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
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
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.
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...)