Last Thursday, the Federal Reserve announced that it would embark on a program to buy $40 billion of mortgage-backed securities every month until the economy improves, and hold interest rates near zero through mid-2015.
And how will that help the economy in general, and stagnating unemployment? As near as I can tell, it won’t.
The point of buying ‘$40 billion of mortgaged-backed securities,’ of course, is that nobody knows how much they’re really worth, other than that it’s far less than $40 billion. The intent is to make the banks whole from their bad investments of a few years back.
In a normal time, the banks might turn around and lend the money to consumers and businesses, encouraging demand, employment, and economic growth. But they haven’t done that: they’ve found it preferable to simply sit on the money, and perhaps lend it to the government.
The other entities that might hold mortgage-backed securities probably have even less interest in lending to ordinary people and businesses. In other words, the rich get richer, and all the rest of us get screwed.
If the money from the Fed’s quantitative easing efforts made it out into the general economy, the result would be massive inflation: the classic result of more money chasing the same goods. But the reason we haven’t had runaway inflation so far is that the money has been kept out of the ordinary people’s economy.
So a fat lot of good it does us.
The beatings will continue until morale improves.