Shorter Federal Reserve: The Economy Breathes Sort of OK if We Keep it On Life Support
It is also a way of not causing Brazil and India’s currencies to crash out, which just the suggestion of a reduction of QE3 was causing.
It is worth reiterating that the purpose of Quantitative Easing is to make the rich richer, and that it has done. US stock markets increased 150% from their lows, one of those bull markets traders dream of. However the employment situation has not significantly improved (ignore the unemployment rate, even in absolute terms there are still fewer people employed than there were before the financial crisis.) Median household net worth is down, median income is down, but the rich are richer.
This is not to say that QE does no good for the regular economy, it does, but it does far less good than could be done with eighty five billion dollars a month. A program to, say, retrofit every single federal building for active and passive solar would employ more people and have more of a ripple effect. Eighty five billion dollars a month (970 billion a year) is a LOT of money.
Nonetheless, given its refusal to break up the large banks; the President and Congress’s refusal to actually tax rich people (thus necessitating the Fed buying treasury bonds); and a refusal to allow the housing market to settle to its actual value while supporting underwater homeowners, the Fed is in a bind. If you refuse to do anything that is primarily intended to help ordinary people, refuse to engage in sufficient measures to break the oil supply bottleneck (and no, Fracking isn’t cutting it); refuse to tax rich people (who have the money); and refuse to engage in any sort of industrial policy while funneling money to industries like banking, insurance, pharma and the military-industrial complex which are ultimately parasitical, why then, it can certainly seem like you have no choice but to continue throwing money at banks and rich people, and hoping some of it gets to the real economy.
Yellen won’t be any better, by the way. Bernanke’s job was to make sure that the financial collapse did not cause an FDR or New Deal: to make sure that the rich weren’t wiped out by the financial bubble they caused. His academic work is about this exact problem: how to make sure that a New Deal doesn’t happen: how to make sure ordinary people don’t get their share of the pie. Yellen won’t change that, no one will be picked for the Federal Reserve who would change that.