Quantitative Easing The greatest backdoor Wall Street bailout of all time.

"Quantitative easing" (QE) is Fedspeak
for creating money out of nothing with a computer keystroke. 

Greek Lessons for Americans
Ralph Waldo Emerson’s said that “when you strike at a king, you must kill him.”  When capitalists and the politicians and bureaucrats who serve them are challenged, they strike back – and when they can get away with it, they show no mercy. Democracy be damned.  Because their power is immense, they will win – unless an outraged and mobilized citizenry, with bold and capable leaders, stops them.

Larry Fink – QE Hasn’t Helped the Middle Class at All 1:50

PIIGS status (the acronym for Europe's most indebted and financially challenged economies Portugal, Italy, Ireland, Greece, Spain)

It was the massive credit bubble created by the European Central Bank and the nation's financial institutions, most notably the Anglo-Irish Bank, which created the artificial boom of 2001- 08 that led to the inevitable bust which has devastated the economy. It has been estimated that over this time period, lending for mortgages rose from 44billion to 128 billlion euro. Of course, when the bust came none of the culprits had to suffer the consequences of their nefarious behavior, but instead were bailed out by the Irish government through the creation of the National Assets Management Agency (NAMA) to the sum of some 70 billion euro. The public is footing the bill for the banksters fraud through "austerity," a crushing debt burden, and hefty tax increases. Democracy is fine when it legitimizes their power; otherwise, it is a nuisance at best.

The “insanity” of quantitative easing, the Federal Reserve’s controversial multibillion-dollar bond-buying program, which ended in 2014 amid criticism that it had increased demand for risky investments even as supporters said it sustained economic growth.

Thomas Piketty: ‘Germany Has Never Repaid its Debts. It Has No Right to Lecture Greece’

FINANCIAL PARASITES - HOW DOES QUANTATATIVE EASING WORK?

The Federal Reserve created $4 trillion worth of credit electronically on its computers when the economy was in trouble in 2008. It could have used this $4 trillion to write down the debts. It could have used it to spend into the economy and create sort of a recovery. But instead it gave all the money to the banks, and its claim was that if you give $4 trillion to the bank reserves this is going to help the economy, because the bank is going to lend more money to the economy and drive it in, $4 trillion deeper into debt.

This was a crazy idea.

 

6/7/15 Quantatative Easing Swelled Banks Not the eCONomy

Bankers Sticky Fingers 
QE1, QE2 and QE3 failed to adequately stimulate economic activity because quantitative easing was a political solution to an economic problem rather than an economic solution to an economic problem. To effectively goose the economy, the QEs should have provided immediate infrastructure jobs for millions of Americans. Those shovel-ready jobs are needed to rebuild thousands of bridges, clean our rivers, enlarge our deep-water ports, improve our electrical grid, strengthen our dams, rebuild our highways, modernize our airports, etc. In this manner, millions of Americans would receive paychecks for supercharging our economic infrastructure, which is responsible for creating new jobs and maintaining most current ones. In this process, millions of Americans' paychecks would be deposited in the nation's 90,000 branch banks every week from coast to coast. Certainly, an improved rail system, modern airports, a more effective highway system, larger deep-water ports, etc., would create a perpetually moving job machine, virtually funneling trillions of "Q-wages" from consumers' pockets into the banking system.

