A Tale of Economic Corruption Part III – Quantitative Easing and Bernake’s Legacy

The Full Tale of Economic Corruption

Quantitative Easing and Bernake’s Legacy

The Fed and its collusion with Wall Street has been perhaps the most responsible force in the last decade or so for the economic inequality that America is continuously battling with. Post 2008 all arteries and capillaries of the financial respiratory system collapsed. Wall Street has created a series of complex algorithms to confirm and send trades within nanoseconds, and their legion of ‘quants’ (physicists and extremely high caliber mathematicians) develop these in utmost secrecy. One series of algorithms was created specifically to increase the amount of capital supply after 2008 while being portrayed as a defender of the economy, but in reality has had detrimental effects on anyone outside the upper class. Quantitative Easing (QE) was quickly introduced during the recession as a means to alleviate the crisis and hole that Wall Street dug itself into. This project was championed by Ben Bernake and had a two pronged focus;  injecting money into markets through Fed investment, and lowering long term interest by creating billions in new money. The direct intervention of this plan entailed the Fed buying mortgage backed securities and government debt from banks and other institutions. Yes, this included many of the same subprime CDOs that caused the recession.

Bernake and the Fed’s hope with lower interest rates alongside mass purchasing was that QE would spark more spending on the part of Wall Street. The overarching goal, or so they claimed, was getting cheaper credit dispersed out to ordinary Americans so that they would invest and spend more. This is just part of a larger issue that uses monetary metrics to track the country’s success, ignoring the actual health of our people. Regardless, the whole purpose of QE was allowing our economy to continue the endless and hollow growth that American capitalism loves.

Andrew Huszar was in charge of one QE branch that bought trillions in bonds back from banks, and admits he was on board with the initial program because the economy was on the brink of a new great depression. Most Americans don’t realize that in order to scramble and stop the market’s bleeding, the Fed and government were quite literally putting together a plane while in midair. QE flooded the market with trillions in “easy money,” sparking a huge rally as riskier assets like stocks were seen as viable investments again. Media and political sources pushed the narrative that the Fed’s program was a success at first; “Don’t fight the Fed” was the popular cry by these figures, claiming that everything was fine and the fears of inflation or inequality wouldn’t come to fruition. Remember though, the Fed essentially has an infinite money printer in its basement since the state has power to manufacture currency, but the benefit of that is all going to the upper class while everyone else gets hit by the resulting inflation. QE has been extraordinarily successful at moving asset prices, but not the economy as a whole and its program has only perpetuated the huge wealth disparity between Wall Street and Main Street. Banks have just been holding onto money that the Fed gave them, keeping it at the top and creating a bastardized trickle down system that saw some of the most rapid individual wealth accumulations in human history within the last decade. 

Fed Chairman Jerome Powell.

Centralized banking via the Fed and has ostensibly become our fourth branch of government, yet due to the nature of how it operates has become the biggest grift in human history. The Fed acts as our centralized bank, yet is privately owned and has its own set of guidelines that it can act upon independent of any accountability. American voters have no say in how the Fed spends our tax dollars or who benefits from that, instead relying on the hope that the institution is doing the right thing. With trillions of dollars and the livelihood of the country in their hands, the Fed has become a tool of the financial industry and upper 1% to obtain free money and line their pockets with it.

The effects of the Fed’s monetary policy has skyrocketed inflation while the rich make billions, leaving average Americans desperately trying to keep up with the cost of life as their wages and wealth have flatlined. As Republicans came back into power at the height of the tea party movement they additionally cut off any governmental help for Americans in homage to Reaganomics, leaving people homeless or unable to feed their families with nowhere to turn. The Fed and lowered interest rates became one of the only sources of potential help for the working class, and even this institution has been taken over by individual greed in a zero sum world. QE theoretically allowed people easier access to loans from banks that would be incentivized to offer lower interest, since they were getting free cash from the Fed. At least this was the public messaging that Bernake touted to justify expanding the Fed’s quantitative easing policy; so with this misguided hope that banks would be generous, Bernake did a second round of QE in 2010 (called QE 2), buying back hundreds of billions of dollars worth of securities.

