Ask an expert: The downside of the Fed stimulus
MSN Money's Anthony Mirhaydari discusses the risks of the Fed's commitment to keep pumping money into the economy.
Last week, Fed Chairman Ben Bernanke calmed those jitters when he said the Fed isn't planning its exit yet. While the market sighed collectively in relief, the question of whether there's a downside to cheap money remains.
In the video below, MSN Money's Anthony Mirhaydari discusses the risks and rewards of the Fed's commitment to keep pumping money into the economy.
The Federal Reserve began it's expansionary monetary policy in late 2007 in an attempt to breathe life into the economy as the Great Recession took hold. The Fed lowered its federal fund rate from 5.25% to near zero by December 2008.
With no more conventional tools at its disposal to stimulate the U.S. economy, the Fed then turned to a less conventional one, "quantitative easing," which refers to the buying of financial assets from financial institutions, thus injecting a predetermined quantity of money into the economy.
In December 2008, the Fed announced the first round of quantitative easing. After QE1 came QE2, Operation Twist, QE3, and QE4. But are these efforts really stimulating the economy as they intend to, or do they have a downside risk?
Mirhaydari explains that such programs and stimulus measures favor the rich, while the fundamental economic issues, such as stagnant wages, remain unresolved. Further, these stimulus programs cannot really resolve the structural problems and rather may push the economy in the opposite way than the Fed intended.
The discussion about the Federal Reserve's stimulus efforts and their downside risks continues over at MSN Money's Facebook community.
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Fundamental issues - artificially low interest rates is helping to mask real cost to finance the ever rising Federal Deficit and real inflation. This too shall pass once this bull crap monetary policy runs out of money to print. We may then see interest rates like we did in the early 80's.
For those who were not around then a 30 year adjustable rate mortgage loan with 2% annual caps and 5% lifetime caps had a start rate of 17.50%. I know as I was a banker for 36 years and yes people did borrow at these rates, but businesses can't pay these kind of rates and survive as margins are not high enough to absorb these type costs and still make money.
Certificates of deposit paid 16% to 18%. I hope rates never get this high again, but the current rates are fake and fraudulent on the part of our government. In 1973 when I graduated from college and started working in banking a passbook savings account paid 5.25% and a 30 year fixed rate mortgage was 7.50%. By year end mortgage rates were 9.00%.
Our current GDP is roughly $16 trillion. 2% growth (we're nowhere near that) comes out to roughly $320 billion in growth per year. If Bernanke is pumping $85 billion every month into an economy that's expanding by just $27 billion per month, what the hell do you think will happen when he stops?
For the most part, Bernanke has backed himself into a corner by repeatedly insisting that more QE is needed until the UE rate drops to 6.5%. He's repeated this so often, he pretty much has to stick with it, without looking like a complete fool, even though the evidence of that so far is pretty clear. The problem is that the UE rate will not drop this low this year, and possibly not next year. So we're talking about another TRILLION dollars worth of QE.
The dirty little secret is that the evidence is showing that QE has had no effect on the UE rate whatsoever. It certainly isn't helping to create jobs - we have less people working now than we did 4 years ago. The only reason the official UE rate has dropped is because we've taken millions of people off the UE payroll and put them on the disability or SS payroll.
" may push the economy in the opposite way than the Fed intended."
Maybe the Fed intended to push the economy in the crapper..... who knows. Bernie is doing a good job of it.
Buying bad assets from the banks is called pumping money into the economy?
Can anybody give an example on which the stimulus actually was used directly in the economy?
Meaning manufacturing, construction (not destruction like giving money to the banks for bad loans (!?) and then while the house was paid, foreclose and demolish it), agriculture, education, etc..., where something is produced not consumed.
Basically the pumping of money into the financial system is a total waste of time right now.
The money is being stolen by the Wall Street bankers before it ever gets to the hundreds of millions of Americans that need the money the most.
The government would have been much better off merely building factories that produced nothing and hire factory construction and factory workers at $125,000 a year and let them reinflate the economy.
Instead we now have farm land which should sell for $100 an acre going for $30,000 to $150,000 an acre doing no one any good.
Even at $100 an acre a farmer would be hard pressed to make a living on the land today. We are going to be in a terrible hurt when the US dollar collapsed sometime between now and 2015 as the Chinese yaun is fast becoming the preferred trading currency. Because more than 40 percent of our food is imported. Once the dollar implodes the imported food will cost about 500 times normal prices very fast.
The government is trying it's hardest to collapse the US economy because they are all Russian and Chinese deep cover spies. There is no other reason why the US economy is in such horrible condition and why no one is putting Americans to work for the wages that they need to make.
The collapse of the US economy is being done on purpose and Bernanke is pumping money into the Economy to keep people from realizing just how weak and fragile the economy really is.
When retired governement workers are making tens times what working class people are making as is the case now. And the government retired workers number 20 percent of the work force now we are in terrible trouble.
There is no bright spot in the economy anywhere folks. And a lot of people living off fewer and fewer workers making less and less.
It's not so much the S.S. retired people that are bankrupting the country it's the government retired workers making $120,000 a year in pensions and the hiring of only minimum wage people worked for only 29 hours a week that is causing most of the damage to the economy right now.
And it is only going to get worse folks.
It is the presidents willful intent to have these budget projection reductions, they are not cuts, harm as many as possible to provide fodder for the blame game as the economy fails. I see J Kerry over in Egypt passing out billions to the Muslim Brotherhood, a terrorist group, while they burn american flags and push for the destruction of Israel and death to all the infidels.
Slackers, takers, fraudsters, all had better pay attention as their source of funds is declining and much of it being given to despots, phony energy companies,and vote getting scams of all sorts. Maybe if Obama does furlough enough govt workers, it will be apparent many arent needed. 800,000 civilian pentagon workers. scary that ANY government agency could be that big. Cut, and cut deeply there, DOE, EPA, DOA, DOJ, etc etc..
THE CYCLE OF INEVITABILITY
Birth: A civilization is born out of a void. People work hard and gain from their efforts.
Growth: More people come and work hard. Prosperity comes because everyone works hard and makes gains.
Maturity: Pariah come; make laws so there are lawyers, taxes so there are bookkeepers, money so there are bankers and financiers, bureaucracy so there are politicians, paper so there are administrators.
Decline: People get tired of working so lawyers, bookkeepers, bankers, financiers, politicians and administrators can usurp all power and use corruption to suppress the masses into servitude. Civilization crumbles.
Death: The people rise up and destroy all pariahs.
Re-Birth: A new civilization is born out of the void. A “No Pariah” sign is posted. People work hard and enjoy life.
Here's the question I want our Government to answer...
What Mortgages are being bought for the $85 BILLION dollars the FED is printing monthly?
If they're the Toxic Subprime that's been HID on the Bank books....isn't that Bailing out the Banks a second time?
It's Time To End The Federal Reserve!
I thought with the Homeland Security purchase of
2700 LIGHT ARMORED TANKS
1.6 BILLION BULLETS,
one would think we are already pumping enough money into the economy. Makes you wonder why Obama would need all that, especially if we already have the military. He seems to be creating his owner personal military force, kinda like a dictator..
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