Former Fed Employee Admits QE for Wall Street (tier, free-market, millionaires)

[DSOs]

Originally Posted by Jason28

We are in a recession/depression. The federal reserve and government have been nonstop intervening in the economy for 5+ years now. It's Keynesian economic school of thought. They're not fixing anything, they're making it worse.

There are many other names for the 'new normal' Keynesian policy.

The FED/USGovt has been intervening/fighting deflation since ~1998. 1 example: Clinton/States' took people off welfare, & promoted them to disability insurance--this strategy distorts employment numbers till this day. Another example: Bush's standardized/myriad of tax cuts engineered to irrationally exuberate faux-DEMAND for the deflationary economy.

[jertheber]

To act as though the American "economy" is something that exists in a theoretical vacuum would be ignoring the glaring truth of power. Power rules, not economies, power abuses, not economies, and power is the force behind the facade of democracy and a transparent financial system. In most discussions of our current financial debacle we hear the lament of unfairness in the government, unfairness in business, and unfairness in the distribution of wealth, but we seldom acknowledge the fact that all that unfairness is really wrapped up in one basic observation made by a man who really understood power, James Garfield said;

“Whomsoever controls the volume of money in any country is absolute master of all industry and commerce and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”

That's to say that power controls, it controls the laws, it controls the banks, it controls the policies of government, and thus the government itself. This is the real problem. We'll never see a day in America that power isn't running things, and that fact should be the centerpiece of most economic discussions. I've heard so many times on CD that this dire situation we find ourselves in is simply a lack of understanding of how our "economy" works, but the truth is that we have really failed to understand power.

[tallrick]

Originally Posted by jertheber

To act as though the American "economy" is something that exists in a theoretical vacuum would be ignoring the glaring truth of power. Power rules, not economies, power abuses, not economies, and power is the force behind the facade of democracy and a transparent financial system. In most discussions of our current financial debacle we hear the lament of unfairness in the government, unfairness in business, and unfairness in the distribution of wealth, but we seldom acknowledge the fact that all that unfairness is really wrapped up in one basic observation made by a man who really understood power, James Garfield said;

“Whomsoever controls the volume of money in any country is absolute master of all industry and commerce and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”

That's to say that power controls, it controls the laws, it controls the banks, it controls the policies of government, and thus the government itself. This is the real problem. We'll never see a day in America that power isn't running things, and that fact should be the centerpiece of most economic discussions. I've heard so many times on CD that this dire situation we find ourselves in is simply a lack of understanding of how our "economy" works, but the truth is that we have really failed to understand power.

So true. The trick is to identify the real power and find a way to collapse it.

[EugeneOnegin]

Originally Posted by Jason28

From Wikipedia:

Keynesian economists often argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, in order to stabilize output over the business cycle.[2] Keynesian economics advocates a mixed economy – predominantly private sector, but with a role for government intervention during recessions.

We are in a recession/depression. The federal reserve and government have been nonstop intervening in the economy for 5+ years now. It's Keynesian economic school of thought. They're not fixing anything, they're making it worse.

In Keynseian economics the government acts counter-cyclically to smooth out the boom and bust cycles.

The government keeps the economy from getting too hot by cutting its spending and/or raising taxes during booms. It keeps the economy from slowing too much in bad times by lowering taxes and/or increasing deficit spending. Wars are funded with higher taxes, not deficit spending.

We funded the Iraq war with deficit spending and cut taxes in 2001 and 2003 and kept them low as the economy heated up. Instead of decreasing spending and/or raising taxes, we increased spending and lowered taxes.

Then we entered the housing crisis with huge spending and debt which were made worse by automatic triggers like unemployment insurance and welfare (not part of Keynesian economics). Since 2009 we have decreased spending as a percentage of GDP. Spending has stayed about the same in nominal figures from 2009-present and has decreased in inflation-adjusted dollars. Taxes were raised when the SSI tax cuts and the Bush tax cuts were left to expire (only partially for the Bush tax cuts).



