September 23, 2012 at 8:05 am #17130rtMember
The Federal Reserve has bought a great deal of assets soon after the crash. The new money however resulted only in historical high excess reserves. Instead of lending the banks are sitting on their reservers. My first question is why? Regime uncertainty?
If the buying of assets did not stimulate the economy and banks did not make new loans, how is QE3 supposed to work? Won’t this just increase the reserves? According to Bernanke, how should it work pout better this time? Do you believe that QE3 is jst another bailout and alleviating banks of these bad assets?
Thus this new money couldn’t ‘stimulate’ the economy?September 23, 2012 at 9:02 am #17131jmherbenerParticipant
For several reasons, including regime uncertainty, investment has collapsed. This is not unusual in a bust. The reduction in demand for credit helps to suppress interest rates. Banks are sitting on excess reserves because the Fed is paying them interest and the opportunities for investment in the market are bleak.
I think QE3 is another bailout of the holders of MBS. So, I don’t think it will stimulate the economy. The Fed’s pronouncements to the contrary carry no more weight than those it made to justify QE1.September 23, 2012 at 9:14 am #17132rtMember
Thanks a lot. This again shows the corruption of the Fed and the fact that it’s really the bankers’ bank!September 27, 2012 at 4:16 pm #17133hheathmanParticipant
I posted this link on Tom Wood’s page on FB and he directed me over here to Jeffrey and anyone else who might want to weigh in. This lady correctly asserts that QE3 won’t help but has different reasons for why it won’t than the Austrian school of thought and offers other suggestions about how to improve the economy, including the literal helicoptering down of money.
She also states repeatedly that the only reason we have inflation and stock market surges is not because the money supply has increased (she claims it hasn’t because any money created by QE doesn’t get lent out), but because of the psychological *expectations* of what QE is supposed to do.
Anyway, here is the link. I’d appreciate help in understanding why she’s wrong. Thanks!September 27, 2012 at 5:02 pm #17134jmherbenerParticipant
Tom Woods has had a few rounds of debate with Ellen Brown.
Concerning the article you link to she makes the following errors:
1. Banks cannot lend out their “required reserves” but they can lend out their “excess reserves.” On August 1, 2008, banks were holding some $44 billion in RR and less than $2 billion in ER. On August 1, 2012 they were holding $104 billion in RR and $1,500 billion in ER. Not only can they lend out their ER, but they can convert them to RR by creating credit with the issue of fiduciary media (i.e., checking account balances not backed with reserves). The ratio of reserves to checking account balances is around 5%. So banks can issue 20 times the amount of checking account balances than they have reserves. This means $30 trillion of M1 money when M1 on Sept. 10, 2012 was $2.4 trillion.
2. More money in the economy does not generate prosperity. Viable production depends on the spread between selling prices of outputs and buying prices of inputs. Additional money, no matter who gets it first, will be spent on all goods and factors of production. If homeowners and students get the new money first, entrepreneurs receive it next when the homeowners and students spent it to buy their products. Entrepreneurs spend the new money on factors of production, bidding up their prices.
Prosperity is generated by arranging production processes to best satisfy our demands as consumers. For that, we need a market economy.
3. The highest level M1 reached in 2008 was $1.6 trillion. The highest level for M2 was $8.2 trillion on Dec. 29. On Sept. 10,2012, M2 was $10.1 trillion.
Clearly, the money stock has not fallen since 2008.
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