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Related: About this forumCollateral Damage: QE3 and the Shadow Banking System
Collateral Damage: QE3 and the Shadow Banking System
Wednesday, 24 July 2013 00:00
By Ellen Brown, Web of Debt | News Analysis
Rather than expanding the money supply, quantitative easing (QE) has actually caused it to shrink by sucking up the collateral needed by the shadow banking system to create credit. The failure of QE has prompted the Bank for International Settlements to urge the Fed to shirk its mandate to pursue full employment, but the sort of QE that could fulfill that mandate has not yet been tried.
Ben Bernankes May 29th speech signaling the beginning of the end of QE3 provoked a taper tantrum that wiped about $3 trillion from global equity markets this from the mere suggestion that the Fed would moderate its pace of asset purchases, and that if the economy continues to improve, it might stop QE3 altogether by mid-2014. The Fed is currently buying $85 billion in US Treasuries and mortgage-backed securities per month.
The Fed Chairman then went into damage control mode, assuring investors that the central bank would continue to implement highly accommodative monetary policy (meaning interest rates would not change) and that tapering was contingent on conditions that look unlikely this year. The only thing now likely to be tapered in 2013 is the Feds growth forecast.
It is a neoliberal maxim that the market is always right, but as former World Bank chief economist Joseph Stiglitz demonstrated, the maxim only holds when the market has perfect information. The market may be misinformed about QE, what it achieves, and what harm it can do. Getting more purchasing power into the economy could work; but QE as currently practiced may be having the opposite effect. ..........................(more)
The complete piece is at: http://truth-out.org/news/item/17755-collateral-damage-qe3-and-the-shadow-banking-system
Lefty Thinker
(96 posts)But it is, after all, just a swap of non-interest-bearing government obligations for interest-bearing government obligations. In essence, it "undoes" the borrowing back of the money disbursed by the Treasury, except that the debt-instruments still exist and are still tallied against the debt ceiling.
Since the borrowing back of disbursed funds is primarily of benefit to the banks (creating a floor for returns on excess reserves), I'm surprised more banks haven't been squealing about QE. I'm guessing they either don't really get how the system works or they're frightened of spilling the beans publicly.
bemildred
(90,061 posts)You could call it a fig leaf for the fact that they are creating fiat money. They don't want us to know they are making fiat money, because they don't like fiat money. They like debt money, and they like the illusion that money is a scarce commodity so they can scare people and charge interest, and most of all, with fiat money, the government need not borrow at all.