The Federal Reserve announced that it would buy $40 billion every month in mortgage-backed securities until the labor market improves substantially. The program, dubbed “QE3″, was called a “revolutionary shift in the Fed’s policy reaction function,” by senior economist at BMO Capital Markets in Toronto, Michael Gregory. Helicopter Ben Bernanke’s new economic stimulus plan involves printing vast sums of money to help people buy homes with the overall goal of boosting the economy by lifting stock prices.
So, how is this supposed to help the overall economy and more specifically the average Joe? Before that question can be answered, one must first investigate the history of the FED’s first two quantitive easing bond-buying initiatives, dubbed QE1 and QE2, that have expanded its balance sheet by about $2.3 trillion. Since the first was announced in November 2008:
- median household income STILL fell for four years in a row
- the employment rate has not recovered from the last recession
- new home sales have remained near record lows despite record low interest rates
The progressive central planning by the Federal Reserve did create some winners. Since the low point of 2008, prices of financial assets have steadily increased. While the dollar is being inflated, commodities like gold, silver, oil and agricultural commodities have soared to record highs. Stocks have also done very well over the past couple of years. What is interesting is 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans. The flip side to this means that average Americans are paying more for basic necessities such as food and gasoline. What we are witnessing is nothing other than theft: taking from the working class so as to make the wealthy even wealthier while causing living standards to fall for all the rest of us.
The chairman of the Federal Reserve (a collection of privately owned banks), Ben Bernanke is typically referred to as “Helicopter Ben” for his monetary philosophy. In a 2002 speech concerning deflation, he noted that a government like ours is in a fiat money system, meaning it owns the physical means of creating money. This control of the means of production implies that the government can always avoid deflation by just issuing more money. He said while referring to a statement made by Milton Friedman about using a “helicopter drop” of money into the economy to fight deflation.
The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.
Helicopter Ben and Barack Obama for that matter want us to believe that the whole idea behind quantitative easing is that it is supposed to get banks lending again. The theory goes that the money will eventually “filter down” to the economy as a whole and the average Joe, eventually. Take a look at the following graph and see how the first two rounds of quantitative easing got the banks lending again. Instead, banks just held onto it: from close to zero to over 1.5 trillion dollars….
If you are blind to history you are doomed to repeat it. Anyone can see that throwing good money after bad will not solve anything. A debt problem cannot be solved with MORE SPENDING. This latest Fed “stimulus” will end up doing more harm than good, prolonging and exacerbating an epochal downturn that refuses to go away — because America’s progressive policymakers refuse to let the markets correct the mistakes of the central planners, time looks like its running out and it may indeed be the time for the Great Correction to run its course.