QE failure – The Burning Platform

Guest Post by David McWilliams

Is Ben Bernanke the father of Alexandria Ocasio-Cortez? Not in the literal sense, obviously, but in the philosophical and political sense.

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As we mark the 10th anniversary of the bull market, it is worth considering whether the efforts of the US Federal Reserve, under Mr Bernanke’s leadership, to avoid 1930s-style debt deflation ended up spawning a new generation of socialists, such as the freshman Congresswoman Ms Ocasio-Cortez, in the home of global capitalism.

Mr Bernanke’s unorthodox “cash for trash” scheme, otherwise known as quantitative easing, drove up asset prices and bailed out baby boomers at the profound political cost of pricing out millennials from that most divisive of asset markets, property. This has left the former comfortable, but the latter with a fragile stake in the society they are supposed to build.

Continue reading “Quantitative easing was the father of millennial socialism”

Guest Post by Anthony Sanders

Last week, Federal Reserve Chair Janet Yellen gave her semi-annual presentation to Congress (Senate one day, The House the other day) on the economy. Unfortunately for Congress, Yellen left out a few things.

The Fed began massive intervention in financial markets in 2007 by dropping The Fed Funds Target Rate. That didn’t work, so The Fed began QE (massive asset purchases in late 2008 then went “whole hog” in 2012 with QE3).

How well did QE work? If their goal was leveling the playing field in terms of income inequality, it was an abysmal failure. Since 2007, the GINI index of income inequality has risen and real median household income has fallen.

On the other hand, QE has helped home prices (and household equity in housing) to recover to near housing bubble highs (and exceed it in parts of California).

The rapid rise in housing prices was NOT accompanied by a rapid rise in mortgage purchase applications. Rather, we did see a rapid rise in foreign investment in housing (particularly on the west coast). And I already mentioned, real median household income has fallen since 2007 (along with labor force participation).