The Regressive Politics of Quantitative Easing

[marmar]

The Regressive Politics of Quantitative Easing

From Unconventional Economist, who has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs. Cross posted from MacroBusiness, originally published at The Conversation.

When financial markets stood on the verge of collapse in the summer of 2008, two of the world’s most important central banks, the US Federal Reserve and the Bank of England, began considering unorthodox policy measures. They turned to Quantitative Easing, or QE: injecting money into the economy by purchasing assets from the private sector, in the hope of boosting spending and staving off the threat of deflation. These were desperate measures for desperate times.

With signs of a fragile economic recovery gathering enough momentum to reassure policymakers in the US, the policy was expected to be wound down. But in a move that caught commentators off guard, the Fed instead committed to continue with its existing level of asset purchases. For the foreseeable future, at least, QE is here to stay. What began as a short-term crisis measure has now become a key component of Anglo-American growth strategies. It’s important, then, to take stock of QE and the central role it has played within the Anglo-American response to the financial crisis.

The way the Fed led the policy response to the financial crisis is important in two ways. First, it reflects the extent to which the Anglo-American economies have become financialised: credit-debt relations are pervasive throughout all facets of contemporary economic activity and there has been a deepening, extension and deregulation of financial markets commensurate with this development. In that context, with the increased competitiveness, scale and global integration of financial markets intensifying the risk of financial instability, the crisis management capacities of central banks have become increasingly important.

Second, central bank leadership of the policy response also reflects a key feature of neoliberal political economy in practice. Despite all the rhetoric of free markets, competition and deregulation that has been the mainstay of neoliberalism, there is a central contradiction at its heart: neoliberalism has been extremely reliant upon the active interventions of central banks within supposedly “free” markets. .........................(more)

The complete piece is at: http://www.nakedcapitalism.com/2013/09/the-regressive-politics-of-quantitative-easing.html#eGmfvmvY2zgz8bLK.99

[adirondacker]

1. It's very curious how many could/can support this Non Democratic decision.

"Given this room for manoeuvre, there is no doubt that a much more expansionary fiscal policy and a progressive taxation system could have been implemented in response to the crisis, but that response is foreclosed by the ideological confines of the prevailing neoliberal orthodoxy. Instead, we have monetary expansion and fiscal austerity."

[truedelphi]

2. One more thing to consider: both Kucinich and Issa, who co-chaired the

House Committee on Oversight of Financial Affairs, knew and stated repeatedly that the very best way to solve the Economic Crisis of Autumn 2008 was to simply re-institute the laws, (still on the books !!) that got the nation through the Savings and Loan collapse of the late 1980's.

During that crisis, the Federal government simply offered up enough monies to re-start the economy, through a system of state chartered banks, which were required to loan that money back out to the businesses on Main Street.
Not only did this system help the nation recover, but it allowed Main Street to be restored. Why is this important? For one thing, traditionally, it is through Main Street enterprises that some 60 to 65% of all America's working people are employed, often at salaries that are quite desirable.

Instead, Paulson, who headed up the US Treasury at the time, simply insisted that the Too Big To Fail crowd must, at all costs, be bailed out. Not only did the Federal Government hand out vast sums of money (far beyond the 700 Billions of dollars that the public was led to believe was offered) to the troubled Big Financial firms, but Tim Geithner, then the head of the New York Federal Reserve, was allowed to maneuver which firms got what, and who didn't get squat. (Lehman and Brothers being the chosen first scapegoat allowed to go under.) It is interesting to note that during the autumn of 2008, all three super contenders for the office of the US Presidency, H. Clinton, B. Obama and J. McCain were totally for the idea of the Big Bailouts.

It is also interesting and CRIMINAL that there was no single provision requiring anyone receiving any of the Bailout Monies regarding their needing to loan the money out. Nor did more than a handful of the criminals in the Wall Street crowd ever face any jail time, and those people were usually not the executives at the top, but scapegoats. (During the S & L scandal, over 10,000 people ended up being indicted. With many serving jail time.)

When members of the Australian press found out, circa Dec. 2008, Jan 2009) that President-elect Obama was going to appoint Geithner to the position of Secretary of Treasury, several articles appeared in Mainstream media in that country. Those article s detailed how Geithner had deliberately (or else through stupidity?) put the Japanese on a stagnant "L" shaped economic recovery model, that harmed many in Japan's middle class, and elsewhere.

So he had to on several occasions come to Congress to explain the Paulson/Geithner/Bernanke system of Bailing out the Biggest Financial Players. He lied to Congress, saying this was the ONLY possibility, when he knew full well that the state chartered bank route would have done a great deal to restore America's middle class. (Lying to Congress is a felony, and should have resulted in is being impeached from his high position at Treasury!)

But hey, if you are not a member of the lowly low incomed and middle incomed classes in the USA, life is now pretty groovy. You have probably doubled the umber of summer homes you own,t he number of luxury vehicles you own, the amounts of money that you will have for a rainy day, etc. In some cases, you might even have acquired an entire nature preserve, like the good people at Goldman Sachs did, when courtesy of the bailouts, they bought themselves some prime real estate in Patagonia.

But for the rest of America, suffering and desolation have been the order of the day. These past five years ahve seen the single largest transfer of wealth in recent history, meaning you'd have to go back to the court of King Louis the XVI in France, during the 1760's and 1770's to find such a huge capture of a nation's wealth away from the little people and right into the lap of those who run things. And I think most here would agree that how things turned out in Eighteenth Century France is not a model that we should have copied.

[adirondacker]

3. Thanks for the info truedelphi. I forgot that Issa was on the sane side of an issue. When this shit

went through, I lost almost all hope for change.

[adirondacker]

4. Kick for a little Sunday morning sunlight. nt