12/12/10 QE2: It's the Federal Debt, Stupid!  By Ellen Brown

Unlike QE1, QE2 is not about saving the banks. It's about saving the country from Greek-like austerity measures necessitated by a burgeoning federal debt. The debt is never paid, but is just rolled over from year to year; but the interest is paid, and it is here that QE2 relieves the pressure, since the Fed rebates its interest to the Treasury.
The inflation hawks are circling, warning of the dire consequences of the Fed's new QE2 scheme. "Quantitative easing" (QE) is Fedspeak for creating money out of nothing with a computer keystroke. The hawks say QE is massively inflationary; that it is responsible for soaring commodity prices here and abroad; that QE2 won't work any better than an earlier scheme called QE1, which was less about stimulating the economy than about saving the banks; and that QE has caused the devaluation of the dollar, which is hurting foreign currencies and driving up prices abroad.
It might be argued, however - and will be argued here - that QE2 not only will NOT produce these dire effects, but that it is NOT actually about saving the banks, OR devaluing the dollar, OR saving the housing market. It is about saving the government from having to raise taxes or cut programs, and saving Americans from the austerity measures crippling the Irish and the Greeks; and for that, it could well be an effective tool. What is increasing commodity and currency prices abroad is not QE, but the US dollar carry trade; and the carry trade is the result of pressure to keep interest rates artificially low to avoid a crippling interest tab on the federal debt. QE2 can relieve that pressure by funding the debt interest free.
The debt has increased by more than 50 percent since 2006, due to a collapsed economy and the decision to bail out the banks. By the end of 2009, the debt was up to $12.3 trillion; but the interest paid on it ($383 billion) was actually less than in 2006 ($406 billion), because interest rates had been pushed to extremely low levels. Interest now eats up nearly half the government's income tax receipts, which are estimated at $899 billion for FY 2010. Of this, $414 billion will go to interest on the federal debt. Raising interest rates just by a couple of percentage points would make income taxes prohibitive. 

Major central banks claim to be independent, but they are totally under the control of politicians. 

1/20/15 "This Is The Endgame For Central Banks"
Many developed countries have tried to anchor an independent central bank to offset pressure from politicians and that’s all well and good in principle until the economy spins out of control – at zero-bound growth and rates central banks and politicians becomes one in a survival mode where rules are broken and bent to fit an agenda of buying more time.   Just looks to the Eurozone crisis over the past eight years – if not in the letter of law, then in spirit, every single criterion of the EU treaty has been violated by the need to “keep the show on the road”. No, the conclusion has to be that there are no independent central banks anywhere! There are some who pretend to be, but not a single one operates in true independence.
http://www.zerohedge.com/news/2015-01-20/saxo-bank-warns-endgame-central-banks

 

A structurally unsound U.S. economy:

tOO bIG tO fAIL pOLICYBoth politicians and central banks are fully bought and paid for by the banksters.

#Financial Literacy? Interview with Mario Draghi, President of the European Central Bank 12/17/14
Quantitative Easing The greatest backdoor Wall Street bailout of all time.
 

The European Central Bank has often been chastised for not doing “quantitative easing”, or QE, the way the Federal Reserve, Bank of Japan and Bank of England have done. How, for example, is a bank in Switzerland supposed to survive if it starts charging everyday Joes to keep money in their checking and deposit accounts?
Bill Clinton’s old finance chief, Larry Summers, argued in 2014 that the ravages of the Great Financial Crisis and the recession that followed may have left the equilibrium interest rate–the one needed to produce long-term growth without inflation–below zero. That’s a claim with profoundly awkward consequences for the future of capitalism and the world’s pointy-heads are understandably slow to sign up to the thesis. 

The Major House of Bullshit!

Originally Aired in April 3, 2011. 60 minutes exposes the banks and their hired contractors willfully committing fraud. As more and more Americans face mortgage foreclosure, banks' crucial ownership documents for the properties are often unclear and are sometimes even bogus, a condition that's causing lawsuits and hampering an already weak housing market. Scott Pelley reports.

International Swaps and Derivatives Association
1985 a trade organization of participants in the market for over-the-counter derivatives. It is headquartered in New York. 
https://en.wikipedia.org/wiki/International_Swaps_and_Derivatives_Association 
ISDA was initially created in 1985 as the International Swap Dealers Association and subsequently changed its name switching “Swap Dealers” to “Swaps and Derivatives”. This change was made to focus more attention on their efforts to improve the more broad derivatives markets and away from strictly interest rate swap contracts. In 2009 a New York Times article mentioned that in 2005 the ISDA allowed rule changes to CDO payouts (Pay as You Go) that would benefit those who bet against (shorted) mortgage-backed securities, like Goldman Sachs, Deutsche Bank, and others.[3] ISDA has offices in New York, London, Hong Kong, Tokyo, Washington D.C., Brussels and Singapore.

