About 5 years ago the Fed launched an unprecedented shopping spree, commonly known as quantitative easing, in plain English a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months with main purpose to affect credit conditions for households and businesses. It is worth noting that in its almost 100 year history the Fed had never bought one mortgage bond.
A few months later (and more specifically after a 14% drop in US Stock market and further weakening in the banking sector, the Fed announced a new round: QE2. There has been an endless debate ever since as to who is actually benefiting from this. The most pronounced reaction came from Germany, when the German finance minister called the decision clueless.
Today, 5 years after the initial launch the numbers look grim. Voices outside the Fed estimate that the Fed might have created and spent over $4 trillion for a total return of as little as 0.25% of GDP. But the Fed has stopped to question the wisdom of QE anyway.
It is at this moment that the person who was managing the first launch of QE came out with an impressive confession and an apology: “I am sorry America”, said Andrew Huszar. “We went on a bond buying spree that was supposed to help Main Street. Instead it was a feast for Wall Street.” Well it is not something that we have not suspected anyway, but it does make a difference to hear it form the lips of the person who managed the program at its very beginning.
What could that actually mean for the US economy? Well, QE was relentlessly pumping money into the financial markets during the past 5 years giving Washington the dangerous luxury of not confronting the real crisis, that of a structurally unsound economy. As the country continues to overly depend on Wall Street for economic growth, wouldn’t it be rational to wonder whether we are in a bubble like situation?
Dafni Serdari
Market Analyst at InterTrader.com.
by Dafni
The History of QE and the Confession of an ex Fed Official
Dec 3, 2013 at 1:57 pm in Market Commentary by Dafni
About 5 years ago the Fed launched an unprecedented shopping spree, commonly known as quantitative easing, in plain English a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months with main purpose to affect credit conditions for households and businesses. It is worth noting that in its almost 100 year history the Fed had never bought one mortgage bond.
A few months later (and more specifically after a 14% drop in US Stock market and further weakening in the banking sector, the Fed announced a new round: QE2. There has been an endless debate ever since as to who is actually benefiting from this. The most pronounced reaction came from Germany, when the German finance minister called the decision clueless.
Today, 5 years after the initial launch the numbers look grim. Voices outside the Fed estimate that the Fed might have created and spent over $4 trillion for a total return of as little as 0.25% of GDP. But the Fed has stopped to question the wisdom of QE anyway.
It is at this moment that the person who was managing the first launch of QE came out with an impressive confession and an apology: “I am sorry America”, said Andrew Huszar. “We went on a bond buying spree that was supposed to help Main Street. Instead it was a feast for Wall Street.” Well it is not something that we have not suspected anyway, but it does make a difference to hear it form the lips of the person who managed the program at its very beginning.
What could that actually mean for the US economy? Well, QE was relentlessly pumping money into the financial markets during the past 5 years giving Washington the dangerous luxury of not confronting the real crisis, that of a structurally unsound economy. As the country continues to overly depend on Wall Street for economic growth, wouldn’t it be rational to wonder whether we are in a bubble like situation?
Dafni Serdari
Market Analyst at InterTrader.com.