quantative Easing

CNBC:

“My argument is not that QE was not at all useful,” he said on CNBC’s “Fast Money.”

“I believe that at the time, it was just one more tool that the Fed introduced to try to help the economy,” he said. “My point, ultimately, is the idea that very quickly into QE, it started becoming obvious that it wasn’t working in the way that it was supposed to.”

The article quotes someone from Rutgers Business School, who wonders what the end game for QE is going to be. The stock market – particularly the banks buying stock – is addicted to the easy money of QE. When can the Fed withdraw the money without crashing the markets?

One other point from the article – the rise in the stock market mostly benefited the already wealthy, including the banks. That was the indirect transfer of wealth.

Other transfers were more direct. The Fed bought up hundreds of billions in the banks’ bad mortgages (as opposed to underwater mortgages from the little guy). The Fed loaned money to banks at a low rate and banks used the money to buy Treasuries that paid a higher rate of interest. Some of that may have been by design, to repair the damage done by years of bad lending, but the net result was moral hazard and a massive transfer of wealth to the wealthiest.

Comments are closed.