SNB breaks ranks. The global central bank coordination schemes have collapsed like Opec.

THE SWISS DO WHAT EVER THEY WANT 

1/15/15 Swiss franc soars as euro cap ends
http://www.bbc.com/news/business-30829917
The Swiss National Bank (SNB) said the cap, introduced in September 2011, was no longer justified.  It also cut a key interest rate from -0.25% to -0.75%, raising the amount investors pay to hold Swiss deposits.  The International Monetary Fund's head, Christine Lagarde, called the move "a bit of a surprise". She said she was also surprised that the governor of the Swiss National Bank had not contacted her, and said she hoped he had communicated the plan to his fellow central bank governors. [THE CARTEL]
Many believe the euro will fall even further if the European Central Bank (ECB) starts quantitative easing, buying bonds to push cash into the eurozone banking system to stimulate a recovery.

1/15/15 Thank the Swiss National Bank for the Truth
http://slopeofhope.com/2015/01/thank-the-snb-for-the-truth.html#more-42204
This week's SNB action exposes perfectly why I've been saying the 'markets' have been in artificially-controlled la-la land since the 2008 Great Recession
And do you sometimes ask yourself, “What would it be like if markets were normal again? What if the world’s central bankers all decided to go f*ck themselves and leave the markets to act naturally on their own? This SWISS NATIONAL BANK action exposes perfectly why I've been saying the 'markets' have been in artificially-controlled la-la land since the 2008 Great Recession, as succinctly described/portrayed here:
http://slopeofhope.com/2015/01/thank-the-snb-for-the-truth.html#more-42204

It's a sign of things to come, if/when/as 'market's return to some semblance of normalcy.  Be ready.

Of course, some brokerages are whining about having to cover *massive* client losses.  Yet these firms allowed 50:1 or 100:1 leverage (which works both ways) and apparently assumed (key word) that the SNB would tell them ahead of time what it was going to do, which in this case it didn't.  Therefore, it's kind of nice to see such firms 'victimized' by the same information blackout that the rest of the investing world has to live by for a change.  No sympathy there!

A negative rate means depositors pay to lend the bank their money. 

12/18/14 Switzerland's National Bank (SNB) will bring in a negative interest rate cutting the value of large sums of money left on deposit in the country.  

The Bank is imposing a rate of minus 0.25% on "sight deposits" - a form of instant access account - of more than 10m Swiss francs ($9.77m, £6.2m). The new rate will be introduced on 22 January and will only affect banks and large companies who use the "sight account" to transfer funds quickly and without restrictions. http://www.bbc.com/news/business-30528404

The European Central Bank and its components are trying to stimulate the economy with negative interest rates. Every month, rather than pay interest, banks take money from their customers’ accounts. The theory is that this forces people to spend money. But, really the insecurity that it creates forces consumers to abandon the banking system, withdrawing money in cash.

Hence the interest in digital currency. In a world where there is no cash, people must use the banking system to buy and sell, and then these same people have to accept negative interest rates. More concerning, if a central bank wants to simply confiscate all money, people would have no choice but to have their accounts drained, because there would be nothing in them but numbers. There would be no actual currency or a commodity like gold.

Ironically, Bitcoin which is an interest-free currency issued by no one in particular has shown that digital currency can work. In the past, when people have tried issuing private currencies backed by silver and gold, like the liberty dollar, governments have forcefully confiscated the money and arrested its users. Bitcoin, however, lacking a central repository, cannot be so easily shut down. This is why governments want toclone its novel digital identity, issuing something that looks like bitcoin while restoring to it the usury that makes them rich.

 

Andrew Huszar: Confessions of a Quantitative Easer

We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall Street. By ANDREW HUSZAR, Nov. 11, 2013 
online.wsj.com/news/articles/SB10001424052702303763804579183680751473884

I can only say: I'm sorry, America.

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.

Five years ago this month, on Black Friday, the Fed launched an unprecedented shopping spree. By that point in the financial crisis, Congress had already passed legislation, the Troubled Asset Relief Program, to halt the U.S. banking system's free fall. Beyond Wall Street, though, the economic pain was still soaring. In the last three months of 2008 alone, almost two million Americans would lose their jobs.

