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Obamacare and That Q-Easy Feeling

Quantitative easing may never end, especially if worker-demoralizing Obamacare stays.

by
Tom Blumer

Bio

September 20, 2013 - 9:36 am
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On Thursday, the Federal Reserve made a mockery of President Obama’s recent campaign to convince the American people of “how far we’ve come from where we were five years ago.”

In “unexpectedly” announcing that it would continue propping up the economy with $85 billion of monthly “quantitative easing,”  i.e., electronically “printing” money out of thin air to buy Treasury and mortgage-backed securities, Fed Chairman Ben Bernanke essentially said, “This economy still stinks.”

The mystery is why the Fed’s decision to leave “QE” where it is was at all unexpected, for a number of obvious reasons, plus another which should be.

In July, in a rare moment of unfettered candor deliberately ignored by all but a very few in the establishment press, when asked at his congressional testimony what would happen if the Fed tightened its monetary policy — which in the current context really means, “What would happen if you reduced QE by as little as $10 billion per month?” — Bernanke responded bluntly: “The economy would tank.”

That’s obviously still the case.

Nothing we’ve seen in the past two months would lead any reasonable observer to believe that the economy is meaningfully improving, or that it wouldn’t slip into another recession without its full monthly shot of monetary crack cocaine.

Employment growth this year has been and continues to be dominated by part-timers and temps. Labor force participation is at a 35-year low. In June, wildly disproportionate food stamp enrollment was over 47 million for the eleventh month in a row, seemingly and intractably stuck at a level 36 percent above where it was at the recession’s official end in June 2009.

Seasonally adjusted new home sales in July were over 20 percent below the figure originally reported in June, which itself was revised down by 8 percent. This is the sector whose alleged strong but in reality barely existing turnaround was going to bring back the economy. Despite all the hype, the fact remains that the seasonally adjusted number of single-family homes under construction in August was barely higher than it was at the recession’s end.

Beyond that, 2012 Census Bureau data released on September 17 revealed that real median household income fell for the fifth straight year to a mind-boggling 8.3 percent below where it was in 2007. African-Americans (down 11.3 percent since 2007) and Hispanics (down 8.9 percent) have taken even harder hits. The overall poverty rate, as imperfect a measurement as it is, remained at 15.0 percent, up 2-1/2 points, or 20 percent, from 2007.

Barack Obama, allegedly a fan of redistributing wealth from the rich to the poor and a champion of the middle class, has presided over an economy where during the past two years only the top 5 percent of households have seen median income gains.

In a huge irony, given Obama’s alleged “progressive” nature, stock market investors are about the only ones who are pleased with Bernanke’s move. Interest rates will remain artificially low for a while, but I wouldn’t get too comfortable. One astute contrarian claimed on Wednesday that “the Feds have already lost control of the bond market,” and in essence that it’s only a matter of time before “it lose(s) control of the stock market.”

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Top Rated Comments   
QE makes a Nigerian pyramid scheme look respectable. But that's what passes for "fiscal policy" in 21st century America. $85 billion a MONTH in fresh, new Monopoly money. What could go wrong?
30 weeks ago
30 weeks ago Link To Comment
All Comments   (14)
All Comments   (14)
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Why doesn't Bernanke just print the money for Obamacare?

Eliminate all the taxes and 95% of the opposition would vanish.

You're welcome.
30 weeks ago
30 weeks ago Link To Comment
Yancey, someday you'll thank Obama for giving you piles of worthless $100 bills to cook any squirrels you catch.
30 weeks ago
30 weeks ago Link To Comment
Ah, but for the brilliance of the Obama economic plan, we would all be eating squirrels and and living in caves as the banks foreclosed on us.
30 weeks ago
30 weeks ago Link To Comment
If, instead of putting the money into the hands of bankers and other money people, the Fed would put the $85 billion per month into the hands of the American people - about $265 per month - on a per capita basis, the results to the economy would be dramatic. A family of 4 would receive about $1,060 in disposable income. The poor would spend it, resulting in a boon to business. The middle class - those left - would either spend it or use it to pay down debt. If the Fed HAS to create money out of thin air, better to share the wealth than make the wealthy wealthier.
30 weeks ago
30 weeks ago Link To Comment
Here is a graph of the velocity of money. What it shows is that the velocity of money has been going straight down since 2007. (and before that as well.)
Basically this is a measure of how much lending is going on.
http://research.stlouisfed.org/fred2/series/M2V
What this means is that lending is steadily shrinking.

The QE's are meant to try to pump more money in the system.
On the other hand 90% of the QE's never make it into the system. What does mostly goes into the stock market--which capital gains the government taxes readily...That has lead to 100 billion gain in tax receipts and most of the income gains by the top 10% of the population.

However, if the supreme court declares obamacare unconstitutional, then everything changes. Why? because obamacare has been the single greatest impediment to business. velocity of money will rise and the fed will be forced off the QE's.

30 weeks ago
30 weeks ago Link To Comment
@Harmless handle: "... of course QE will end; the Fed's bubble will burst..."

Yes, but it won't burst soon enough to effect the 2014 elections. When it does burst, the Democrats, as usual (and with the help of mass media), will find ways to put all the blame on Republicans. Even worse, many of those blame claims will be correct. When the government's financial holes were deepening, the Republicans were digging almost as fast as the Democrats.
30 weeks ago
30 weeks ago Link To Comment
The date of the Great Bursting is unknown and unpredictable. Probably somewhere between next month and 2016, but it could be Monday. The catalyst could be anything.
Rather more worrying is the level of self-pity and self-doubt among those who claim to oppose Obama. Whining is not good.
30 weeks ago
30 weeks ago Link To Comment
Don't be silly, of course QE will end; the Fed's bubble will burst, as always. The internal pressures build until explosion is inevitable. One explanation here : http://tinyurl.com/mtk4355
There are lots of other reasons, too.

The good people of the land get the shaft and the media get to walk, as always.
Had enough yet?
30 weeks ago
30 weeks ago Link To Comment
Once you get on the tiger's back, how do you get off again without being eaten?
30 weeks ago
30 weeks ago Link To Comment
To say the economy is fixed as it manages to muddle along with a trillion a year in basically counterfeit money would be like saying a patient's anemia is fixed because he manages to walk around the block without passing out when he has to get a blood transfusion every few days to be able to manage that.
30 weeks ago
30 weeks ago Link To Comment
What does Barry care if he is entirely wrong about everything and does immense damage? First of all he'll deny it, and second, he's got his.
30 weeks ago
30 weeks ago Link To Comment
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