{"id":36770,"date":"2010-11-04T01:01:01","date_gmt":"2011-05-19T00:25:05","guid":{"rendered":""},"modified":"2011-05-19T00:25:05","modified_gmt":"2011-05-19T00:25:05","slug":"explaining_ben_bernanke_s_qe2","status":"publish","type":"post","link":"https:\/\/admin.rushlimbaugh.com\/daily\/2010\/11\/04\/explaining_ben_bernanke_s_qe2\/","title":{"rendered":"Explaining Ben Bernanke\u2019s QE2"},"content":{"rendered":"
\n

Quantitative Easing. What the Fed announced yesterday at 2:15, didn\u2019t get a whole lot of attention. The stock market is going through the roof because of it. What is it? Quantitative Easing is where a country\u2019s central bank, i.e., the Federal Reserve, tries to boost the economy by increasing lending by increasing the money supply. How do they do that? Well, the Federal Reserve announced they\u2019re gonna purchase about $600 billion in Treasury securities. That\u2019s about $75 billion per month for the next eight months. This is the government printing new money to purchase existing Treasury securities that have already been issued and are currently owned. All right, so who owns them? Well, banks, Wall Street firms, insurance companies, pension funds, other governments. The purpose of the program, the purpose of QE2 is to reflate the economy, to create wealth via higher stock and bond prices, via inflation. It\u2019s another stimulus. They tried it once before. That\u2019s why it is QE2, Quantitative Easing 2. <\/p>\n

In addition to the $600 billion, the Federal Reserve will also purchase $250 billion of Treasury securities with TARP money. Remember that TARP money? We had to bail out that $700 billion. If we didn\u2019t, the world financial system would cash in 24 hours. We still have $250 billion of that unspent. So that $250 billion to purchase Treasury securities with TARP money again over the next few months. The total package will be $100 billion a month over the next eight months. The Federal Reserve is not buying the stocks. The institutions will have more money as a result of selling the Treasuries to the Fed and they use the money to buy securities and thus higher prices and this creates the impression of the economy\u2019s growing, Wall Street, Dow Jones Industrial Average climbing every day, wow, look, we got an economy recovery. The purpose of the program is to put more cash, liquidity, into the system. Banks, Wall Street firms, insurance and pension funds, money firms who own them get the cash. The goal is the banks and other lending institutions will also lend the money to business and consumers to expand their business. <\/p>\n

They did this once and it didn\u2019t work and the small business people tell you this is not what we need. We don\u2019t have a credit problem. We don\u2019t have any customers. Our problem is there aren\u2019t any customers. Our problem is we don\u2019t have any sales and we don\u2019t have any sales because there aren\u2019t enough people working. More and more people are losing their jobs. Unemployment claims ‘unexpectedly\u2019 went up again. Unexpectedly. Past stimulus plans from Obama\u2019s to Quantitative Easing 1 have not helped the economy. They have not created sufficient job or economic growth. They have failed. Excessive printing of money and spending has hurt the value of the US dollar. The value of the dollar is down over 15% since Ben Bernanke began talking about QE2 back in August. <\/p>\n

Now, the past stimulus money, previous, went to commercial banks, investment banks, Wall Street firms who have not lent the money, which we predicted. We predicted when TARP came they\u2019re not going to lend the money, they\u2019re not gonna redistribute, they\u2019re going to shore up their own accounts, they\u2019re gonna shore up their own bottom line, they\u2019re gonna keep it, which they did. They have not lent the money to business and consumers as planned. The money has not been used to spend on new projects or on hiring people or creating growth. I mean interest rates are practically zero. They\u2019re getting money for nothing. I mean it\u2019s almost as though they\u2019re being given money. That\u2019s how low interest rates are for these transactions. And they have used this zero-cost money to buy and trade Treasury securities or other financial instruments and made money on the differential. It doesn\u2019t cost them anything to get money, they invest it, they get a big return on it. Why would they lend it? Why would they put it out there at risk to somebody who may not be able to pay it back when they can invest it and shore up their own bottom lines, which is what\u2019s happened. The money is being printed, it is being invested to banks and firms and Wall Street firms and it\u2019s stopping with them. It\u2019s not circulating. <\/p>\n

It didn\u2019t work in QE1, so damn it, you know, let\u2019s try it again, QE2. What\u2019s the definition of insanity? Doing the same thing over and over and expecting a different result. So the banks and all the people who are getting the newly printed money are using it to make more money, maintain a strong balance sheet during troubled Financial Times, make themselves look solid. Now, in the past, with Obama and the Democrats controlling the presidency and the House and the Senate, things were far too uncertain politically and economically. It\u2019s another reason why all these firms have all this cash. You\u2019ve heard the number, trillions of dollars in cash, firms are sitting on it. Democrats are running around, ‘Why don\u2019t they invest it? These are selfish people.\u2019 No, the objective is not to lose it. And they don\u2019t know, speaking of taxes and freedom and loss of liberty, they don\u2019t know how much of it Obama\u2019s gonna come and claim. They don\u2019t know how much Obama is going to cost them. But they got a good idea, it\u2019s gonna be a lot. <\/p>\n

