Quantitative Easing 3

This story is interesting.  The Federal Reserve announced “Quantitative Easing 3″. They plan to buy $40B mortgage-backed bonds, per month, indefinitely.

Here is an amusing comedy video on Quantitative Easing. Promote freedom via comedy is a good idea! Here are the xtranormal bears, talking about quantiative easing.  By the same author, he asks “Why doesn’t the mainstream media ever criticize the Federal Reserve?

The same people who control the Federal Reserve control the mainstream media.  For that reason, the Federal Reserve is never criticized.  When you have the power to print money, you arrange for a leveraged buyout of any mainstream media corporation that reports honestly.  Sumner Redstone (CBS/Viacom), Brian Roberts (Comcast/NBC/Universal), and Rupert Murdoch (Fox) were not elected.  They wield more influence than the President.  They get to decide which issues are publicly debated, and which ideas are censored.  All of them received bankster financing to grow their empire.

A common propaganda trick is to give complicated fancy names to evil ideas.  One example is “TARP” (Troubled Asset Relief Program).  Most people think “A tarp protects a baseball field when it rains.  There’s nothing wrong with that.”  If they said “We’re borrowing/creating money and giving it to our bankster friends!”, that would obviously evil.  A more accurate name would have been “Financial Underwriting Contingency Kitty”.

“Quantitative easing” sounds noble and important and helpful.  The name “quantitative easing” obscures what is really happening.  The Federal Reserve prints new money and gives it to banks.  If they called it “money printing 3″ instead of “quantitative easing 3″, it would be obviously corrupt.

The details of “print new money and give it to banks” are slightly changed each time.  That also helps obscure what’s happening.  Here are all the different things that have been called “quantitative easing”.

  1. Under “normal” circumstances, the Federal Reserve purchases short-term Treasury debt, or performs short-term repurchase agreements, buying bonds for newly-printed money and then selling them back a few days later.
  2. The Federal Reserve lowered the Fed Funds Rate to 0%-0.25%, and maintained the Zero Interest Rate Policy for a long time.
  3. In addition to keeping the Fed Funds Rate at 0%, the Federal Reserve allowed banks to deposit surplus reserves at the Federal Reserve and earn interest.  This led to the perverse arrangement where banks were borrowing from the Federal Reserve at 0% and lending that money right back to the Federal Reserve at 0.25%.
  4. During the “term auction facility”, the Federal Reserve made term loans to banks, instead of making overnight loans like they normally do.
  5. The Federal Reserve performs repurchase agreements of mortgage bonds, buying them from banks and selling them back later.  This cleans up the bank’s balance sheet, enabling them to pretend they’re solvent.
  6. During “operation twist”, the Federal Reserve sold short-term Treasuries and bought long-term Treasuries.  This flattens the yield curve.  Banks make money on their bond holdings, as long-term interest rates fall.  Insiders knew ahead of time which bonds the Federal Reserve is buying, enabling them to front-run the Federal Reserve.
  7. The Federal Reserve directly buys mortgage bonds from banks.  This is the latest round of QE3.

The Federal Reserve can lend money to whoever they want, without any public disclosure.  When the Federal Reserve lends banks money at 0%, that’s an indirect State subsidy.  The banks borrow at 0% and lend at higher rates.  The banks borrow at 0% and buy tangible assets.  It’s pure illicit interest arbitrage, borrowing at 0% and buying higher-yielding tangible assets.

The Federal Reserve can also buy whatever they want.  If Ben Bernanke wanted to, he could buy GM cars and stockpile them in a warehouse.  The Federal Reserve could buy and stockpile real estate.  The Federal Reserve could directly buy index futures to prop up the stock market.  That would be too obviously corrupt.  Instead, the Federal Reserve buys bonds.  The Federal Reserve lends to banks at 0%, and those banks buy stocks.

If there’s enough inflation, all asset prices rise.  Banks are highly leveraged, borrowing at 0% and buying assets.  Inflation benefits banks.  They are highly leveraged and real interest rates are negative.

In QE3, the Federal Reserve announced they plan to buy $40B of mortgage bonds per month.  How does this benefit banks?  They get to replace junky illiquid bonds with liquid Treasuries or cash.  The enables them to releverage and load up on more debt and more assets.