State and local governments cut spending far faster than the federal government.

We increased spending and cut taxes during the good times and decreased spending and increased taxes during the bad times. That is not Keynesian economics, that is the opposite of Keynesian economics. Aside from the small stimulus in 2009 (relative to the size of the financial collapse) we haven't been practicing Keynesian economics.

If you want to see an example of Keynesian economics look at the Ronald Reagan era. He inherited a poor economy from Jimmy Carter which had double digit unemployment rates.

Then the Economic Recovery Tax Act of 1981 was signed into law greatly cutting taxes. The unemployment rate peaked at 10.8% in 1982. Under Reagan the federal government increased spending by an average of 7.1% per year. He cut taxes and increased spending during a bad time in the economy, and the federal reserve cut interest rates, and the economy took off. Of course, when Reagan was elected he started with a debt/GDP ratio of less than 30%.

[fairlaker]

The unemployment rate was 7.5% when Jimmy Carter left office in January 1981, the same as it had been when he was sworn in in January 1977. It had been lower than that during nearly every month in between. It was Reagan's determination to wring inflation out of the economy that was implemented by Volcker's huge overshoot on monetary policy, thus triggering what was then the worst economic collapse since the Great Depression. A dying industrial base and ten straight months of unemployment above 10%. And those supply-side tax cuts were a failure as well, which is part of why the final third of the 1981 tax cuts was dropped as part of the largest peacetime tax increases in US history done in 1982. Which were followed by further tax increases in 1983, 1984, 1985, 1986, and 1987.

And for the record, this Andrew Huszar guy in the OP was not a "Fed official". He was a staff trader. No experience in economics and no policy input at all. And all his claims are simply clownish rubbish. The junk media will stop at nothing in seeking to capture your attention (and then either your vote or your wallet). Maybe be a little more discerning about things.

[EugeneOnegin]

Originally Posted by fairlaker

The unemployment rate was 7.5% when Jimmy Carter left office in January 1981, the same as it had been when he was sworn in in January 1977. It had been lower than that during nearly every month in between. It was Reagan's determination to wring inflation out of the economy that was implemented by Volcker's huge overshoot on monetary policy, thus triggering what was then the worst economic collapse since the Great Depression. A dying industrial base and ten straight months of unemployment above 10%. And those supply-side tax cuts were a failure as well, which is part of why the final third of the 1981 tax cuts was dropped as part of the largest peacetime tax increases in US history done in 1982. Which were followed by further tax increases in 1983, 1984, 1985, 1986, and 1987.

Under Jimmy Carter we had high unemployment and high inflation, not the best economic climate. Some argue that Volcker overshot on monetary policy but we had 13.5% inflation in 1980, and he did get it under control. The recession and poor economy in the early 80s caused by Volcker's monetary policy was not nearly as long and as the one after the housing collapse, and was followed by a lot higher job creation and GDP growth than we have now.

The tax increases Reagan instituted after the 1981 tax cut still only took back about 1/2 of the cuts from 1981. And anyway, that's how Keynesian economics is supposed to work. Cut taxes during the bad times, then raise them as the economy heats up.

I do not like Reagan, nor do I agree with much of what he did as president, nor do I think he had any intention to use Keynesian-style economic policy, but we did practice Keynesian-style counter-cyclical government spending and tax policy under his presidency. Which is mostly the opposite of what we've done the past 10 years.

Of course, the federal debt was < 30% of GDP when Reagan took office and state governments weren't making massive cuts.

[fairlaker]

Originally Posted by EugeneOnegin

Under Jimmy Carter we had high unemployment and high inflation, not the best economic climate.

Your history is not the best. We had high inflation and unemployment under Nixon and Ford in part as the result of the 1973-74 oil crisis. Carter brought both numbers down, but he had more success with unemployment. The oil crisis of 1979-80 resulted is a brief, mild recession, but then Reagan and Volcker blew the lid off and things simply collapsed. The term "Rust Belt" is the enduring monument to their economic insights.

