QE3: Is it Really Going to Help You or Me?
So it’s finally here. They have been speculating about it, but now Bernanke has finally gone and done it. We have quantitative easing round three. There are many questions for ordinary Americans about this new development. The most important ones of all are what is quantitative easing and how will it affect ordinary Americans? These are some of the questions answered below.
What is Quantitative Easting?
Quantitative Easing is a economic term for when a central bank, in America’s case the Federal Reserve, prints new money. Since the use of electronic and paper money this has been a lot easier for governments to do. In previous times, since the Roman era when such policies were first performed, the government either had to buy more metal to make money with or devalue the currency by making more coins from the same amount of metal. Now the Federal Reserve can tap a few buttons and increase its bank balance. If only normal Americans could do this with their bank accounts.
In America, the first round of quantitative easing, now called QE1, took place under President Bush in 2007. This was as a direct result of the financial crisis in the banking and mortgage industry at that time. QE takes the form of expanding the assets of the Federal Reserve and is distinct from government policy per se. Usually it is used to buy bonds from banks and mortgage companies. Theoretically the use of QE and bond buying reduces the interest banks pay to each other for lending money. This in turn should lead to small and medium businesses having greater access to bank loans at favorable rates.
Does America Need QE3?
QE3 has happened, but many are still asking if it was needed. Harlan Green believes it was required to fulfill the Federal Reserve’s desire for low long term interest rates. The economy is suffering because private companies are not increasing employment at a sufficient rate to take the burden of costs off the federal government. There is a lot of money in America and a lot of profit, but it is increasingly being held up top. QE is intended as a trickle down mechanism.
Where Does The Money Go?
QE3 will take the form of $40 billion a month being pumped into the economy. That works out at $480 billion a year. This is the equivalent of $1,600 per American per year. The money will not be given to average Americans or even poor ones directly. It also will not be used to pay off government debt or to increase government spending on social or medical projects. Instead the money has been earmarked for buying up bad mortgages.
Who Will Benefit Most?
Shareholders and stock market speculators of many companies listed in America found themselves as instant beneficiaries of the policy. Stock prices, especially in riskier sectors, rose quickly on the back of news from Ben Bernanke concerning QE3. The Dow Jones Index rose by 206 points alone. The NASDAQ and the Standard & Poor’s Index also rose. Theoretically, as noted above, the money will first go to the banks and then trickle down to smaller banks and finally to businesses requiring loans. As seen with QE1 and QE2, a lot of the money will be kept by the banks and used to pay high wages and bonuses to stock market speculators – the very people who created the crisis in the first place.
Will It Help Ordinary Americans?
Probably not, but it would be nice. As an increasing number of people are pointing out, increased productivity in the stock market has virtually no effect on the ordinary lives of normal people around the world. Bernanke believes the move will help alleviate the unemployment rate in America. A combination of job loss, medical bills or the ending of such coverage and amoral mortgage systems have taken a lot of good Americans to the wall leading to homelessness, poverty and government handouts.
The opposing view from both Liberals on the right and the Occupy Movement on the left, is that it will not work. Liberals see a waste of money and a conspiracy to re-elect Obama, but Occupy and many others see it as a means of helping people at the top, corporations at the top and not those who really need the help. As Mitch Feierstein points out, stock markets have no positive effect on Main Street and QE3 is a meaningless policy designed to help friends and former colleagues of the Federal Reserve’s top brass. One thing is certain though, QE3 will push up the costs of meat, gas, oil, corn, bread and so on and so on to pay for this largesse.
“Eve Pearce” email@example.com