A surprising column appeared in The Wall Street Journal this week.
Written by former Federal Reserve official Andrew Huszar, the piece is a mea culpa regarding the U.S. central bank’s “quantitative easing” (a.k.a. money printing) programs.
“I can only say: I’m sorry, America,” Huszar writes. “As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed’s first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.”
Boom … like that.
For those of you keeping score at home, the first round of quantitative easing, known as “QE1,” took place from November 25, 2008 through March 31, 2010. Over that period, the Federal Reserve added $1.7 trillion to its balance sheet ($300 billion in Treasuries, $1.2 trillion in mortgage backed securities and $175 billion in agency bonds). The second round, dubbed “QE2,” took place from November 3, 2010 through July 1, 2011. Over that period, the Fed added $600 billion in Treasuries to its balance sheet.
Another so-called stimulus plan offsetting longer term securities with the sale of short-term debt (a.k.a. “Operation Twist”) began in September 2011 – and was extended in June of last year.
And of course last September, the Fed began its latest and greatest round of money printing – an open-ended commitment to create $85 billion in new assets each month.
Huszar managed the mortgage backed securities component of QE1 – quarterbacking what he called “the largest economic stimulus in U.S. history.”
So five years later, where do we stand?
“Over five years (the Fed’s) bond purchases have come to more than $4 trillion,” Huszar writes. “Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.”
And what has this historic intervention managed to purchase?
“Even by the Fed’s sunniest calculations, aggressive QE over five years has generated only a few percentage points of U.S. growth,” Huszar concludes. “By contrast, experts outside the Fed, such as Mohammed El Erian at the Pimco investment firm, suggest that the Fed may have created and spent over $4 trillion for a total return of as little as 0.25 percent of GDP (i.e., a mere $40 billion bump in U.S. economic output).”
We’ve spent the last five years arguing against quantitative easing … arguing that it was nothing more than an unconstitutional transfer of wealth. Or in the words of Duquesne’s Stanley Druckenmiller the “biggest redistribution of wealth from the middle class and the poor to the rich ever.”
“Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009,” he writes. “The biggest ones have only become more of a cartel: 0.2 percent of them now control more than 70 percent of the U.S. bank assets. As for the rest of America, good luck. Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy.”
Nice … so that explains this “recovery” we’re experiencing.
Five years ago Republicans and Democrats in Washington, D.C. told us they had to “do something” to save the American economy. And five years later they’re still doing it.
The only problem? Their solution is destroying our free market economy …
Don’t forget that QE bails out the government as well. Our public debt is bad enough already, but imagine what it will look like if interest rates rise and the costs to service that debt start skyrocketing.
So, just askin, 4 TRILLION is worth spending to save the taxpayer a couple hundred billion, right?
That $4 Trillion was not “spent”, it was invested. Time will tell whether that was a prudent investment when it comes time to cash in those Treasury bonds, mortgage-backed securities, etc. So far, it is a net gain, no matter how slim.
Net of losses due to inflation.
Oh thomas. Anotber product of gubmint schools. For the sake of argument and ez mat I’m a gornna add datnumbeer timesa 5. Thats still 3 TRILLION DOLLARS IN DA RED CUZIN. $3,000,000,000,000.00. Now cuzin, dat ain’t a countin’ the udder GAWD DAMNED MF 16 TRILLION what my cillin gots to pays. #putz
That $4 Trillion was not “spent”, it was invested. … So far, it is a net gain, no matter how slim.
Then we should have “invested” $8 trillion and doubled the gain. Or $12 trillion and tripled it.
Oh what the Hell, let’s all get rich!
*With apologies to Buzz Lightyear*
” Quantitative Easing; To infinity and beyond!”
“The hookers and blow were an investment.”
I never said that nor do I believe it. Just want everyone to remember the other factors impacting the Fed’s decision of whether to taper.
All that printing will bring inflation, if we are lucky the inflation will just be bad (7%±), more than likely the inflation will be very bad or worse (10% to 16%). What looks like a maybe now will be a very evident wrong move later, it’s just a matter of time and that time is drawing closer.
Weimar Republic on line one.
Zimbabwe is still holding on line two.
Argentina & Venezuela on line 3 & 4, Bolivia told me “Son estupidos los Americanos!” and hung up.
You sum up the situation perfectly Tontobubbagoldstein…I just cant believe how stupid and suckered the american population really is!!! And these guys “lead” our world!!! They are perhaps the greediest and most in incompetant and selfish race of people to walk our earth in its entire world….and I cant believe the world swallows there bullshit about world peace..are they not the only country so far to have drop nuclear bombs on another race…not one but two……hypocritical dicks if you ask me
You can hold the lid on the pot ’til the crabs stop struggling…but if you continue to hold the lid on tightly, the results ain’t going to be pretty…and you’ll belatedly realize that there are larger forces at work than just keeping a dozen crabs from escaping rapidly heating water.
I do not like QE and I am not defending it. But Will is missing part of the story in talking just about bailing out Wall Street. The markets seemed surprised they did not start tapering at the end of September, because it seems the economic justification for the program is growing weaker. But at this point it is as much a political decision as an economic one because the government needs QE so it can keep borrowing more money.
They cannot keep doing this forever, though. There will have to be a reckoning. I know they are hoping robust growth will help hide the impact, but it seems less and less likely that any such growth will happen under Obama.
I know they are hoping robust growth will help hide the impact,…
TBG knows how he would bet and suspects you would bet the same way.
“I can only say: I’m sorry, America”
Apology not accepted dick.
“But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.”
I have a hard time believing you are that stupid. If that’s what you are trying to convince us of though, you are not even fit to work the counter of the SCDMV.
He knows the people with the pitch forks and tar&feathers will be on the move shortly and he is trying to get on “the good side” before that happens. This is probably the very start of the coming calamity, sharpen the knives and axes.
“QE2” ??? No, Titanic!
Please. Qe2 was like 15 min ago..
corporations are people, my friends.