These mortgage bonds are illiquid and hard to price.  Every mortgage bond is different.  Suppose that the Federal Reserve pays $40B for mortgage bonds worth only $10B.  That’s a $30B indirect bailout for banks.  It is impossible to prove that the Federal Reserve overpaid for the bonds.  By definition, government purchases and “investments” are at a higher price than any private investment; otherwise the asset would be sold in the private sector.  Anytime the government or Federal Reserve makes an “investment, they overpay; that’s an indirect bailout/subsidy to the seller.

Technically, TARP was unnecessary.  The Federal Reserve could have bought all the junky assets from banks, overpaying for them.  That would bail out the banks.  That would have been to flagrantly corrupt, but Ben Bernanke could have done that if they wanted it.  That could have been done completely in secret.  In addition to TARP, the Federal Reserve did give massive indirect bailouts to banks, in the form of 0% interest loans and all the other quantitative easing.

The Federal Reserve has no obligation to disclose which bonds were bought from which banks.  The Federal Reserve has no obligation to disclose how much they overpaid for those junky mortgage bonds.  The Federal Reserve has an unlimited budget.  They are only limited by the possibility of hyperinflation and a complete default on the paper dollar.

Suppose that the Federal Reserve loses $100B buying junky mortgage bonds.  Normally, the Federal Reserve turns over any surplus “profit” to the Federal Government.  Via the “negative liabilities” trick, the Federal Reserve deducts any bailout losses from the Federal Reserve’s payments to the Federal government.

The Federal Reserve has an unlimited budget.  The Federal Reserve has the power to print money.  The Federal Reserve is sovereign.  It doesn’t matter if the Federal Reserve loses money bailing out banks.  Ben Bernanke isn’t spending his own personal money.  He’s spending the people’s money, via inflation.  “Quantitative easing” isn’t free.  Everyone pays the price via inflation.  Via the Cantillon Effect, insiders steal via inflation, even if the new money offsets deflation that occurs elsewhere.

If the Federal Reserve loses money buying junky mortgage bonds, that loss goes back to the Federal government.  When the Federal Reserve loans and inflates, that costs the Federal government and the people money.  There is inflation.  The new money goes to banksters and not the government or the people.

Inflation is theft.  Quantitative easing is theft.  “Quantitative easing” is a complex name for a simple idea.  By giving fancy names to evil ideas, State propaganda obscures what is really happening.  “Quantitative easing” really means “We’re printing new money and giving it to our bankster friends.”  For each round of quantitative easing, the details are slightly changed.  This helps obfuscate what is really going on, theft via inflation.

6 Responses to Quantitative Easing 3

    • I agree that my writing is better. That’s one reason I plan to rewrite my old popular posts, rather than import my archive. I look at some of my old stuff, and my reaction is “Yuck! I wrote that?”

      That’s one value of the rule “1 post per day!” You learn by doing. I also get feedback from comments and my Piwik analytics stats.

      I’m slowly working on filling in my FAQ section, hopefully turning it into a book.

      • A book would be awesome! I must say that just in the last few years I have met a lot more people who volunteer libertarian/agorist ideas before I have said anything about my views, which to me is the most honest metric to use when forming my objective opinion that I think more people are becoming more aware of the evils of the Federal Reserve and the fallacies of big government. That said, I mention your blog to all of them and others. Furthermore, I really think blog could become one of the leading liberty/economics web sites on the Internet one day. I have seen that you rank well already with certain stats you have posted. It’s one of those things that sometimes explodes over night.

          • I get about 150 readers per day according to Piwik, ~500 per day according to my raw Apache logs.

            When I do publish a book, my goal is to earn enough royalties to cover my hosting costs for a year. My plan is to compile my FAQ posts into a book, and add some editing, so you can read it for free if you want.

            I’m still nowhere near as popular as lewrockwell.com or Stefan Molyneux. One key is persistence. If I keep publishing stuff, I should gradually grow my audience. The more posts I have, the more “long tail” searches that direct people to my blog.

            Someday, I want to expand to videos and comedy.

  1. Just want to drop a line to let you know that I’ve been following your blog for a good bit now and enjoy the posts. What I think you have here is a nice collection of text which is helpful in describing what can be difficult to wrap one’s head around.

    While the banks get off easy for the preceding years of irrational exuberance (by many) thanks to the Fed’s dilution of our common exchange medium in the form of new zeros to add to said banks’ balance sheets, it really is the rest of us that pay in the form of reduced value for the things we have and continue to work for.

    The beneficiary structures of the banks seem to be shouldering a disproportionally small share of the burden.

    It’s so simple it’s complicated and yet so complicated it’s simple. Ugh, how perverse. It’s difficult to not think of this as anything but, as you put it, theft.

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>