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One More for the Road
Now that we’re 6 months out from the presidential election, what do you think will happen between now and November 6th?
Typically, a national election is—or ought to be—a referendum on the state of the nation in general and on the economy specifically…
Which should spell trouble for the Obama administration, shouldn’t it? After all, the economic numbers are not looking good right now; they’re dismal, in fact.
Unemployment has gone up, income levels are at their lowest in over a decade and there is no sign whatsoever that this administration knows how to get the economy moving in the right direction.
Is everything that’s happened to the economy the fault of this administration?
Of course not.
But spending the first 18 months in office getting Obamacare passed rather than focusing on creating a favorable climate for job creation is their fault…
A desire to overregulate and control what people do that brings uncertainty into the market and inhibits economic activity is also their fault.
Driving the national debt can also be laid at this administration’s doorstep.
Given all of that, is it any surprise that the economy hasn’t recovered?
But with an election looming, Team O needs a win…any win.
A Short Term Fix?
So again, think about what might help the economy in the short term?
Or, put another way, is a 3rd round of quantitative easing on the way? That would certainly have an effect, wouldn’t it?
It might; or it might not.
Here’s what I mean…
The idea behind quantitative easing has always been to put more money into the economy so that there would be…more money in the economy.
It has certainly succeeded in putting more money in certain parts of the economy...
Such as in the accounts of Wall Street firms and banks…
But the rest of the economy?
Not so much.
Should we then expect that another round of electronic money creation by the Fed is on its way?
So far, the answer from the Federal Reserve is ‘no’.
Which means ‘yes’ to the rest of the world…or at least to you and me.
Why do I say this?
Because it’s true.
Look, it’s no secret that Federal Reserve Chairman Ben Bernanke is a fan of the Obama administration and vice versa…
And the Fed’s QE program has boosted the economy two separate times since Obama became president.
The first was in March of 2009 when the Fed began buying assets from banks and corporations. The proceeds were then credited to the sellers’ bank accounts. Most of the assets purchased were government bonds, but others included corporate bonds and other private debt as a way to increase the flow of money to those companies.
The second round of quantitative easing was in November of 2010, when the Fed stepped in again to buy $600 billion in long term Treasuries over an 8-month period as well as reinvesting an additional $250 billion to $300 billion in Treasuries with the proceeds of earlier investments that had matured.
The stated goal of both rounds of quantitative easing, per Bernanke, was to stimulate the economy. In both cases, certain parts of the economy did benefit…
The stock market did well with hundreds of billions of extra dollars pumped into it…
Because that’s where stimulus money went…
As well as to foreign banks around the world.
Does Quantitative Easing Really Help?
But did QE 1 and 2 really help the economy at large? Was it even meant to?
Aside from rising equity prices, quantitative easing did little to help unemployment. Thinking people know that the employment numbers are massaged for political purposes…
And QE did nothing for the average American except raise the price of food and oil…
It did not increase lending activity from banks to businesses or increase the mortgage activity in the housing market.
But Bernanke already knew this…
Back in 1988, Ben and a close pal wrote a report concluding “the bank lending channel is not operative if banks have access to external sources of funding.” (Bernanke and Blinder).
And even recently, another report put the lie to the propaganda that quantitative easing helps the economy.
Economists Seth B. Carpenter and Selva Demiralp’s recent paper titled "Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?" found that:
"In the absence of a multiplier, open market operations, which simply change reserve balances, do not directly affect lending behavior at the aggregate level. Put differently, if the quantity of reserves is relevant for the transmission of monetary policy, a different mechanism must be found.”
Since Bernanke already knew that quantitative easing wasn’t the solution to the problems our economy faces, why did he do it twice?
And more to the point, why is it likely that he’ll do it again?
Because it’s all he can do…
And because Obama knows that he’s losing Wall Street, and he knows that he can’t afford that.
Therefore, if pumping up Wall Street for another half a year will give him a shot at a second term, then that’s what will happen.
And those are…The Gorrie Details.