Someone explain to me this "stimulus" that keeps Wall St. so damn happy...

[annabanana]

It's not building infrastructure.. It's not the boost to the auto industry (that is apparently "a loss&quot ..

Why isn't this kind of spending referred to as a loss?

Is it some kind of entitlement by another name?

[Nuclear Unicorn]

1. It was supposed to go to "shovel ready" infrastructure jobs.

They just decided to shovel our money out the door and shovel the bullshit back at us.

[Hoyt]

2. Actually, you might want to read this.

http://m.dailykos.com/story/2012/07/27/1114259/-Where-DID-the-Obama-Stimulus-Money-Go-NOT-Where-Lyin-Willard-Said-It-Did-That-s-for-Sure

[annabanana]

5. Qualitative easement isn't on that graph.. Perhaps we are not talking about the same "stim". . .n.t

[leveymg]

3. The Stim is over, but Quantitative Easing (QE2) keeps Wall St afloat with negative interest rate $$$

Last edited Wed Oct 30, 2013, 07:05 AM - Edit history (1)

The Fed has essentially adopted a strategy of "cheap money" that has pumped tens of trillions of dollars in negative real interest rate funds into the big banks. This flow of funds gives the banks a larger spread (profit) when they in turn invest or loan money out at far higher rates of interest.

These fed funds are negative real interest rate because the rates banks pay are so low that they are below the rate of inflation, hence the government is essentially paying the banks to borrow money.

Along with deficit spending and federal contracting (most of it war and military related), it's what's kept the US financial and economic systems afloat since the collapse of the dot.com bubble in 2000.

[annabanana]

4. Paying banks to borrow money for a "larger spread" i.e. better profits?

And how does this redound to main street?

[leveymg]

6. Quantitative Easing (QE) is the Monetarist alternative to just printing money.

In the 20th Century, central banks used to stimulate the economy during recessions by inflating the money supply with extra currency. That put more dollars into circulation, which stimulated consumption. However, that approach risked devaluation of the currency and hyper-inflation.

Today, instead, the Fed lowers interest rates to a point where it is actually cheaper (and more profitable) for the commercial banks to borrow money than to hold onto other assets. The banks use those assets (corporate bonds, securitized mortgages and loans) as collateral to borrow dollars or buy government bonds (which can be swapped for cash on the multi-trillion Dollar Repo market).

QE is a variation on the strategy of zero or negative real interest rate financial stimulus applied in Japan after the collapse of its commercial real estate bubble in 1991 that has allowed the Japanese economy to keep limping along on export earnings despite the loss in domestic speculative market values.

Because the system operates by keeping interest rates (the cost of borrowing) lower than inflation, the Fed's key policy is always to keep consumer demand depressed below the bank's demand for money. "Too much" consumer spending can lead to demand inflation, which would reduce the profit margin for the banks (if interest rates are kept low). Therefore, we see that the Fed's actual policy is austerity for consumers to depress demand at the bottom in order to sustain profitability at the top - the result is the jobless recovery and declining purchasing power for the middle-class, meanwhile the financial markets and bank sector profits reach record highs, all of which are quite intentional outcomes of QE programs.

[annabanana]

7. I THOUGHT it stunk. Thank you for

explaining the nature of the stench.

[leveymg]

8. The stink is real for wage earners - QE is Austerity. But, for investors, it's a giant bail-out at

the cost of the rest. Monetarist policy doesn't work if the middle-class is driving up inflation by increasing demand for goods and services. Instead of consumer demand, the policy relies upon inflating assets prices which leads to blowouts, as in 2000 and 2008.

Thus, the current policy is the inverse of the economy of increasing demand that led to post-war affluence. The cost of the Vietnam War essentially put an end to that, and aside from a brief period of expansion during the mid to late 1990s -- when jobs grew as the dot.com bubble expanded, meanwhile depressed world energy costs kept inflation in check (crude oil was $17/bbl. in 1997) -- the policy has been driven by Monetarist incomes contraction. Real purchasing power for the American middle-class peaked in 1974.