Didn't Ben Bernanke promise that another round of bond purchases would lower unemployment and boost economic growth?
We think he did, which is why we're wondering why all the benefits from QE3 appear to be going to the banks. According to Bloomberg News:
"The Federal Reserve's latest mortgage bond purchases so far are helping profit margins at lenders including Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) more than homebuyers and property owners looking to refinance...
"Since the Fed's Sept. 13 announcement that it would buy $40 billion more securities per month, the rates offered for new 30-year loans have fallen by just 0.11 percentage point, compared with a drop of more than 0.6 percentage point for yields on the bonds into which the loans get packaged." ("Fed Helps Lenders' Profit More Than Homebuyers:Mortgages," Bloomberg)
Well, how do you like that? That means that Mr. Bernanke's trickle-down monetary theories aren't really working at all. Instead of the savings being passed along to homeowners in the form of lower rates, the banks are juicing profits by taking a bigger share for themselves. Who could have known?
Keep in mind, that Bernanke is not some madcap scientist who doesn't fully grasp how QE works. That's not it at all, in fact, he's considered one of the world's foremost authorities on the topic and has written extensively on Japan's deflationary woes and their "broken channels of monetary transmission," which is shorthand for saying that loading the banks with trillions of dollars in reserves won't do a blasted thing except pump a little ether into stock prices (which it has done in the last 2 rounds of easing). So, Bernanke's been down this road before. He knows what QE will do and what it won't do, which is why he instructed members from the Bank of Japan (BOJ) to implement fiscal-monetary policies that would have a chance of succeeding. His advice was: "BOJ purchases of government debt could support spending programs, to facilitate industrial restructuring."
Now there's an idea. Have the Fed buy the bonds that pay for the programs that put people back to work. Brilliant! Once the new workers get their weekly paycheck, it's off to the grocery store, the gas station, the mall etc. Spending increases, state revenues soar, and the economy clicks back into high-gear. Simple, right? So, why are we still fiddling with this crackpot QE-circlejerk that does nothing but line the pockets of crooked bankers? That's the question.
In theory, quantitative easing is supposed to lower interest rates and spur investment. That boosts activity and reduces joblessness. But according to a survey conducted by Duke University, the CFO's of 887 large companies found that lower interest rates wouldn't really effect their decisions. Here's a summary:
According to the Duke University analysts:
"CFOs believe that ... monetary action would not be particularly effective. Ninety-one percent of firms say they would not change their investment plans even if interest rates dropped by 1 percent, and 84 percent said they would not change investment plans if interest rates dropped by 2 percent." ("Currency war warnings follow US Fed's "quantitative easing", Nick Beams, World Socialist Web Site)
Of course it won't change their investment plans, because what businessmen care about is demand. Who's going to buy their bloody widgets, that's what matters to them, not interest rates. Right now, there's no demand for more widgets because unemployment is high, wages are flatlining, and policymakers have turned off the fiscal stimulus-spigot in an effort to shrink the economy so they can pursue their lunatic idea of dismantling public services and social programs. (mainly Medicare, Medicaid, and Social Security, the "real targets.")
The point is, spending has to increase to get the economy off the canvas, and the only party that has money to spend is the government. So, Obama should be spending like crazy. The Central Bank cannot fix this problem with its wacko printing spree.
So, what else are the banks up to besides keeping rates elevated so they can make a bigger killing on refis?
Well, for one thing, they're using their high-powered attorneys and lobbyists to twist arms at the Federal Housing Finance Agency (FHFA) to make it easier for them to make bad loans without suffering any consequences.
How can that be, after all, wasn't it bad loans that got us into this mess to begin with?