Apparently, I’m not the only one concerned about the Fed’s quantitative easing.
Yesterday, I wrote a piece: Quantitative easing. What is it good for? Absolutely nothing!
Today, we get similar sentiments from around the world:
Could this move turn out to be a modern-day Smoot-Hawley? For those of you who are too young to remember, the Smoot–Hawley Tariff Act was passed in 1930, raising tariffs, and being a major contributor to the Great Depression.
Posted in Elections, Federal Reserve, Quantitative Easing
Tagged Ben Bernanke, Brazil, China, Federal government of the United States, Federal Reserve, Federal Reserve System, Great Depression, Great Recession, history, Money supply, Quantitative easing, Smoot–Hawley Tariff Act, Treasury Department, United States Department of the Treasury, United States Treasury security
The Federal Reserve “unveiled plans to purchase $600 billion of Treasurys by the end of June 2011 to revive the economy.”
Maybe one of my readers can explain to me how the Federal Reserve buying Treasury bonds will “revive the economy.” I just don’t get it. The Federal Reserve will be doing nothing more than printing Dollar bills and exchanging those Treasuries. Nothing of value will be created. No new goods will appear on the market. No jobs will be created. Simply put, Treasury bonds owned by individuals or corporations will be replaced by Dollar bills.
Owners of Treasury bonds own them because they want to save/invest their money. Buying the bonds from these people won’t convince them that they need to spend what they had been saving. They will simply invest their money elsewhere: in stocks, corporate bonds, overseas, gold, or in cash. No real wealth will be created through this so-called quantitative easing and it will not encourage any wealth-creating activities. It is simply moving money from one pocket (Federal Reserve cash) to another (Treasuries bonds) from the government’s perspective and the converse from Treasuries to cash from the people’s perspective.
The argument is that buying Treasuries will help keep interest rates low. But who benefits from this? Investors/savers will earn less on their deposits/bonds, but creditors (corporations, mortgages) will pay less interest. But those two will largely offset each other. No net benefit.
In the end, there is one entity that has so much debt that it will be the largest beneficiary: the United States government. Instead of paying interest on bonds, the government is choosing to print money instead. On $600 billion of intermediate-term debt yielding between 0.33 (2-year yield) and 2.57 (10-year yield) percent, the government would “save” about $600 million a month. That’s it? With a deficit running at about $125 billion a month, that’s just 0.5% if the deficit. Again, what for?
The Federal Reserve is simply manipulating the economy for no real purpose. Oh yes, it has the purpose of enabling the government to spend with reckless abandon and run large deficits because it now has a ready market for its debt. But to do so, it must print all those Dollars, and that is driving down the value of the Dollar which is very evident by the huge rally in gold since the “Great Recession” began.
The government is destroying OUR long-term prosperity for ITS short-term gain. A good deal for the Federal Reserve and the Treasury Department, but not for you and me.
Posted in Economics, Federal Reserve, Quantitative Easing
Tagged Ben Bernanke, Federal government of the United States, Federal Reserve, Federal Reserve System, Great Recession, Money supply, Quantitative easing, Treasury Department, United States Department of the Treasury, United States Treasury security
The Treasury announced that the total cost of TARP would be just $50 billion. In their perverse logic, the Administration and media played this up as a government success story. But we really should look at TARP as an investment. Congress approved spending $700 billion for TARP, of which only $296 billion was spent. Looking at TARP as an investment, the government lost 16.9% over a two year period. And they call that a success!
What else could the government have done with the $296 billion? Since TARP was signed into law on October 3, 2008, the following instruments have produced these returns:
||Troubled Asset Relief Program
||iShares Barclays 20+ Year Treas Bond
||iShares Barclays 7-10 Year Treasury
||iShares Barclays Short Treasury Bond
||SPDR Gold Shares
||Financial Select Sector SPDR
All major markets (stocks, long-term bonds, intermediate-term bonds, short-term bonds, and gold) posted positive returns. In some cases, very good returns. As you can see, I added the Financial sector into that table, which declined slightly more than TARP. Most of TARP’s investment were in the financial sector. The small difference is largely a rounding error because I am looking at XLF’s return up to today whereas the Treasury is using expected returns as of some future date. And that is assuming you trust their accounting…
But this raises the question of why they invested in the worst performing market sector? Those of us who argued that they were throwing good money after bad were correct. Maybe Treasury lost less money than we expected, but we were still correct in predicting negative returns on this investment.
Of course, the government claims that TARP saved the financial system from utter destruction. Oh, to live in a world where you can make outrageous claims without any proof. Next thing you know, the government will claim that the American Recovery and Reinvestment Act of 2009, also known as the stimulus bill, “created or saved” millions of jobs, even though the unemployment rate has remained steady near the 10% level.
Posted in Economics, Gold, Government spending, politics, Redistribution, Stimulus spending, Unemployment
Tagged American International Group, big government, Business, Deficit, economics, Finance, Financial services, Government, Government debt, government spending, Investing, Stocks and Bonds, TARP, Troubled Asset Relief Program, unemployment, United States, United States Department of the Treasury