The news that the Federal Reserve (the fed) is to inject $1.5 trillion in the financial system is presented as "unprecedented," as new. But in truth it is not. Also, the intervention did not work. Today the Dow Jones lost a staggering 10 percent of its value; and at this point, all of the gains it made during Trump's presidency are only 2,000 points from being entirely eliminated.
The program to pump money into markets that deal with short-term paper began in the fall of 2019. It has been written about in the Wall Street Journal extensively. The problem is that WSJ and other mainstream publications reported it but did not analyze, let alone critique, the development. They left at this: Short-loan markets (and they are very short-term—often overnight—and are called repurchase markets, or repo) only grease the machinery of the whole financial system, and so the injection of government cash is simply this: putting more grease in the machine. Nothing deeper was said about it. And there was no public outcry, no nothing. In the process, a gigantic sum, $500 billion, was transferred from the public to the markets with little notice. And writers like me, writers who critiqued this bailout (
So, why is this $1.5 trillion really shocking? Because, as many have pointed out, the money is moving from the fed to the markets without public input. But how is this possible?
Because Americans have been told to respect the independence of the Federal Reserve. It is a financial mechanism that operates only on the terms of the market and its changes. Managing markets must have nothing to do with the demos, with voters. And so it is thus permitted for the fed to accumulate public debt without public input. And do not blame Trump for this. What's happening now has a name, quantitative easing (QE). It started under Obama (more about this in moment). But what is this quantitative easing?
I'd like to take this rare opportunity to say: I agree with Mudede. 🥂
— Christopher F. Rufo (@realchrisrufo) March 12, 2020
The best way I can explain this is to say it makes long term borrowing unattractive, and thereby forces back to the speculative equity markets those who, in a moment of prudence, want to be misers. That's its key structure. Some on the left and right are in the habit of calling it "printing money" (and I have done so myself), but it's not, because, as the Australian Minskian Steve Keen once put it, printing money means, in essence, putting money directly into bank accounts. This is not what QE is about. You and I, ordinary Americans, will never directly see this government cash.
As I said before, Obama used QE after the crash of 2009 and raised the debt on the feds books to over $4 trillion. But the program stopped in 2015 and the debt began to fall, to around $3.4 trillion. But when faced with the repo crisis of the fall of 2019, Trump's administration revived it. That is the background. That is why the announcement that $1.5 trillion should not alarm anyone. It's very well known by economists of the heterodox brand, that QE is like blood to a vampire. Once you start, it's hard to stop.
Indeed, yesterday, I pointed out that many on the right are very worried about the debt being dumped onto the fed's books because, yes, the public will finally notice something fishy is going on here. But none of this fishiness is right out of the blue. None of it is a black swan.
All I ask of our reader is this: that in our present time of the virus crisis you learn to take the socialist left seriously. Many of us really do base our understanding of things economic on history, on what has happened in the past. My next post will be about, one, how Bill Gates's program of virus kits is similar to the IMF's economic structural adjustment program of the 1990s, and, two, how Seattle Times's Dominic Gates continues to push the management agenda at Boeing by describing the recent events that whacked the airplane corporation as "black swans."