Quantitative Easing Made Easy

In the last six years the Fed created $3.6 trillion (yes, trillion) dollars of new money. (The chart above only shows the first two years. The mortgaged-backed securities is the focus of QE.) Where did Fannie Mae and Freddie Mac get the money to buy those securities? The Federal Reserve “created” it out of thin air. (“The US Federal Reserve expanded its balance sheet dramatically by adding new assets and new liabilities without “sterilizing” these by corresponding subtractions.” Normally, double-entry bookkeeping requires matching credits and debits.)

Note: The Fed created $3.6 trillion dollars on top of the existing $.8 trillion money supply. And today (the chart only goes to 2010) the money supply is still slightly less than $3 trillion. Meaning? Over a trillion dollars has already disappeared–presumably treated as bad debt when the securities weren’t redeemed. (The Great Experts will have a dozen reasons why it isn’t so, but you know what Benjamin Disraeli said about statisticians.)

Did it help the economy? Not so you could tell. Yes, people say, “Without it, things would have been worse.” Did it? We’ll never know. We do know the money supply tripled. Where did it go?

Wall Street bankers and investors received an obscene amount of almost-free money. Why do you think the markets break records while the economy stumbles along? Why do you think art auctions break records? How do you think the “one percenters” have gotten obscenely richer?

Main Street got zip.

You got zip.

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2 thoughts on “Quantitative Easing Made Easy

  1. This is puzzling to me. Guess I’m glad I have my own money tree in the back yard. When I run low, I just go out and shake that tree. The sun shines and wow, a few days later, there’s more. Must be the fertilizer.

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