Quantitative easing creates insurmountable debt Many Americans no doubt have heard nationwide pay raise. The second tool at the the phrase “quantitative easing” (QE) used disposal of congress and the president is that by politicians, the media, and bureaucrats of federal spending. In times of economic alike but have not had it properly explained recession politicians have created “stimulus by anyone. Quantitative plans” and “new deals” which easing is not something drastically increase the spending that you will see explained of government. Many folks within on a 30-second political ad the Keynesian school of economic paid for by a candidate, a thought believe that this will boost PAC, or a c6 non-profit. the economy and create jobs. I Unfortunately, the primary will explore this further in a future reason it is never explained column. in depth is due to what Monetary policy is developed the primary purpose of the and implemented by our central tool is. Many may think bank, the Federal Reserve (the that it is for increasing the Fed) created under the Wilson money supply, to boost JESSE Administration in 1913. The Fed the economy, or to “save has two primary tools at its disposal: RAMOS jobs." In order to accurately Quantitative easing and control is a Missoula City assess whether or not these over the fed funds rates. The goals objectives are truly achieved Council member of both are to control the money by QE we need to explore in and a registered supply in the U.S. The Fed and the depth what it is to determine financial adviser. folks that run it have an incredible what its objectives truly are. amount of power and even more In order to do this, we need confidence. The Fed believes that it knows to understand the two separate types of the proper amount of money the U.S. policies the government uses to control the economy needs to have circulating at any economy. given movement, an incredibly arrogant Fiscal policy is developed and mindset to have, at best. implemented by both chambers of Congress Historically, The Federal Reserve has and the executive branch, not the Federal primarily used interest rates to control the Reserve bank. Those entities have two U.S. money supply. If interest rates are primary tools at their disposal, government spending and adjusting the rates of taxation. higher both the public and the corporations are more likely the save. When interest rates In times of economic depression and are higher it becomes harder to afford to recessions, politicians have historically borrow money. In addition, the higher the enacted tax cuts to increase the money interest rates of borrowing, the higher the supply. By doing this, they are encouraging interest rates on savings accounts are. People people to spend, invest and create jobs. The are receiving a higher reward for saving money that otherwise would have gone to money in their bank account in the form the federal government would instead go of higher growth provided by the higher back into the pockets of the Americans who interest rates credited in their account. earned the money, essentially resulting in a
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Having artificial, governmentcontrolled interest rates low for an extended period, as they have been, has devastating consequences to both the American people and the economy. This is what we are currently experiencing in the U.S.. We have become a consumer economy, where we are producing very little within our own borders but import billions of dollars in products from other nations to feed our consumptive habits. Personal, government, and corporate debt has exploded as a result with savings rates and cash reserves plummeting to generational lows. The U.S. currently spends without saving and consumes without producing. There are obviously many reasons for this, but one of the primary reasons is in fact the artificially low interest rates set by the Fed.
Quantitative easing is the Fed increasing the money supply above and beyond what is possible with artificially low interest rates, which inevitably exacerbates the previously outlined problems. Debt monetization occurs when the Fed orders the U.S. treasury to print money out of thin air and then uses that money to purchase U.S. government bonds to finance the U.S. deficit of a fiscal year to support a massive amount of government spending such as auto and bank bailouts, the CARES Act, etc. and then holds it on its balance sheet for an extended period of time. This, consequently, increases the money supply of the nation by adding more dollars into circulations. This means that you have more dollars chasing the same amount of goods and services available in the economy. This leads to inflation, because when you have more dollars available to compete with the same amount of goods it drives up prices, eroding the purchasing power of the dollars that you have saved or are earning.
These downsides to QE are well known and basic common sense to most Americans. As a result, when it was first implemented on a massive scale by the Fed in 2008, Chair Ben Bernanke had to come up with a clever way of explaining it away. He explained that QE only become debt monetization when the Fed held the government bonds on its balance sheet for an extended period. Bernanke went on to say that they could circumvent the downsides of QE by simply shrinking their balance sheet over time and selling the debt back into the private sector in the “near future." The glaring issue with this is that for politicians and appointed government officials, the “near future” is merely the next election. When the U.S. first entered COVID, roughly 12 years after the FED first implement QE1, its balance sheet was near record highs. Now, four short months later, the balance sheet of the fed is well on its way to being double it’s all time high.
Having assessed the downsides and the major lie that QE was built on, it is easy to determine that QE is nothing more than a Band-Aid and temporary fix for major underlying issues and incompetency’s with both government spending and economic policy. The fact of the matter is that the only thing QE does is buy politicians and government officials time, not time to solve the problem, but time to win the next election. Quantitative easing merely addresses symptoms of an underlying disease and not the disease itself. The time bought by QE is paid for by the American people in the form of inflation, decreased savings rates, higher taxes, and insurmountable debt laid upon the nation for generations. Jesse Ramos is a Missoula City Council member and a registered financial adviser.
