On The Money
Economics for the 99%
How “Quantitative Easing” Makes Life More Difficult
Over the last few years, the Federal Reserve has pumped trillions of dollars into the economy in an effort to spur growth, through a program they call “Quantitative Easing”. Many feared that this would lead to spiraling inflation, but outside of food and energy, prices have not risen much in the last few years. How was the Fed able to pump so much liquidity into the economy without triggering Zimbabwe-like hyper-inflation, or even Carter era-like double-digit inflation?
Usually, when a country pumps a lot of liquidity into the economy, they put that money into the hands of the people, through government jobs programs, relief aid, etc. Poor and working people spend that money almost immediately. When you suddenly have more money trying to buy the same amount of available stuff, prices rise, fueling inflation, but that’s not what happened here.
While the Federal government did spend some tax dollars on stimulus projects, while extending unemployment benefits and expanding Food Stamps, that only amounted to a drop in the bucket compared to the liquidity the Fed has injected through quantitative easing. Instead of hiring tens of thousands of people for public works projects, tens of thousands of State and Federal workers lost their good paying government jobs in this recession. Benefits for the elderly and disabled shrank rather than grew, and schools felt the pinch as well.
Money earmarked for the housing crisis mostly went to the banks who made the bad loans, not the poor people who lost their homes. While the Fed continued to print money like Safeway circulars, the vast majority of us haven’t seen any of it. Since we still don’t have any money, we can’t go out and buy stuff. Since we can’t buy stuff, stuff sits on shelves. When stuff sits on shelves, retailers can’t raise prices, and inflation remains low, but where did all the money go?
According to Harper’s Index, about 90% of all new income generated since the recession started, went to the wealthiest 10% of the population. Among them, the top one-tenth of 1% took the lion’s share. The Fed carefully funneled all of this new liquidity into the pockets of the super-rich. That money went to bank reserves, bank executives, bank shareholders, financial executives and the like. Those people already have lots of money and extravagant lifestyles, so the rest of the economy hardly noticed the trillions of dollars the Fed handed them, because mostly, it got squirreled away in oversea tax havens.
Now, however, we begin to see that money coming back into the market, to buy up foreclosed and distressed homes. Home prices, you’ll doubtless recall, surged to astronomical heights riding a nationwide housing bubble, fueled by lender’s eagerness to loan extraordinary amounts of money against extremely ordinary homes. Somehow, this hyper-inflation in the housing market seemed like a good thing at the time.
Eventually, however, ordinary people failed to earn the extraordinary amounts of income that the lenders assured them they would, leading to the complete collapse of the housing market, bank failures, and a massive taxpayer bailout…of the banks, while millions of families lost their homes through foreclosure.
For the last few years, a huge glut of overpriced homes, that rich people wouldn’t be caught dead in, but working people cannot afford, has depressed the real-estate market. The invisible hand of the free market should cause the hyper-inflated prices of these ugly suburban homes to drop until ugly suburban families can afford to buy them, but thanks to the Fed, and their “quantitative easing”, the rich now have enough money to buy all of these homes, even though they still sell for twice their pre-bubble price. The rich can then rent these ugly suburban homes to ugly suburban families by the month or year, making them a sound investment once again
Do you see how that worked? First the banks created hyper-inflation in the housing market. When that went bust, the banks held a gun to the government’s head and demanded a taxpayer bailout, and we all lost our homes and our jobs, which sent the economy into a tailspin. Then the Fed printed a lot of cash and gave it to the rich, so that they could afford to buy up all of our homes and rent them back to us. That way, instead of creating new hyper-inflation with all of that new liquidity, the Fed just preserved the leftover hyper-inflation from the housing bubble, thus relieving us, as working people, from the burden of home ownership, and the accumulation of all of that pesky equity. Wasn’t that clever?
Lo and behold, now it looks like the economy is recovering. Isn’t that great? Most of us are still worse off than we were 10 years ago, but for the 1%, The Great Recession represents a major victory in their efforts to enslave the American people. Why do you think they call it “The Great Recession”, while the rest of us call it “The New Normal”? You can bet that as soon as you get used to “The New Normal”, the economy will tank again, and they’ll expect you to make even more sacrifices to prop it up. There’s a look at “Quantitative Easing” that’s On The Money.