The Dow fell more than 200 points on Friday. Treasury bond yields are still minuscule… but rising. Pundits are guessing that the secular bull market in bonds may finally have turned.
What’s most amazing is that long-term Treasury bond prices are falling (as yields rise) even as the Fed spends $85 billion per month to prop them up.
What’s wrong with QE? It doesn’t seem to be working.
Worse than that… it’s lethal! No kidding. QE KILLS. But where were the health warnings?
On Thursday, we reported on a remarkable opinion published by TheWall Street Journal. The subject: “How austerity kills.” The idea is that austerity causes people to lose their jobs and their social welfare benefits. They get depressed, goes the argument. Then they commit suicide.
The article musters some statistics and lays out a few corpses to prove its point. But if European austerity policymakers are guilty of manslaughter, so are the American stimulus mongers.
If the US economy had followed the same path of recovery following the Great Recession of 2007-09 that it followed after recessions in the 1980s and 1990s, there would be 3 million more people with jobs in the US.
Surely, some of the people who blew their brains out in the last four years were the same people who had one of those jobs that didn’t exist. And we know where to put the blame: at Ben Bernanke’s doorstep.
As we come to understand how QE works… and see what it actually does… we also come to realize that it is a bum policy from almost any angle that you look at it.
The qualifier “almost” is important. Because if you are a stockholder, a banker or a zombie… you will probably have found QE I, II and III wonderfully agreeable.
Suppressing yields in the bond market has done wonders for stock prices… and, apparently, to housing prices too. But these stimulus policies have retarded a real recovery.
As we pointed out on Friday, in the US, the private sector still makes up three-quarters of the economy. If the private sector isn’t hiring, it is almost impossible for the feds to pick up the slack.
With all this cheap credit around, you might think businesses would be hiring. But no. Part of the reason is that they have limited access to credit. True, the rates are low. But the money goes to the government. Small and medium businesses – the ones that hire people – don’t get it. From David Malpass in TheWall Street Journal:
Private sector credit grew only 0.8% from the end of 2008 through the end of 2012, whereas credit to the government grew 58%.
Malpass also explains why consumer prices have not gone up, even as the Fed adds $85 billion per month to the nation’s monetary base. Instead of adding to the banks’ lendable reserves, QE adds only to their “excess reserves,” which are not lent out by the banking system and not amplified by the fractional reserve system.
The effect of the Fed policy is merely to keep borrowing costs low for the government and major financial institutions. The big boys get the money. The middle class, the job creators, the wage earners… and the entrepreneurs… do not.
Result? No recovery.
Where Are the Ambulance Chasers?
Of course, speculators and short-term traders make money from rising stock prices; the S&P 500 is up about 130% since 2009. Real median income, though, is still down 5% in the fourth year of what should be a “recovery.”
If an economic calamity causes people to pull the plug on their own lives, this one should save a lot of electricity. So it seems to. More people died from suicide last year than from automobile injuries.
Where are the tort lawyers? Where is Johnny Cochran? (Dead.) Where is Oriole owner Peter Angelos? Where are the class action shysters when you need them? You’d think these guys would be all over this.
They squeezed billions out of tobacco and drug companies. In the case of tobacco, the potential for harm to the user was well known and could have easily been avoided. (Stop smoking!)
But what about the Fed’s QE and ZIRP? Which one of these poor, unfortunate suicides traced his misery to Fed policies? Where was the consumer warning?
QE and ZIRP may cause severe job loss and depression. Consult your lawyer and bartender before believing anything Fed officials, economists or other jackasses may say about them.
Let us spell out the cause of action for those lazy attorneys:
The Fed deliberately manipulated interest rates… and intentionally diverted billions of dollars from the real economy to the government, the rich, Wall Street, the banking sector and speculators.
The Fed undertook these policies and is thus responsible for the consequences of them. Chartered by the US government, the Fed has a responsibility to maintain full employment. And it has a responsibility to inform itself of the likely consequences of its actions.
Fed governors knew or should have known that this would slow real savings rates and lower real employment. They also knew or should have known that this would result in mental depression, one of the probable outcomes of which could be suicide.
C’mon, you ambulance chasers. Get on the case!