The problem is, as readers hopefully remember, quantitative easing is essentially nothing more than an evolved and more insidious trickle down economics. As stocks and markets go up, it only increases the wealth of those who control them most while the working class is still dependent on the potential generosity of their Wall Street overlords. As a result QE skyrocketed wealth inequality by raising the asset prices of stocks and commodities but not putting money into the broader economy, especially leaving out a working class that was struggling mightily during the recession. Essentially the Fed showered trillions on Wall Street, and the lobbying and kickbacks politicians receive from insider trading were (and still are) much too alluring for them to demand regulations on the banks funding their lifestyles. Therefore the injection of money into our economy stayed in the hands of the billionaires and Wall Street financial entities that were benefiting from security buybacks and bailout packages.

Credit: HedgEye Comics. Jerome Powell dumping money on Wall Street.

QE had the effect of propping banks up on taxpayers’ dime and trillions in newly printed money, yet didn’t help the average american at all because there were no incentives for Wall Street to put their free money back into the economy, instead hoarding it within the stock market and their own pockets through outlandish bonuses. The Fed was only looking at unemployment rates and other money metrics to determine the impact of QE (and any other financial program), which ignores actual quality of life and opportunities for American citizens outside of the 1% that control markets. As such those few at the top receive all of the funds from programs like QE that are meant to boost markets and keep it for themselves or within the upper class. Thus as long as the working class is employed and contributing to Wall Street’s coffers through retirement plans and corporate labor, the government doesn’t care if the average person is struggling to earn enough to feed their kids or is a wage slave living paycheck to paycheck. As long as Wall Street and the rich are happy with the money they’re getting, America thinks everything is peaches because lobbyists and upper class interests are purring in the ears of regulators. The working class doesn’t have 5 lobbyists per Congressperson who can advocate fiercely for their interests in the same way Wall Street has hired sharks to bully or bribe the government into compliance with what the upper class wants.

The best example pertaining to QE that I can use to show the ignorance regulators show towards average Americans, only worrying about Wall Street’s money, is the “taper tantrum” that followed QE 2 in 2010. When Bernake announced that the Fed was going to start easing the second round of QE, Wall Street pulled billions of dollars out of the stock market in protest that they would be cut off from the infinite money printer soon. Asset values began to plunge instantly from Wall Street’s tantrum. Since we only measure the numerical value of markets without looking at underlying factors, the Fed got scared that our economy would stop its never ending growth due to the fit. Bernake crawled to Wall Street with puppy dog eyes and his mouth wide open, prepared to offer whatever they needed to make the market go up again. So quantitative easing continued, and as Yelen took over low interest rates kept our national debt running up over a trillion dollars a year.

People such as Neel Kashkari, head of the Minneapolis Fed, fiercely defend QE and Wall Street. They claim that it’s alright for Wall Street to hold us hostage through the market because free money from QE is putting Americans back to work by opening up more resources that corporations need employees for. This is a direct case of not using the right metrics for health and just looking at money. Yes corporations may be hiring more employees for their ever expanding growth, but they are by no means paying a liveable wage. We are being sent to dragon’s lairs like Amazon or Frito-Lay, corporations that pay as little as possible while exploiting their workers to push them to the absolute limit in order to maximize productivity. Kashkari says that ordinary Americans’ most valuable asset is their job, and the upper class wants it to be this way so that we have nothing else besides our labor to rely on for living; labor that entities like Wall Street take advantage of to create profit for them while dangling the carrot of financial autonomy right in front of us as we work away pay check to paycheck with no other assets. The government takes no consideration of underlying societal conditions such as how many hours people are forced to work, the stress that being on a hamster wheel of wage slavery entails, or the access to oppportunities that allow education and fulfillment outside of physical labor contributing to the economy. Regardless of the pay rate for a job, working conditions, or vast disparities between higher management and base salaries, as long as there are a certain number of people earning wages and helping corporations grow infinitely, America is satisfied. 

