Quantitative easing

Now the Federal Reserve has effectively cut the target lending rate to zero, it only has one more weapon in its arsenal. Quantitative easing. Senior Editor Paddy Hirsch explains what this "nuclear option" it is, and what the Fed hopes it'll do.

About the author

Paddy Hirsch is a Senior Editor at Marketplace and the creator and host of the Marketplace Whiteboard. Follow Paddy on Twitter @paddyhirsch and on facebook at www.facebook.com/paddyhirsch101
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All this gobbledygook about buying bonds and quantitative easing simply means that the Fed created $600 billion out of thin air with an accounting entry and gave it to its member banks, by exchanging the money for their treasury bonds, thereby increasing their reserves by $600 billion. So the banks now have another $600 billion to gamble with and the Fed just added another $600 billion to the national debt. Flooding the system with this much money simultaneously devalues the currency and causes inflation. And with interest at zero the banksters can now leverage these new reserves to gamble and buy up more assets. None of this money went into "the economy." Just to clarify what "the economy" means and how much money this is ... If Bernanke created $600 million and gave it to the 300 million PEOPLE living here, that would be $2 million a piece to spend into the economy. Add three more zeros to make that $600 billion and we would each have 2,000 million, or one billion each. Do you think that would be an economic stimulus? Do you think these "world class" economists can't see something this simple because their intention is to destroy the United States?

United States Constitution
Article 1, Section 8
"Congress shall have the power to coin money and regulate the value thereof"

The US Constitution dos not give private banks the authority to create the nation's money and credit. It gives this authority to the federal government.

It would be impossible for our nation to be trillions of dollars in debt if the federal government created its own money and credit.

It would be impossible for private banks to hold the nation hostage by withholding credit if the federal government issued its own sovereign credit - and more important - if it spent Constitutional money into circulation without ever incurring debt.

Treating the symptoms of systemic disease does not cure it at the source.

So the (privately-owned) "federal" Reserve saddled US taxpayers with the worthless junk banks had on their balance sheets, and then gave them another $600 billion to spend on more gambling. Giving more money to gambling addicts who just squandered the nation's assets, leaving us debt-ridden, in the hopes that their next gambling binge will pay off is too stupid to dignify with the phrase "monetary policy." This is not a legitimate monetary system in which the government creates its own sovereign currency and credit, (per Article Section 8 of the US Constitution), to regulate and protect the productive economy. This "system" is a gambling casino run by sociopaths. Why is the productive economy dependent on a Wall Street casino in the first place? Credit is not money. Credit is a loan manufactured with keyboard strokes by private bankers, and used as a weapon to extract the labor and resources of people who ARE productive. A transnational gambling casino is not a monetary system. Teach your viewers, instead, how to decouple the productive economy from these racketeers. Begin by reading The American Monetary Act and learn how we can restore our financial sovereignty: www.monetary.org

Paddy, you keep referring to the Federal Reserve as "Uncle Sam" or the "Treasury" throughout the video. That is a common misconception. The Federal Reserve is not part of the Federal Government. It is a private bank to whom Congress gave the special right to fabricate unlimited amounts of money out of thin air. See the Federal Reserve Act of 1913.

Far be it from me to question the motives of a central banker, but think about the following:

Rather than the Federal Reserve fabricate money out of thin air and buy up Treasury Notes so the Bankers will be forced to lend money elsewhere, the same thing could be accomplished if the Treasury Department simply refused to sell Treasury Notes to any Banks in the first place.

Impossible to open the video of mr Hirsch.

I've watched so many of these videos, I am drunk.

Great video, but should be included that you are also explaining the TALF program (not just QE).

Additionally - the hope of exporting more goods on a devalued dollar works if you are an export nation, not an important nation.

While devaluing to increase exports would of worked in FDR's day, this is a nation of consumption and imports (we are 180 degrees from where we were in the New Deal era).

Thus devaluing helps international companies, it hurts the consumer who buys imports.

We continue to forget what spins the wheel, and that is consumption.

Companies reported better expected earnings, based on cost cutting - with Top Line (revenues) significantly lower.

You can only run a business on shrinking revnue by cost cutting for so long.

At the end of the day, consumers need jobs, money, and credit avaliability - IF we want to see an increase in revenue (and GDP).

The QE policy has failed - banks are not lending (but using money to pay down mark-to-market losses or buying risk-free assets at higher rate - arbitratge).

The 0-25% and the QE package has done little for the man on the streets, but it is helping the banks considerably.

Nothing about devaluing our currency is good. Even if its just a little bit. Monetary inflation is bad for the middle and lower classes, its the silent tax. The politically conected who get the new money first (think bank bailouts) get richer as they get cheap money before prices rise, the middle and lower classes get the new money last and at that point have already seen a reduction in living standards. Ask yourself why does it takes both parents working to support a family in todays society, when only 30 years ago one worker could support a family. The answer is Inflation. A Paul Gill is correct buy gold and silver to protect yourself for when the FED can't remove the liquidity it is flooding the market with and we get hyperinflation.

Good overview but why not at least poke fun at the euphemism - quantitive easing = printing money!

Also, you leave out one critical part: if the Fed accepts bogus securities for the money it injects into the bank, how does it value those securities?

Paddy, excellent job on this whiteboard series. Thanks for helping average joes like myself understand these issues.

I still don't understand why the government doesn't include conditions when they inject this money into the banking system, such as requirements that banks lend at least some of this money to credit worthy borrowers. Instead they resort to more games like quantitative easing. Would such requirements be considered 'regulations' that the government wants to steer clear of?

And one correction: This financial debacle has left many of us needing a FEW drinks!


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