–How the Fed’s “Quantitative Easing” was designed to trick you into demanding your own economic suicide

Mitchell’s laws:
●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,
which leads to civil disorder.
●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.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive.

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Quantitative easing (QE) is economics jargon for a process few non-economists understand. That, after all, is the purpose of jargon. Sadly, few economists understand it either.

To paraphrase from Wikipedia:

Quantitative Easing (QE) is used by central banks to stimulate the national economy. A central bank implements QE by buying long term bonds from commercial banks and other private institutions, thus creating money and injecting a pre-determined quantity of money into the economy.

Quantitative easing increases the excess reserves of the banks, and raises the prices of the financial assets bought, which lowers their yield.

Risks include the policy being more effective than intended in acting against deflation – leading to higher inflation, or of not being effective enough if banks do not lend out the additional reserves.

Utter nonsense on all counts.

Fed Chairman Bernanke, being among the nation’s experts in the effects of federal finances, is well aware of the following:

1. QE does not stimulate the economy. It depresses the economy. When the Fed buys T-bonds, it takes those T-bonds out of private hands, thereby reducing the amount of federal interest paid to the private sector.

Rather than being stimulative, these money supply reductions depress the economy.

2. Banks neither need nor use additional reserves. They can obtain all the reserves they want, directly from the Fed, at near zero rates. So adding to reserves does not stimulate lending.

3. Reductions in interest rates are not stimulative. In the blog post Low interest rates do not help the economy we show that there is no historical relationship between low interest rates and economic growth. In fact, the opposite is true. Higher rates force the federal government to pump more interest into the economy, which is stimulative.

So why does Chairman Bernanke, knowing the above, institute repeated rounds of QE, and pretend he is doing this to help grow the economy, when he really is depressing the economy? Because it’s what his bosses (the President and Congress) want.

And why do the President and Congress want QE? Because recessing the economy widens the income gap between the rich and the rest.

And why do the President and Congress want the income gap to be widened? Because that is what the uber-rich bribe them to want (via political contributions and promises of lucrative employment, later). The world’s Pete Petersons and Koch brothers et al, want the gap widened, because it is the gap, not absolute income, that makes them rich and powertful.

If there were no gap, no one would be rich, and the wider the gap, the richer they are and the more power they have over you and me.

So they are quite pleased with Bernanke and the Fed, not only for depressing the economy, but also for brainwashing the voting public into believing this actually stimulates the economy.

It’s the perfect con. Get the victim to demand his own losses. Bernie Madoff knew this well, when he tricked people into demanding they be allowed to invest with him.

So you demand “deficit” reduction, “debt” reduction and QE, all in the name of economic stimulus, when in fact, all three are economically depressive.

The uber-rich reward the Fed and the politicians for using jargon to trick the public into believing that the treatment for anemia is to apply leeches. Owning the compliant media completes the con.

And the rich have succeeded. You believe what you’ve been told, don’t you?

Are you ready for another round of leeches to cure your anemia?

Rodger Malcolm Mitchell
Monetary Sovereignty

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Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%

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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports

#MONETARY SOVEREIGNTY

13 thoughts on “–How the Fed’s “Quantitative Easing” was designed to trick you into demanding your own economic suicide

  1. From: Fed Blows Dangerous Deposit Bubble
    (Global Economic Intersection):

    (Because of the Fed’s Zero Interest Rate Policy) retirees have been driven to the poorhouse and can no longer spend. Conservatively managed pension funds can’t generate adequate returns. Pensioner incomes will be cut. Insurers are being squeezed, driving up insurance costs.

    The Fed acts likes ZIRP is a win win. But the fact is that it imposes real, painful, and I would say immoral, economic costs, that are at least equal to, if not greater than the benefits that accrue to the Fed’s commercial bank clients.

    Over the long run, the transfer of the wealth of middle class retirees by suppressing their rate of return on savings in order to liquefy and make the banks profitable cannot be considered a good thing.

    It’s bad for the economy, and it’s terrible for public morals and mores. Under the circumstances and in view of the fact that financial fraud is never punished, cheating becomes an excusable, even acceptable mode of behavior not just at the top, but at all levels of society.

    Now why would the Fed do this? Hmm . . .

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  2. Another downside to QE is that it helps to validate austerity mania by reinforcing the public belief that U.S. government spending is “out of control.”

    The average person does not distinguish between government spending and the Fed’s QE. Therefore when the public hears that the Fed is “printing” $45 billion per month for QE, the public thinks we face imminent hyperinflation.

