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●Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening <the gap between rich and poor.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●Everything in economics devolves to motive, and the motive is the Gap.
As readers of this site know, Quantitative Easing (QE), is touted as a way to stimulate the economy by adding dollars to the economy.
It does no such thing. QE is a fake, a fraud, a flimflam. The purpose: To give the impression that the Fed is “doing something” to stimulate the economy, without federal deficits.
To a small degree, QE actually reduces the number of dollars entering the economy.
Here’s how QE works. First, there must be a Treasury Security:
1. From thin air, the Treasury creates on its books an entry: “Treasury Security.”
2. An investor (you, for instance) tells your bank to debit your checking account and to credit your Treasury Security account at the Federal Reserve Bank.
A Treasury Security account is very much like a bank savings account, so in essence, you have transferred dollars from your checking account to your savings account. No dollars created or destroyed.
Then, comes the QE process:
3. The Fed instructs the Federal Reserve Bank to transfer your dollars from your Treasury Security account back to your checking account, and to transfer ownership of the Treasury Security to the Fed.
Again, no dollars are created or destroyed. No stimulus. No nothing. Dollars moved from one of your bank accounts to another of your bank accounts.
Bottom line, the Treasury created a Treasury Security and gave it to the Fed. The Fed gave dollars to the Treasury, which being the original creator of those dollars, has no use for them. So they are destroyed.
This leaves unanswered the question: If adding dollars to the economy stimulates the economy, and if the Treasury can create Treasury Securities from thin air, why doesn’t the Treasury create dollars from thin air, send them into the economy and dispense with the shell game scam?
The answer: That is exactly what the Treasury does every day, when it pays government bills. It should do more. (See Ten Steps to Prosperity, below).
What QE does do is reduce long-term interest rates, by increasing the demand for Treasury Securities, which increases their price, which in turn, decreases rates. (Price and rates move inversely.)
And by reducing rates, QE reduces the interest paid to the economy by the Treasury. QE cuts the deficit, which probably is one of its purposes.
Here is where the Fed’s sense of humor comes into play:
The Fed’s $4 Trillion Bet
OCT 29, 2014
The U.S. Federal Reserve announced today that it will halt the bond-buying program known as quantitative easing — one of the biggest experiments in economic policy ever attempted. The policy was a gamble, and it’s too soon to be sure of the results.
See the humor. QE started in November 2008, a full six years ago. It is “one of the biggest experiments in economic policy ever attempted.” Yet, “it’s too soon to be sure of the results”!
What??! Six years of the biggest policy experiments ever, and it’s “too soon” to know the results?
That’s like saying, “For the past six years, we’ve been dropping atomic bombs on Peoria, IL, but it’s too soon to know what happened.”
This doesn’t mean the program is over. The Fed still holds more than $4 trillion in bonds, roughly a fifth of all U.S. Treasury and mortgage-backed securities outstanding.
Until they’re divested — a challenge in its own right — these vast holdings will continue to have an effect on markets.
These “vast holdings” are nothing more than a line on the Treasury’s books saying that X dollars worth of the Treasury Securities created from thin air, are owned by the Fed. The left pocket owes the right pocket.
To eliminate these “vast holdings,” one government agency needs only to debit and the other agency needs to credit, and Presto! The “vast holdings” disappear into the thin air from whence they came.
The whole process is an accounting embarrassment, a juggling of the books, in an attempt to obscure the fact that it is Congress, not the Fed, that has the power to stimulate the economy. Congress does it by deficit spending, which really adds dollars to the economy.
Exactly how much QE has helped the economy remains a matter of debate. Former Fed Chairman Ben Bernanke said in 2012 that the Fed’s first two rounds may have boosted output by 3 percent and added more than 2 million jobs.
Where did Bernanke get these numbers? From that same thin air that provided the Treasury Securities.
In a more recent paper, San Francisco Fed President John Williams said such estimates were uncertain.
Yes, the effects of the biggest policy experiment ever, are “uncertain.”
Some believe QE has gradually diminishing effects; others that it has no positive effect at all.
Well, that seems to settle it. The effects are huge, or uncertain, or diminishing, or none at all — or as I believe, negative.
The BBC reported that as a result of this grand experiment, the Fed has added $3.7 trillion worth of assets to its holdings, about an eightfold increase.
So where are those 3.7 trillion dollars? What became of them?
This year’s federal deficit is below $500 billion. That is how many dollars the federal government added to the economy. So you can imagine the effect of adding 3.7 trillion dollars to our economy.
It would have been gigantic. The debt-hawks would have been screaming “hyper-inflation.”
But, nothing. No hyper-inflation. Hardly even any inflation. The economy creeps along, rising slowly, slowly.
In answer to the question, there are no additional $3.7 trillion. They are dollars that moved from private checking accounts to private Treasury Security accounts and back again. Just a Three-card Monte shuffle.
And you probably thought the Fed had no sense of humor.
Rodger Malcolm Mitchell
Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
The Ten Steps will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)
2. All deficit spending grows the supply of dollars
3. The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
4. The limit to non-federal deficit spending is the ability to borrow.
THE RECESSION CLOCK
Vertical gray bars mark recessions.
As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.