Quantitative Easing - No Losers?

How well did the Fed's stimulus work? A look back at Fed's QE: Critics warned of disaster, but most economists say program worked


Soaring inflation. A collapsing dollar. Bubbles in financial markets that would soon pop. One presidential candidate even suggested that the Federal Reserve chairman should be roughed up. Over the past five years, as the Fed has pumped ever-more money into the financial system, critics have warned that it would lead to all kinds of disasters. Yet the central bank kept extending its bond-buying program, known by the wonky name of quantitative easing, or QE. It was an unprecedented effort aimed at lowering borrowing costs, encouraging spending and reviving a dormant economy before it could slip back into recession. Now, $4 trillion later, QE is drawing to a close, so the question is: Did it work? Economists have plenty of quibbles, but many agree that the Fed accomplished the bulk of its goals. ... Here's what has actually happened since Bernanke made the case for the Fed's expanded effort in August 2010:
  • The unemployment rate has fallen to 5.9 percent, the lowest level since July 2008. Back in August 2010, it was 9.6 percent.
  • The stock market has soared. The Standard & Poor's 500 index has returned 101 percent, powered by a stronger economy, higher spending and record corporate profits.
  • The dollar has held up against most major currencies. One widely used measure, the dollar index, is 3 percent higher.
  • Inflation has remained tame, despite all the warnings. Over the past year, overall prices have climbed a modest 1.7 percent, still below the 2 percent annual increase that the Fed targets.
Comment: For another article that addresses QE and the stock market see this link. Here's my take and the winners:
  • The investor and
  • Most of them are the wealthy
On the losers:
  • Frankly I was a naysayer on Quantitative Easying.
  • My hypothesis is that the middle class and the lower class are the QE losers. You cannot just pump that much $$ into the system without some negative consequences. Because it has not been observed yet does not mean it will not occur. 

1 comment:

  1. Well, the actual unemployment rate is said to be about 15% when you count the spike in disability applications, people dropping out of the work force altogether, and people struggling with part time jobs. Now it's possible that things could have been even worse if our proportionately larger debt load had collapsed, but Rothbard points out in his book on the Depression that the late 1800s had debt shocks that recovered quickly.

    It strikes me as well that the 1980s recovery was much stronger with tight money than today's is with loose money. So I'm not quite sure that the "standard narrative" works here.


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