The problem with a trickle down theory is that it never works the same in practice.

Neel and his fellow slimebags in charge of our economy are cognizant of the fact that wealthy interests and their corporations are destroying the working class. However, by refusing to look deeper than a cursory, “Are they earning a salary? Ok they’re fine then,” the government can justify pushing policies that only increase corporation’s ability to hire wage slaves and take advantage of an increasingly skilled labor force. They know that Wall Street has a hand invested in most housing, healthcare, and corporate opportunities and will milk people for every dime they have in these areas. Income and footholds for anyone outside the upper class to grow wealth have entirely flatlined since the Great Recession.

Even though our unemployment rate was much lower (until COVID-19) following the implementation of quantitative easing, wages and economic growth for the average American all but stagnated, even dropping slightly. Through the same period of time since 2008 for the upper class, they have seen nothing but exponential growth as stocks and other assets underwent the longest and most sustained bull run in history. This is due to Wall Street having access to unlimited reserves of cash to throw around amongst themselves from QE. They prevent money from entering the economy through securities, increased salaries for their executives, or purchasing massive assets like real estate and art. Kashkari and other scum in governmental institutions that are supposed to protect us will continue to fight tooth and nail for Wall Street’s right to hold the country in veritable financial oppression. He receives far too much individual gain letting American citizens get trampled under the weight of a bloated, bleeding corpse that is incapable of human emotion and possesses a ghastly sewn on face resembling Bezos’ smug grimace.  

The damage to the working class resulting from quantitative easing is impossible to fully measure. Jerome Powell picked up right where his predecessors left off, and he is now in one of the most precarious economic situations our country has faced. It has been proven that QE only improved markets and asset value without providing any benefit for the average American. Companies didn’t invest in infrastructure, wages, or quality of life benefits for their employees; rather they borrowed money from the Fed at nearly, if not 0%, interest and used it to buy back stock, pump their share prices, invest in technology that will eliminate human workers, and of course give CEOs massive bonuses. This activity would deplete Wall Street’s reserves as they gave everything to themselves, then they would issue more debt and begin borrowing from the Fed to start the vicious cycle all over again.

There has been over $6 trillion in corporate buybacks since QE first lowered interest rates, and the percentage of our GDP that the financial sector takes for themselves has risen from 3.5% to 8% in several years. In the same short period of time that the upper class have doubled their wealth, the market has created no wealth or opportunities for average Americans as we can hardly afford rent and groceries from inflated asset prices. The only function of our modern market is to improve corporate stock prices and hurt the broader economy, as assets pumped by Wall Street sit like a brick atop the Jenga tower ready to crumble beneath it. There is no concern for the quality of life of employees, as long as they show up to work and provide labor to drive growth for the company. Sure the poor can get a salary, but they will never be able to take a weeklong break from that job, let alone a few days without pay, until they fucking die.

Credit: The Big Short. There is a fantastic visualization of this analogy in the movie.

The finance sector has been described as bloodsucker, conceived from layers upon layers of convoluted instruments and algorithms that prey on the lower classes’ retirement or savings.  Wall Street has convinced us through lobbying that we need them to be this way, otherwise the economy would collapse. In reality, that brick threatening to topple the tower would be removed if there were meaningful restrictions on banking and finance. Instead they are seen as holding the utmost importance in America, having free reign to create systems such as dark pools and shadow banking institutions. The former routes stock trades through privately organized forums, an alternative trading system that allows massive orders to be placed and filled without public reporting (and can be used to heavily manipulate prices), while the latter is a large financial institution that has no bank charter and is outside of federal regulation, but can still conduct financial business.

Shadow banking in particular poses a threat of huge instability to the market. Robinhood, for example, would qualify as one such institution. They are outside of many federal regulations and have been allowed to implement fun, gambling style activities into their trading app along with offering massive amounts of leverage and not explaining properly to their customers how it can quickly tank their portfolios. There is no cushion, and Robinhood has free reign to sell their customer’s stock without consent and halt trading at any time. The company manipulated trading during a notorious Gamestop gamma squeeze in January 2021, taking away customer’s ability to buy while only allowing sell orders because they themselves were too over leveraged and didn’t have the cash to cover the amount of money GME was bleeding them for.

