Where Does the Money Come From?

This week revealed fresh evidence that things may get worse for the economy before they get better.  Obviously, this is not the direction we’d wish to see things go.  But rarely do we get what we wish for.

This new insight into the economy is provided courtesy of small business owners.  If you recall, small businesses are the lifeblood of the economy.  That’s why, when small business owners reveal their outlook on where things are headed we take notice…even if we don’t like what they see.

According to the National Federation of Independent Business’s Optimism Index, “small-business optimism dropped from 93.9 to 91.6, largely due to a precipitous decline in hiring plans and expectations for future small-business conditions.  Of the ten Index components, seven turned negative, falling a total of 27 percentage points.”

‘“Small employers are not fooled by headlines announcing record high stock market indices; everyday they live the economic realities of overregulation, increased taxes, weak sales and a government without any direction or plan for the future,’ said NFIB chief economist Bill Dunkelberg.  ‘“The average value of the Index since the recovery started is 91 – 8 points below the thirty-five year average through 2007 and well below readings typically experienced in a recovery.”’

Maybe the outlook for small businesses is so far below where it typically is in a recovery…because we are not in a recovery at all.  This is especially obvious to those who must make payroll every two weeks.  Most notable is the finding that 68 percent of business owners feel the current period is a bad time to expand.

The Greatest Backdoor Wall Street Bailout of All Time

The other sharp insight is the observation from Dunkelberg that “small employers are not fooled by headlines announcing record high stock market indices.”  Clearly, and despite the media cheerleading, record high stock prices do not equal a recovery.  Rather they are a distortion created by the Fed’s insane monetary policies.

Until now, no one from the government banking establishment would admit just how destructive and imbalanced the Fed’s quantitative easing policies are.  This task has purely been limited to outsiders and crackpots.  But that has changed.

On Monday, former Federal Reserve official Andrew Huszar, the man responsible for spending the first $1.25 trillion borrowed into existence under QE, apologized to the American people for what he did.  No kidding…

“I can only say: I’m sorry, America.  As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed’s first plunge into the bond-buying experiment known as quantitative easing.  The central bank continues to spin QE as a tool for helping Main Street.  But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.”

Yep.  You heard that right.  According to the original QE executer, this is “the greatest backdoor Wall Street bailout of all time.”  But that’s not all, Huszar also points out what this says about free-markets in America…

“Where are we today?  The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper.  Over five years, its bond purchases have come to more than $4 trillion.  Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.”

Where Does the Money Come From?

Here at the Economic Prism we’ve been scribbling about this for so long we’ve contracted permanent writer’s cramp.  Nonetheless, we are so aghast at the very mechanics and utter sham of U.S. – and global – monetary policy that we can’t stop.  For there’s one giant fly in the ointment that we’ll never be able to get over…

Where does the money come from?  The answer, regrettably, is so unconscionable it’ll make an honest man choke on his morning coffee and a credit card fraudster blush…

The Fed just makes a notation in its ledger and – out of thin air – magically has the money to buy Treasuries and mortgages.

Just several years ago, before 2008, such measures would have been unthinkable…complete madness.  But that was before the Federal Reserve bought up $4 trillion of these toxic pieces of paper.  And for what?

To stuff Wall Street’s pockets full of money after they bet the ranch on mortgage tranches.  No doubt, the moral hazard being predicated will be astounding.


MN Gordon
for Economic Prism

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