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Reply to Ellen Brown

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Message Paul Craig Roberts
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Ellen Brown speaks for people and against interest groups that exploit the people. I value her columns.
In her July 7 OpEdNews column, Ellen discusses other ways that the Federal Reserve could have used quantitative easing that would have benefited those whose home mortgages are underwater, and she points out ways that counties could use their eminent domain powers and their legal standing with respect to the Mortgage Electronic Registration Systems in order to help homeowners rather than the big banks.
Ellen Brown is correct that the Federal Reserve could have made better use of its power, if the purpose had been to help homeowners. For example, the Fed could have performed the role of the New Deal's Home Owners Loan Corporation, as some of us pointed out at the time.
However, the big bank executives who sit on the board of the New York Fed and the former bank executives in control of the US Treasury and federal financial regulatory agencies were and are primarily concerned with saving their banks from the consequences of the fraud and greed over which they presided. The purpose of quantitative easing is to support the balance sheets of the oversized banks that were quickly declared to be "too big to fail."
Interest rates tend to move together. By purchasing bonds, the Fed drove up the prices of the debt-related derivatives on the banks' books, thus boosting the solvency of the banks.
If the purpose of quantitative easing had been to help real estate by lowering interest rates and stimulating the economy, the policy did not succeed, as Ellen Brown correctly points out, and would have been discarded. But the policy did help the banks, and continued despite the failure to achieve its ostensible purpose, which was merely a cover for a bank bail-out. The Fed had to curtail quantitative easing because the increase in new money unmatched by growth in real goods and services threatened the value of the dollar in foreign exchange markets.
Because of its adverse effect on wealth, the real estate collapse did reduce consumer spending and impaired the economy's growth performance. However, the main cause of reduced consumer spending is the decline in real median household incomes caused by jobs offshoring.
It was the movement offshore of manufacturing and tradable professional skill jobs, such as software engineering, that gave middle class income and US GDP to foreign countries. The real estate boom was the Federal Reserve's response to the lack of income growth. The Fed substituted an expansion of consumer credit for the missing growth in consumer income. Once the credit expansion outran the ability to service the debt, the bubble popped. As the economy and homeowners are now loaded up with debt, it is difficult to bail out the situation with more debt, no matter how innovative the schemes.
The schemes Ellen Brown discusses are worth thinking about. However, unintended consequences of the schemes should also be considered. For example, expanding the scope of eminent domain can have applications less desirable than fixing underwater mortgages.
Keep in mind that county governments are motivated by revenue concerns just like banks and other private interests. We should hesitate to jump to the conclusion that county governments have any more good will toward the people than does the federal government.
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Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His books, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available (more...)

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