Originally Posted by EugeneOnegin

The recession and poor economy in the early 80s caused by Volcker's monetary policy was not nearly as long and as the one after the housing collapse...

Recession of 1981-82 = 16 months. Recession of 2007-09 = 18 months.

Originally Posted by EugeneOnegin

...and was followed by a lot higher job creation and GDP growth than we have now.

Except for the AIDS crisis, the Iran/Contra death squads, failing to notice North Korea's plutonium reactor, and the stock market crash of 1987, Reagan's second term went better than the first. More to the point, then and now were completely different events to start out with, and in the 1980's of course, we did not have Democrats doing everything in their power to prolong the recession and retard economic growth.

Originally Posted by EugeneOnegin

The tax increases Reagan instituted after the 1981 tax cut still only took back about 1/2 of the cuts from 1981.

That was just in 1982. As noted, futher hikes in 83, 84, 85, 86, and 87 ensued. The 1986 bill was intended to be revenue-neutral, but they slipped up and it ended up being a two-year tax increase.

Originally Posted by EugeneOnegin

And anyway, that's how Keynesian economics is supposed to work. Cut taxes during the bad times, then raise them as the economy heats up.

Reagan was a supply-side nonsense provider. Those "Keynesian" effects that came about from his policies resulted from his being a military buildup nutcase. And no, he did not either frighten or bankrupt the Soviet Union.

Originally Posted by EugeneOnegin

I do not like Reagan, nor do I agree with much of what he did as president, nor do I think he had any intention to use Keynesian-style economic policy, but we did practice Keynesian-style counter-cyclical government spending and tax policy under his presidency. Which is mostly the opposite of what we've done the past 10 years.

Bush cut taxes and spent like crazy. There was no actual reason to do that. After the economic collapse, Obama cut taxes and spent like crazy. There was every actual reason in the world to do that.

Originally Posted by EugeneOnegin

Of course, the federal debt was < 30% of GDP when Reagan took office...

It was 33% when he took office, but 52% when he left, then 64% when Bush-41 departed. Back down to 57% under Clinton, then 70% and rising at record rates by the time we could get rid of Bush-43.

Originally Posted by EugeneOnegin

...and state governments weren't making massive cuts.

States in the main can't operate at a deficit as the feds can. That's why direct aid to state government budgets was so important under ARRA. Blame the TEA Potty folks for making sure none of that got renewed.

[EugeneOnegin]

Originally Posted by fairlaker

Your history is not the best. We had high inflation and unemployment under Nixon and Ford in part as the result of the 1973-74 oil crisis. Carter brought both numbers down, but he had more success with unemployment. The oil crisis of 1979-80 resulted is a brief, mild recession, but then Reagan and Volcker blew the lid off and things simply collapsed. The term "Rust Belt" is the enduring monument to their economic insights.

When Jimmy Carter left office in January 1981 the unemployment rate was 7.5% and the inflation rate 11.1%. You don't consider those high?

Originally Posted by fairlaker

Recession of 1981-82 = 16 months. Recession of 2007-09 = 18 months.

That's just consecutive quarters of GDP contraction, what about the rest of the data?

December 1982 peak 10.8%, 4 year later 6.6%
October 2009 peak 10.0%, 4 years later 7.3%

And that's with a huge exodus from the labor force the last few years keep today's figure down...and a higher starting point in 1982.

Jobs created from December 1982 to December 1986- 10,688,000
Jobs created from October 2009 to October 2013- 7,958,000

About 25% more jobs were created 4 years after unemployment peaked in 1982 vs. 2009 despite us having about 25% fewer inhabitants:

1982- ~230 million
2009- ~307 million

GDP growth

1983 4.6%
1984 7.3%
1985 4.2%

2010- 2.5%
2011- 1.8%
2012- 2.8%

I'm not blaming/crediting either president, just showing the facts. Yes, the situations were significantly different, but this is about Keynesian economics. It's not about Reagan vs. Obama.

