Saturday, October 12, 2013

Obama and Quantitative Easing; The Rich Get Very Rich

The Federal Reserve has bought back  $3 trillion worth of government bonds in an process called Quantitative Easing (QE). The rational is to inject money into the economy by converting the investors banks reserves that are in Treasury to cash; supposedly this would loosen up lending while still keeping interest rates down. The problem with this is the banks are sitting on the cash, 81.5% of the revenue produced by the QE as excess reserves; if a bank has more in reserves than needed to make loans it is called excess reserves.  In the past, banks would not get interest on these excess reserves so they had an incentives to give out loans. But in a Catch 22, the Federal Reserve pays the banks an incentive to tie up the very money they want to free up by paying them interest on excess reserves.  "Paying interest on reserves allows a central bank to maintain its influence over market interest rates independent of the quantity of reserves created by its liquidity facilities". 81.5 % Of Money Created Through Quantitative Easing is Sitting There Gathering Dust Instead of Helping the Economy

The primary avenue of wealth for the middle class has always been home ownership. But the catalyst of this market collapse was a glut of houses created governmental social engineering monstrous greed of some investment banks.  As a result of the Great Recession the middle class lost amount 25 years or 40% of their wealth; almost all of which was equity in their homes. The middle class is now stuck underwater and are unable, as they did in the past, capitalize on the equity of their houses and move up to a better and more expensive house, which in the past kept the housing market alive and healthy. Instead, until the price of housing increases enough the middle class once again has equity in the homes, the housing market and economy will remain flat. The only one buying houses right now are investment banks, so those few families that are actually looking to buy moderate cost homes, have to complete with them in a very small market and are usually unsuccessful. The end result of all this is the very rich are getting richer, the extra money is going into Wall Street, while the middle class and poor continue to flounder in this great recession. In other words the biggest driver of the concentration of wealth in the single digit percent of the wealthiest Americans, is the direct result of QE. 

1 comment:

  1. Agree, but unfortunately americans are naive or just simple estupid that do not caer. Just a few of is know it, talk about it but cant do anything about it for fear of been arrested for any unexpected invented charge, this is the fear ghost that Castro have in Cuba and now Americans have, now is the.land of the fear not the free.

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