Many individual investors in these types of institutions lack experience in financial markets of any kind, drawn by the flashy graphics and appealing promotional deals. As a result they are more likely to pull out in a panic, throwing sections of the market off course. Market makers know this trend of smaller investors to follow the crowd, and Robinhood was not the only one that is too overleveraged. As a result institutional holders will want to be the first to sell, and the pandemic was a cataclysmic event that displayed this.

In 2020 there was far too much leverage in the financial system and the market went into freefall as everyone panic sold. Thus, the Fed cut interest to zero and started up their QE program again. Corporate debt began skyrocketing with the pandemic, so Jerome Powell announced that the Fed would buy it back in 2020. This was unprecedented, to say the least. Over half a trillion of the $2.2 trillion CARES act went towards buybacks from the Fed. The reason for this was that we came extremely close to a full on crash into a recession, or worse. The Fed had trained Wall Street that if they made a bet in the market and won they could keep their billions; but if they lost that bet then the Fed would be there to step in as their daddy. This is the biggest threat to capitalism.

The very idea that the Fed can bail Wall Street out whenever they fuck up in a no-lose casino, doing so off the backs of average Americans. Kashkari insists regulation is lacking, not the Fed’s policy. However the Fed is printing infinite money for Wall Street and it is up to the banker’s discretion on how to use their Bernake Bucks, so of course QE is going to exponentially inflate the wealth gap because Wall Street is comprised of greedy sociopaths who hoard as much as possible for themselves. A good comparison as to Wall Street’s response to quantitative easing would be if Congress passes a law that it’s ok to drive 100 mph and a couple years later the law is still in effect and everyone is driving super fast, dying of crashes at alarming rates. When asked why they were still driving so fast even though it was probably going to kill them, the people who did said “ehh it’s all good we get where we need to be faster.”

Drugs in small doses are good for us, but too much can kill us. From March of 2020 to February of 2021, billionaires in the U.S. grew their cumulative wealth $1.3 trillion. They now hold 66% more in wealth than half of Americans combined. When you have millions laying around to throw on investments, which are growing insanely fast due to incentivized borrowing and QE buying off debt, it’s way easier to become wealthier. Duh. We have been in financial mania right now, with the Fed pumping up asset prices in one big illusion. There is a 1 in 3 chance we will look at quantitative easing as one of the biggest financial calamities of all time, according to Peter Fisher. Inflation is now hitting us hard, as we see markets from cars to lumber being kept at record highs. The Fed is still set to keep interest rates low through 2023 with some QE programs most likely to appear on top of it. Powell is fucked essentially. If they turn the valve for QE off right now the economy would collapse as another wave of panic selling and depreciation hit. Asset values would plummet, on top of an economy that is ravaged by COVID-19. When the Fed moves it’ll have to do so gradually and very carefully, walking a tight wire between the tallest mountains of inflation and recession to date.

Bernake with his pet project QE.

I would like to summarize a quick series of facts that will make readers question the entire financial system more so than they may already be. The Federal Reserve is not beholden to the government, Congress, or anyone besides its board. It is supposed to protect the interests of the people, and its mission statements make it appear so, on the surface level. Instead of promoting individuals with actual morals and will to help the people, every president since Bush Sr.; Clinton, his baby boy, Obama, Trump, and Biden, have all been complicit in running the biggest grift in human history. The grift has been our centralized banking system. Specifically Bernake and Yellen, but most chairs of the Fed, have been intimate with financial behemoths on Wall Street. Citadel and its subsidiary securities and exchange businesses is a Wall Street market maker, coincidentally the largest firm that provides this service with up to half (or more) of the trades that occur on the NYSE routed through its servers.

6 thoughts on “A Tale of Economic Corruption Part III – Quantitative Easing and Bernake’s Legacy

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