Originally Posted by fairlaker

Except for the AIDS crisis, the Iran/Contra death squads, failing to notice North Korea's plutonium reactor, and the stock market crash of 1987, Reagan's second term went better than the first.

What's your point? I think Reagan was a terrible president and a bad human being. There's no point in trying to convince me of that, I already agree.

Originally Posted by fairlaker

Reagan was a supply-side nonsense provider. Those "Keynesian" effects that came about from his policies resulted from his being a military buildup nutcase. And no, he did not either frighten or bankrupt the Soviet Union.

I certainly would have rather he used the deficit spending for non-military things, but that's not the point.

Originally Posted by fairlaker

Bush cut taxes and spent like crazy. There was no actual reason to do that.

The 2001 tax cut would be consistent with Keynesian philosophy because we had a brief recession in 2001, but not the 2003 tax cut when the economy was doing pretty well, and not the second term massive deficit spending or the continuation of these tax cuts when the economy was doing well. Most of all, not funding the Iraq war with deficit spending. Keynes actually wrote a book called "How to Pay for the War." In it he argued that wars should be funded with higher taxes, not deficit spending.

Originally Posted by fairlaker

After the economic collapse, Obama cut taxes and spent like crazy. There was every actual reason in the world to do that.

Obama didn't really cut taxes much, he extended the Bush tax cuts and a few tax incentive programs for depreciation, machinery, etc.

He didn't spend that much either, most of that was automatically triggered by the economy in the first year. Since then spending has decreased as a percentage of GDP.

Originally Posted by fairlaker

It was 33% when he took office, but 52% when he left, then 64% when Bush-41 departed. Back down to 57% under Clinton, then 70% and rising at record rates by the time we could get rid of Bush-43.

That's why the other half of counter-cyclical tax and deficit policy is important. If you don't raise taxes and/or cut spending during booms, it doesn't leave you much leeway to cut taxes and increase spending during downturns. Bush Lite's tax cuts and war spending didn't leave him much room to do anything to combat the crisis. I'm not blaming Obama for that because that's the hand he was dealt by Bush Lite. Again, this is about Keynesian economics not Republican vs. Democrat or Reagan vs. Obama.

[texdav]

The article is from a official as stated. Frankly that could mean he/she was a clerk .Sour grapes and a opinion not shared by many experts who in fact he/she worked for.

[chuckmann]

Originally Posted by Jason28

Here is the article from the Wall Street Journal.

First paragraph of the article: "I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time."

Not like this is surprising and a lot of people already knew this. So let's review some facts.

The federal reserve's balance sheet has expanded to 4 trillion, the federal government's national debt is over 17 trillion, and there are estimates at 100 trillion (or more) in unfunded liabilities. This is not too shocking as dozens of other countries are having something similar happen.

We have large cities going bankrupt like Stockton and Detroit with others on the horizon. Corporations are all dodging taxes to offshore accounts and then repatriating them so they're paying a 5% tax rate instead of 35% (and in many cases 0%). All big corporations are doing this like Bank of America, Google, Exxon Mobil, General Electric, Ford, and hundreds of others.

The jobs market is horrid with the majority of jobs added in 2013 being part-time. The labor force is the same as it was in 1978 with 90 million more people. 50% of Americans now rely on government assistance in some form.

Any predictions how much longer until the next phase of a financial collapse is? It's clear politics is not working nor is it going to work. When the average senator or representative is a millionaire they're obviously not representing the average American. Who wants to bet Janet Yellen increases QE, even though we have people admitting that it's not doing anything but pumping up the stock market? At what point is it clear to everyone the Titanic is sinking, when the government can no longer afford to aid 50% of families?

Wow! No kidding?!?!?!?

Of COURSE QE is all about the big banks and their brokerage house subsidiaries.

Welcome to the machine!