It has been eight months since I last set foot in the socio-economic world. So much of what we explored (see asheredelman.com)
came to fruition the writing was becoming repetitive. Today there is
much chatter about the role of the Fed, its Q program, and Fannie Mae
and Freddie Mac, guarantees of mortgage paper; an opportunity for the
Tea Party to meet and agree with the Liberal thinking folks; a topic on
which both worlds can meet without collision. Why?
Q program and government monetary policy generally has accomplished
little more than the transfer of taxpayer money to the banks, create an
extra $4 trillion of government and quasi government debt and distort
the economic future of the United States. It has not had a material
effect on a recovery in the economy. In the Q purchase program of
government and quasi government debt the Fed, while maintaining
unsustainably low interest rates, has transferred directly more than $75
billion from taxpayer coffers to banking interests. Zero interest
lending to these same banking interests accounts for multiples of the
$75 billion. The explicit and implicit guarantees of mortgage, student
loan and other debt account for multiples again of banking profits even
larger than the combined Q program and 0% lending. The folly of
misguided monetary policy designed to save our financial system has
masked a reality, that all of the large banks remain underwater or close
if their assets were marked to market. Q and present monetary policy
has done little more than increase outstanding government debt, mask the
reality of the sickness of the banking system and enable speculation at
levels beyond those we experienced at the time of the great
transgression, 2007-2008. No, this monetary folly has not solved the
is accepted common knowledge that low interest rates and the Q program
have stimulated and are stimulating the economy in general. However,
that "accepted common knowledge" is misguided. The stock markets have
certainly responded well but, up or down, stock markets have little to
do with stimulating the overall economy. A small percentage of the
population actually benefits in a way that profits from the stock market
are spent on goods and services creating velocity, the continued
circulation of money entering the economy actually spent on goods and
services. From 2008 to 2013 the velocity of M2 money stock has declined
by about 20% and rests on its low point. At no time since 1959, the time
at which velocity of M2 was first measured, has the index fallen so low
as now, 2013. Clearly the stock market gains fueled by monetary policy
have not acted as a stimulant to economic growth. Simply put, the
wealthier segment of our society does not spend its stock market
is accepted common knowledge that higher housing prices are good for
the economy and that the low rates and various guarantees of mortgage
debt aid the economy. Hogwash! Homeowners do not, and cannot spend the
increases in the value of their homes - read no velocity in the
appreciation of residential real estate. The magic ascension of the
prices of homes has enabled lenders to bail out of some, not much, of
the residential real estate problem they confront. Of course at the same
time the still unregulated "too big to fail" banks have been given a
license to speculate in mortgage and interest rate derivatives. The
total derivatives portfolio held by banks is now at a level above that
of the 2007 high. We are told that these are modest risk portfolios
designed to hedge out risk not to speculate. Witness the London Whale.
Though responsible lending on the part of the banks would increase
velocity, speculation in derivatives will not.
all of these and many other reasons the right wing of the political
spectrum should eschew this massive giveaway of taxpayer money with the
accompanying bloated U.S. balance sheet forced upon us by Q and other
has the Q program and other monetary policy done for the middle, lower
income and no income classes? If it hasn't exacerbated the pain it
certainly hasn't produced relief.
"Real" unemployment has remained at its highest level since the Depression with few inroads made on any front.
family income is at about the same level as in 1988. That would not
seem spectacular except the "average" includes the enormous gains of
income in the top ten percent of the population masking the significant
losses to middle class families. In New York City alone more than 40% of
its populace lives at below the official poverty level. Similar figures
pervade the landscape of the United States.
education system, raped by bureaucracy, congress and a majority of
America's state and city legislatures was once among the best in the
degraded throughout the country is sinking us into third world status
as to municipal and other services available to the population.
Children of the poor go malnourished and uneducated.
Homelessness is at its highest point since the Great Depression with more than 50,000 people homeless in New York City alone.
the collapse of the middle and lower classes attributable to a
disinterest in working, a poor work ethic, or laziness? I don't think
so. Those who do remind me of the crazed junior senator from Wisconsin,
Joseph McCarthy, who saw a communist behind every tree. Are the
"entitlements" really "entitlements" or do they provide a necessary
safety net which aids the whole of the population.
Liberal left should support a change in monetary policy because the
enormous transfer of capital from government to the banks has lead the
Right to believe the nation is going bankrupt and to shout at each and
every expenditure other than the giveaways engendered by Q and other
misguided monetary policy. Simply put the left should support the end of
monetary folly in order to get some of these wasted funds to work in
the economy in a way that will engender growth, income, velocity of
money, enable legitimate lending, and fund programs which will recreate
the great and giving society that once was America.
trillion of government debt created by and now owned by government,
close to a trillion of gifts to the banking system all could have gone a
long way towards engendering a growing economy. Let's end the monetary
folly and put this money to work productively, a no brainer basis for
For archival information visit www.asheredelman.com or write to firstname.lastname@example.org.