Quantitative Easing Is a Stealth Bailout for European BanksFebruary 18th, 2013
Over recent years, the Federal Reserve, led by “Helicopter” Ben Bernanke, has relentlessly pursued an experimental new inflationary technique called “quantitative easing.” This technique was tried a decade ago in Japan, with dismal results. Bernanke’s plan was sold as an effort to prop up US banks by offering monthly cash injections in exchange for worthless mortgage-backed securities.
However, recent analysis at The Washington Times indicates that US-based banks have not been taking advantage of the program. Instead, foreign banks with US branches have been claiming the cash, exposing American taxpayers to toxic European assets. Between January of this year and now, these aforementioned foreign banks have seen their cash assets rise by $228 billion, presumably as new dollars are sent out of the country in exchange for worthless credit instruments from Europe. What’s been going on at the shadowy Federal Reserve?
Wacky Policy: Buying Bad Foreign Mortgages with Fake Cash
Keynesian theories lead to the most unusual policy ideas. Paul Krugman exemplified this when he called for a fake space invasion to stimulate the economy. However, few have questioned the absurdity of the basic premise behind quantitative easing. In the simplest sense, the program calls for purchasing worthless mortgage-backed securities (that likely won’t be paid back in the end) with newly-created fiat cash.
The intended purpose of the program is to create inflation, as Keynesian economists believe that weak dollar policies somehow stimulate employment, despite the fact that the unemployment crisis continues on unabated. Meanwhile, US consumers struggle to afford food, fuel, and other basic necessities as prices climb.
The Foreign Bank Loophole
US-based banks have been holding on to cash ever since the initial credit freeze happened during the crash of 2008. Meanwhile, US consumers are suffocating under record levels of personal debt. American businesses are waiting to expand and create new jobs until they’ve had an opportunity to see how Obamacare’s implementation will affect costs. As a result, American banks seem unenthusiastic about the Federal Reserve’s quantitative easing program.
Foreign banks, however, are taking advantage of the free cash offer at alarming rates, transferring wealth overseas and saddling American taxpayers with Frankenstein-like credit instruments, sewn together from the discarded parts of toxic mortgages. Most Americans have no idea that they’re being forced to bail out Europe.
If held to account, Fed officials will likely excuse this policy by arguing that the global economy is interconnected — that a failure to prop up European banks would result in an international catastrophe that could affect Americans. After all, Fed apologists could say, some Americans do business with European banks.
This is based on the flawed notion that bank failures are fundamentally bad for the economy. To the contrary, preventing necessary bank failures causes malinvestment and disrupts the pricing mechanism of the marketplace. Policies like these don’t just cause general inflation; they also prop up home prices, making it more difficult for poverty-stricken families to afford to buy homes.
When quantitative easing was first announced, few realized that it would become a stealth transfer of wealth from the United States to Europe. No elected official voted on a European bailout. No American voter ever signaled support for a policy that consists of buying toxic mortgages from foreign banks.
The Federal Reserve is dismantling the US economy at an unprecedented rate.