Wall Street demands new money fix (Updated)

Update: It appears the Fed isn’t listening (Washington Post), good for them.

They’re at it again.

The Wall Streeters who made their money while hooked on “quantitative easing” (or QE, for short) – the fancy term for when the Federal Reserve sucks up a whole range of securities and turns them into dollars – are insisting the world will come to an end if they don’t get their next fix (New York Post).

…it could cost Americans another $1 trillion.

As Federal Reserve chief Janet Yellen winds down the huge Quantitative Easing 3 program, an addicted Wall Street is looking for the same fix in liquidity — a lethal cocktail to prop up feeble markets.

Despite the Fed reducing its purchases by $10 billion monthly since July, it now holds more than five times the sum of securities it had before the financial crisis.

The balance sheet, which exceeds $4.4 trillion, is approaching the size of Japan’s gross domestic product.

Of course, Wall Street would love to see QE4: it props up bond prices (when bond rates are low, their prices are high), while shoving folks who aren’t lucky enough to be sitting on that paper into stocks in a desperate search for a return on their investment. Stock and bond prices rise all around, creating an asset bubble.

Never mind that this does nothing for actual economic growth. Never mind that it exacerbates wealth and income inequalities (which are a real problem when they are caused by rent-seeking behavior like this).

In effect, we are still seeing the after effects of the Panic of 2008. The economic correction that should have happened was avoided when Washington enacted TARP (and thus convinced Americans that all the banks were sick, rather than just some of them). The flip-side was the fear of a “credit crunch” that was actually caused by shocking the corruption out of the LIBOR rate – while rates that were based on actual transactions (rather than a manipulated survey) barely moved.

To be fair, the Fed actually sounded the alarm on LIBOR, only to be ignored by their British counterparts. Still, the fact is, this in an economic funk that was caused not by the private sector, but two governments (in Washington and London)…and one of them is still perpetuating the myth that got us here in the first place.

Cross-posted to the right-wing liberal


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