    This makes the average person demand reductions in government spending — i.e. demand austerity.

    (For other people of course; not for himself. Everyone but him is a “welfare queen.”)

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    1. Astute comment. The universe of Fed operations is so opaque to average people that they can’t see what the issue is. My brother-in-law is one of those “For other people of course; not for himself. Everyone but him is a “welfare queen” types. Add the gloss of “we’re debasing the currency” to it.

      I couldn’t break through. I couldn’t even make him think that his understanding might need examining until I jeered at him that OH, I get it, they’re making dollar bills in a back alley in Beijing and we borrow them. Then I swore at his lack of logic. (I’m not denigrating him. I was just as stupid about all this until two years ago.)

      Kelton’s teeter-totter for basic public/private balances is another good image.

      But we have none for Fed operations. People hear ‘debt is a reserve drain’ and their eyes glaze over.

      Rodger, if you’re reading this, what is a good metaphor for fed/treas operations? I’ve read Mosler’s Soft Currency article but I need to read it another eight times before I can explain it to people. A working metaphor would be great, just as Kelton’s teeter-totter is for understanding the deficit.

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      1. I don’t know a good metaphore, but all the Fed is doing with QE is buying T-securities from banks. Since this transfers the T-securities from the private (bank) sector to the public (Federal Reserve Bank) sector, it also transfers the interest from the private sector to the public sector.

        So the economy is receiving less interest, which is bad for the economy. When the government spends less the economy receives less and we have recession..

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  3. Rodger,

    Warren Mosler has a cryptic post about Fed Governor Powell up on his site. I think Warren is decrying him. (Warren writes his posts in half sentences and never explains anything for finance idiots, regular folk, so I should stay away from his site.) I looked up Powell’s background because he’ll be around for another 13+ years, but I saw he’s a fill-in.

    These are political appointees, aren’t they? This is the kind of person, ignorant of how the Fed works, making critical decisions? If the rest of the Fed Governors are this ill-prepared, then it’s easy to see how someone could sell them on the idea of QE.

    P.S. I deeply appreciate the work you’re doing on this subject.

    __________________________________
    His Fed bio: “Jerome H. Powell took office on May 25, 2012, to fill an unexpired term ending January 31, 2014.

    Prior to his appointment to the Board, Mr. Powell was a visiting scholar at the Bipartisan Policy Center in Washington, D.C., where he focused on federal and state fiscal issues. From 1997 through 2005, Mr. Powell was a partner at The Carlyle Group.

    Mr. Powell served as an Assistant Secretary and as Undersecretary of the Treasury under President George H.W. Bush, with responsibility for policy on financial institutions, the Treasury debt market, and related areas. Prior to joining the Administration, he worked as a lawyer and investment banker in New York City.

    In addition to service on corporate boards, Mr. Powell has served on the boards of charitable and educational institutions, including the Bendheim Center for Finance at Princeton University and The Nature Conservancy of Washington, D.C., and Maryland.

    Mr. Powell was born in February 1953 in Washington, D.C. He received an A.B. in politics from Princeton University in 1975 and earned a law degree from Georgetown University in 1979. While at Georgetown, he was editor-in-chief of the Georgetown Law Journal.

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    1. My two cents’ worth:

      Last Friday, Powell gave a short speech. Mosler uses that speech to show that Powell is a liar or an idiot (which makes Mr. Powell perfect for the Fed board of governors).

      For example, Powell laments the debt-to-GDP ratio (which is meaningless), and says that “the federal government’s fiscal path is unsustainable.” Powell claims that, “There is almost certainly a level of debt at which the United States would be at risk of an interest rate spike.”

      It’s total garbage. Powell’s speech is full of it.

      http://www.federalreserve.gov/newsevents/speech/powell20130221a.htm

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      1. Thank you, Mark.

        Then here is the problem as I see. How can MMT or monetary sovereignty people hope to reach the general public if a FEDERAL RESERVE GOVERNOR is making comments like this?

        It is naive to think that Mr. and Mrs. I’ve Got a University Degree are going to believe they are creating their own economic suicide if a vaunted Federal Reserve Governor is giving speeches of doom and gloom a la Peterson. Shouldn’t he be the guy in the know?

        Where are the sneering articles from knowledgable econ types throwing feces at these people? Seriously derisive, mocking, dripping with disdain articles. And naming who’s stupid, a rank economic idiot…and why. The poobahs of the MMT world have got to take them on with ridicule, because they are the only ones with the economic knowledge and glossary to fire back.

