Ramos: Quantitative easing not the answer

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 the primary purpose of the tool is. Many may think that it is for increasing the money supply, to boost the economy, or to “save jobs." In order to accurately JESSE RAMOS Monetary policy is developed and implemented by our central bank, the Federal Reserve (the Fed) created under the Wilson Administration in 1913. The Fed has two primary tools at its disposal: assess whether or not these is a Missoula City Quantitative easing and control objectives are truly achieved by QE we need to explore in depth what it is to determine what its objectives truly are. Council member and a registered financial adviser. over the fed funds rates. The goals of both are to control the money supply in the U.S. The Fed and the folks that run it have an incredible In order to do this, we need amount of power and even more to understand the two separate types of confidence. The Fed believes that it knows policies the government uses to control the the proper amount of money the U.S. economy. economy needs to have circulating at any Fiscal policy is developed and implemented by both chambers of Congress given movement, an incredibly arrogant mindset to have, at best. and the executive branch, not the Federal Historically, The Federal Reserve has Reserve bank. Those entities have two primarily used interest rates to control the primary tools at their disposal, government U.S. money supply. If interest rates are spending and adjusting the rates of taxation. higher both the public and the corporations In times of economic depression and are more likely the save. When interest rates recessions, politicians have historically are higher it becomes harder to afford to enacted tax cuts to increase the money borrow money. In addition, the higher the supply. By doing this, they are encouraging interest rates of borrowing, the higher the people to spend, invest and create jobs. The interest rates on savings accounts are. People money that otherwise would have gone to are receiving a higher reward for saving the federal government would instead go money in their bank account in the form back into the pockets of the Americans who of higher growth provided by the higher earned the money, essentially resulting in a interest rates credited in their account.

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.