​The Fed said it wanted to help—through a new program of massive bond purchases. There were secondary goals, but Chairman Ben Bernanke made clear that the Fed's central motivation was to "affect credit conditions for households and businesses": to drive down the cost of credit so that more Americans hurting from the tanking economy could use it to weather the downturn. For this reason, he originally called the initiative "credit easing."

My part of the story began a few months later. Having been at the Fed for seven years, until early 2008, I was working on Wall Street in spring 2009 when I got an unexpected phone call. Would I come back to work on the Fed's trading floor? The job: managing what was at the heart of QE's bond-buying spree—a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months. Incredibly, the Fed was calling to ask if I wanted to quarterback the largest economic stimulus in U.S. history.

This was a dream job, but I hesitated. And it wasn't just nervousness about taking on such responsibility. I had left the Fed out of frustration, having witnessed the institution deferring more and more to Wall Street. Independence is at the heart of any central bank's credibility, and I had come to believe that the Fed's independence was eroding. Senior Fed officials, though, were publicly acknowledging mistakes and several of those officials emphasized to me how committed they were to a major Wall Street revamp. I could also see that they desperately needed reinforcements. I took a leap of faith.

In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing.

It wasn't long before my old doubts resurfaced. Despite the Fed's rhetoric, my program wasn't helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn't getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.

From the trenches, several other Fed managers also began voicing the concern that QE wasn't working as planned. Our warnings fell on deaf ears. In the past, Fed leaders—even if they ultimately erred—would have worried obsessively about the costs versus the benefits of any major initiative. Now the only obsession seemed to be with the newest survey of financial-market expectations or the latest in-person feedback from Wall Street's leading bankers and hedge-fund managers. Sorry, U.S. taxpayer.

Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.

You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless."

That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector.

Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.

And the impact? Even by the Fed's sunniest calculations, aggressive QE over five years has generated only a few percentage points of U.S. growth. 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% of GDP (i.e., a mere $40 billion bump in U.S. economic output). Both of those estimates indicate that QE isn't really working.

Unless you're Wall Street. 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. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% 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. Yes, those financial markets have rallied spectacularly, breathing much-needed life back into 401(k)s, but for how long? Experts like Larry Fink at the BlackRock investment firm are suggesting that conditions are again "bubble-like." Meanwhile, the country remains overly dependent on Wall Street to drive economic growth.

Even when acknowledging QE's shortcomings, Chairman Bernanke argues that some action by the Fed is better than none (a position that his likely successor, Fed Vice Chairwoman Janet Yellen, also embraces). The implication is that the Fed is dutifully compensating for the rest of Washington's dysfunction. But the Fed is at the center of that dysfunction. Case in point: It has allowed QE to become Wall Street's new "too big to fail" policy.

Mr. Huszar, a senior fellow at Rutgers Business School, is a former Morgan Stanley managing director. In 2009-10, he managed the Federal Reserve's $1.25 trillion agency mortgage-backed security purchase program.

 

WALL STREET CELEBRATES

@matthewstoller Revisiting the Japanese Experiment in Quantitative Easing

How’s the experiment going?  In short, not good.

This is a headline picked out at random, but they all say the same thing: Japan’s economy makes surprise fall into recession  There’s a lot to say about this policy. Printing money isn’t a bad thing, per se. It is what governments need to do. It’s probably true that QE is juicing some lending in some areas of the economy.

The problem is that the financial system is at this point only very marginally connected to the real economy, so when you print more money, it goes into corporate treasuries and from there into speculation. Japanese exporters, for instance, are just keeping the extra money they are making from a lower yen rather than investing it into factories.  This money piles up, and since corporations can’t put it into regular deposits, they stick it into the shadow banking system via money market funds, fancy things called ‘repos’ (which are basically just uninsured deposits), the central bank and some government and corporate debt.

From there, the money is lent to hedge funds, pension funds, or other funds who buy financial assets. The stock and credit markets go up.  At no point does this money touch the real economy or the hands of consumers, it just inflates financial markets.