        The Catholic priests didn’t stop diddling children until priests were named. I grew up catholic. I remember that you didn’t talk about what the priests did because, well, they were priests.

        It’s no different here. These Fed governors need to be shamed so that the regular folk can show these articles to parents, grandparents, aunts and uncles. And kids. In plain language.

        My own family thinks I’m off the wall describing MMT because if it were correct, wouldn’t there be more people–other than Krugman–saying it publicly? (I know all the arguments about the difficulty of getting printed or published.)

        Bill Black is an excellent example of hammering hammering hammering at the door of a certain audience. I love it when Randy Wray gets exercised. Ditto Stephanie Kelton. And Rodger’s articles have fire-in-the-belly pumping through them, are written in plain language, and highly informative.

        But everyone is talking about process, or cause and effect.

        We need articles that query the appointment of another bozo to the Fed, and WHY he/she is incompetent to make monetary decisions.

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        1. Q. “How can MMT or monetary sovereignty people hope to reach the general public if a FEDERAL RESERVE GOVERNOR is making comments like this?”

          A. Most Fed governors and Fed bank chairmen are political appointees – that is, morons with no knowledge of banking. Herman Cain comes to mind (former chairmen of the Fed Bank of Kansas City.) However there are smart Fed people, and they have admitted the truth that we need more federal spending, and that the US government can never go broke, and thus has no “debt crisis.” Bernanke admitted this. Greenspan admitted it. Economist Milton Friedman admitted it. I don’t have the web links handy, but I have listed them in my previous comments to Rodger’s posts.

          Q. “My own family thinks I’m off the wall describing MMT because if it were correct, wouldn’t there be more people–other than Krugman–saying it publicly?”

          A. There was a time when everyone “knew” that the sun orbited the earth. It was “obvious.” It was “objective truth.” It was “common sense.” Anyone who questioned this “fact” was dismissed as “off the wall.”

          Today, people think, “What fools they were back then.” However today, the people are far bigger fools. They have universities, public libraries, the Internet, etc, and STILL they remain stupid.

          This is the nature of modern society. The more advanced we become technologically, the more retarded we become intellectually. And the increasing stupidity causes an increasing wealth gap between the 1% and 99%.

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  4. #2 is correct. QE does increase excess reserves at banks.However, banks may do nothing with excess reserves except lend them to other banks who may need reserves. Banks may not make non-bank loan or withdraw excess reserves. Only the Fed can reduce excess reserves.

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  5. The right-wing “Slate” blog has a post titled, “Italian Austerity Is a Disaster, Except Compared to the Other Choices.”

    How typical. The only way that anyone can defend austerity is to claim that the situation would be even worse without austerity. The anemia would even worse without leeches. The genocide would be even worse without genocide.

    The Slate article says that the only way Italy can avoid more austerity is to dump the euro currency, which the article claims would be disastrous.

    “A national government that defaults on its debts will find itself needing to close its budget deficit very quickly for want of anyone willing to lend money.”

    http://www.slate.com/blogs/moneybox/2013/02/25/italian_austerity_a_total_disaster_but_still_the_best_option.html

    Huh? Am I missing something? Maybe Rodger can explain this to me, because I do not understand…

    Question: if Italy reclaims its Monetary Sovereignty, and creates its own money, then why would Italy worry about selling bonds, or getting foreign loans? Italy is a developed nation, and has the euro-zone’s third largest economy. According to the Italian Institute of Statistics, in Dec 2012, Italy had a net trade surplus of $2.162 billion ($3.3 billion trade surplus with non-EU countries, minus a $1.2 billion trade deficit with euro-zone nations). This trade surplus is in the real economy, i.e. it is mostly in solid capital goods (e.g. factories, machinery, tools, equipment, vehicles, etc). Indeed, Italy now has an annual growth of 3.7 percent in exports and 5.7 percent decline in imports.

    So why would it be “disastrous” for Italy to recover its Monetary Sovereignty? It seems to me that if Italy re-adopted the lira, devalued it slightly, and reversed austerity, then Italy could soon dominate Europe.

    Of course, for that to happen, the Italian government would have to become pro-Italy – in which case the rest of Europe would condemn it as “fascist.”

    (By the way, I hold that 99% of what is written in textbooks about Fascist Italy and National Socialist Germany is LIES. History is written by the victors.)

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