Video: On the third round of quantitative easing and the US economy
The video below is from On the Edge with Max Keiser. I speak to Max during this show from 31 March about the US economy, Federal Reserve policy, financial repression and more.
On the issue of financial repression, I think my view is pretty clear from this video. However, I should note that analysts like Marshall Auerback take issue with the whole notion. He wrote me just yesterday on the topic:
[Pensioners] see it as repression because that’s how it’s portrayed in the mainstream press and economics profession, as well as by market professionals. It goes back to a point that George Lakoff has made many times: the guardians of the status quo use language in a very clever way to support their arguments. Who can be in favour of something as awful as "repression"? Of course we find that objectionable. And if that was what the Fed was actually doing then it would be abhorrent to all of us. But constitutionally, the government (and I include the Fed in this – let’s leave aside the Jekyll Island stuff for now), is the monopoly supplier of the currency. So if one wants to use repression in that way, I guess you could say that conferring that monopoly on the government is ‘repressive’.
Marshall’s argument is that to give retirees an adequate social safety net, clearly social security is there. He is in effect asking why we should subsidize so-called rentiers. I do think Marshall makes valid points and would appreciate his fleshing them out as a riposte. Nevertheless, I still see the Fed’s policy as both ‘repressive’ and ‘misallocating’. The Fed has inserted itself in a way which distorts market signals in favour of debtors. There is no free lunch here as this distortion has had consequences in the accumulation of private debt. As we speak US households are releveraging despite the lack of real income growth. That releveraging will end badly for the debtors and the economy as a whole.
As for QE, the Fed is more concerned with getting rates down and has probably already realised QE doesn’t do a good job of that. They are already using other means to ease.
P.S. – QE expands the Fed’s balance sheet but the Fed is not literally printing money (although I kind of like to think of it that way). The Fed is increasing the monetary base in a financial asset swap by buying treasury bonds. See my post on “How Quantitative Easing Really Works“.