Wednesday, August 19, 2015

Alas QE Alas

Barack Obama came into office on a low ebb in employment. He promised to reverse the trend and create millions of new jobs. Unfortunately, his agenda of regulation, reversing "global warming", and a government takeover of health care was antithetical to job creation.

As night follows day, his friends at the FED stepped in with a plan that was sure to work, pulling the unemployment rate right down. They were certain. They had a plan. A plan that had never been tried before. But they were certain. Quantitative Easing is a sure cure, they told themselves.

First they brought interest rates down to zero or just above. This would keep big money out of the banks and on the street. The damage to the savings of the elderly and middle class was irrelevant. 

Then they started pouring billions into a government bond buy back program. This forced more money, a lot more money, out onto the street, also. All of that cash money in the hands of the wealthy would certainly create a huge expansion in business as companies grew and hired more employees. Or so they thought.

For that to have happened, those holding on to all those dollars would have had to feel secure in their sense of what the future would hold. But there was no clear picture of future regulations or taxes. Investors and CEOs were unsure and fearful. 

Instead of expanding, they consolidated. They laid off even more employees. The new health care regulations caused them to cut back hours on existing employees. Everything went backwards and created even more money on the street.

Smart people with a lot of money don't stuff in in their mattress. They invest it. And where can one invest huge sums safely. Or at least reasonably safely. The Stock market of course. And what does one buy. Good solid American companies. So the Dow went up. The S&P went up. Everything went up except the Participation Rate. 

The rich got richer and the poor and middle class sat home watching Oprah. There would be occasional promises from the President that he was about to turn his laser like focus on jobs. He usually ended up turning it on the first hole at some country club.

So here we sit. Some seven years later. Still waiting for jobs and sitting on a major stock market bubble. That bubble has been leaking some lately. The Fed has been making some noise about ending QE, but they don't dare. They fear a major recession or a depression. And so here we sit........

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