So they\u2019re holding it in reserve to be able to either pay it or to finagle a way around it. They\u2019re willing to be criticized for this, too. Ask yourself, what\u2019s a big number to you? Let\u2019s say you had a hundred thousand dollars, and everybody was expecting you to take that hundred thousand dollars and spend it on something. But you weren\u2019t sure what the future held and you\u2019ve got your family to be concerned about and yourself, and you think down the road the federal government might have policies that are gonna make that hundred thousand dollars worth 40 or 50. Well, you\u2019re gonna hold onto it, shelter it as best you can trying to keep it away from those guys as long as possible, \u2019cause it\u2019s yours, you\u2019ve earned it, or in some cases the Fed has given it to you, but regardless, you don\u2019t want to give it to Obama. It\u2019s not his. <\/p>\n

In addition to all that, the USA world economy has been coming out of a financial crash, this thing in 2008, 2009. The institutions were very hesitant to lend the money back then so credit became and is still hard to get for a lot of businesses and people. And many of the companies and people whom the money was meant to be lent to were too hesitant to borrow it for the same reason. And these are the people who are saying we don\u2019t need easier access to credit. We need customers. We need sales. So I mean you can lead a horse to water, but you can\u2019t make the horse drink, so there was no average American or corporate beneficiary of any of this. Now with QE2 they want to attempt the same thing as they tried in the past, much of the previous stimulus money still out there. And, despite what you\u2019ve heard, a lot of it — well, I\u2019m sure some of it\u2019s now been spent in this election cycle, but up until this election cycle, campaign cycle, a lot of the stimulus had not been spent; it had been held in reserve. And a lot of people think because of that there\u2019s already enough money out there. There was $250 billion unspent TARP money. Why are they printing more? It\u2019s a mistake. There should be sufficient money to achieve the goal of reflating the economy without printing the money, but they don\u2019t think there is. <\/p>\n

So the number of trillions that corporations are now sitting on in cash is $2 trillion. It is estimated that consumers are sitting on a combined $8 trillion in cash saving money, hedging their bets against the future not knowing but having a very great fear of what the future holds. US corporations have over a trillion dollars sitting in offshore accounts that benefit other countries and not the USA. We talked about this last week about double taxation. If Obama and US Congress would simply change tax rules some of that money being held offshore would be brought home and that would begin circulating in our economy. Now that the Democrats have lost the House, the Obama presidency and the Democrat controlled Senate can no longer do whatever they want. The Republicans have now created a check and balance, and this is going to lead to gridlock, which the markets absolutely love. One of the reasons the market is skyrocketing is because they can anticipate the gridlock that\u2019s coming. They love it, because that\u2019s not uncertainty. The uncertainty that has plagued the country and its companies for two years, uncertainty and fear now for the most part can be eradicated. <\/p>\n

So the notion of gridlock — which Mort Kondracke is very afraid of — the notion of gridlock creates a more confidence business and consumer environment, which results in an expanding economy utilizing the increasing liquidity that has been injected by the Fed. So it has some potential, because of this money firms that have been holding the cash, been too hesitant to spend it or lend it, can see some credit ease, maybe, and we don\u2019t need the QE2 to do this. We don\u2019t need to start printing money. This is simply unnecessary, totally unnecessary. Money firms that have been holding the cash have been too hesitant to spend it or lend it, feeling we can see credit ease up, borrowers wanting to borrow, companies and small business, individuals feel better and safer, more confident to spend the cash, we\u2019ll see if it happens. It\u2019s still largely gonna depend on what President Obama\u2019s policies are, what happens. Robert Fibbs floated the idea this afternoon they\u2019re now open, they say, to extending the Bush tax cuts to everybody. We\u2019ll see. So that\u2019s what QE2 is. It\u2019s an attempt to stimulate the economy in identical ways that have failed up \u2019til now. <\/p>\n

The problem is if this doesn\u2019t work. If it doesn\u2019t work, and if these banks just sit on the cash, again, if the institutions just sit on the cash, hello inflation. And a lot of people are saying that\u2019s good because that will show growth. One of the fastest ways to retire debt is to inflate the currency because you\u2019re automatically gonna retire some of it just by virtue of the inflation. So if the economy doesn\u2019t take off, the Fed\u2019s not gotta be able to sell these bonds that it bought. Remember, the Fed\u2019s buying all these Treasury bonds. The dollar will be devalued and we\u2019ll have inflation, maybe even hyperinflation if this doesn\u2019t work. That\u2019s why people are really leery of it, that\u2019s why it\u2019s so damned risky and a lot of people are scratching their heads, ‘Why are we doing this, it isn\u2019t necessary.\u2019<\/p>\n

BREAK TRANSCRIPT<\/p>\n

RUSH: Now, to put this in perspective, during QE1 (Quantitative Easing 1, that was December 2008 through March of this year) the Fed bought $1.7 trillion of Treasury notes and mortgage-backed securities. So if $1.7 trillion didn\u2019t do the trick, why will another $600 to $800 billion help? Even the New York Times is afraid of this. I don\u2019t like quoting them, but they\u2019re not even on board with this. <\/p>\n","protected":false},"excerpt":{"rendered":"

Quantitative Easing. What the Fed announced yesterday at 2:15, didn\u2019t get a whole lot of attention. The stock market is going through the roof because of it. What is it? Quantitative Easing is where a country\u2019s central bank, i.e., the Federal Reserve, tries to boost the economy by increasing lending by increasing the money supply. 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