Simply put, a dollar bill is just an IOU signed by the U.S. Government. So when the Federal Reserve floods the world with dollar bills you can expect America’s credit score to take a beating. This makes money more expensive for the government to borrow.
I can’t figure out how this helps the average Joe in America – as the people who determine the country’s financial policies insist it will. My guess is that it will trigger another round of inflation, causing even more economic distress.
But I do understand that it will – once again – be a windfall for the nation’s bankers. They’ll be able to give themselves more of those big bonuses for which they are infamous.
In the current issue of Rolling Stone magazine, writer Matt Taibbi says Fed Chairman Ben Bernanke plans another huge printing in November. And here’s Taibbi’s prediction:
One thing we know for sure is that big banks and Wall Street speculators are real, immediate beneficiaries of the program, as they suddenly have trillions of printed dollars flowing through the financial system, with endless ways to profit on the new chips entering the casino.
Taibbi explains that:
Many of the biggest players in the financial services industry have a habit of buying up MBS or Treasuries just before these magical money-printing programs of the Fed send their respective values soaring. If you own a big fund, for instance, and you know that the Fed is about to buy a trillion dollars of mortgage-backed-securities through a new Quantitative Easing program, buying a buttload of MBS a few weeks early is a pretty easy way to make a risk-free fortune. One of the worst-kept secrets on Wall Street is that the big bankers and fund managers get signals about the Fed’s intentions about things like QE well before they are announced to the rest of us losers in the public.
There are so many different ways for Wall Street guys to make risk-free gazillions off of QE, it’s not even funny. … One fund loaded up on MBS before the first QE announcement, then saw their MBS skyrocket in value after QE – at which point the fund sold off a lot of its MBS holdings and bought Treasuries, effectively taking money from the Fed and lending it right back to the government at interest.
“Quantitative Easing” is the Fed’s name for printing huge quantities of paper money with nothing real to back it up. It’s the same thing they did last March. It was supposed to stabilize plunging home values and make homes easier to buy because mortgage rates would decline in response to the torrent of available cash. It was also supposed, somehow, to generate jobs.
It didn’t work then, and it’s not likely to work now.
But I suppose it’s politically impossible for the country’s leaders to do anything sensible – like repairing the nation’s tottering bridges and rutted roads, for example… or buying up those foreclosed homes and renting them to the people who lost them (possibly with the option of buying them back).
Funding desperately needed public works and helping struggling homeowners would be denounced as “Socialism,” I suspect. And the majority of American voters won’t put up with anything like that. Apparently, they prefer a system that lines the pockets of rich bankers and adds to the misery afflicting the rest of us.