Welfare for Banksters

Do you recall "Quantitative Easing"?  

This was a program of buying of US Treasuries and mortgage backed assets by the US Fed from major US banks from 2008 to 2015 in order to provide liquidity that was to be lend into the US economy to stimulate growth. It was worth $4.05 Trillion. It should have prompted massive economic growth in the USA.

What happened?

The first phase of QE was about $1.5 Trillion, and most of it ended up being lent into the US economy....about $1.1 Trillion worth. The result was economic growth of about 2.8% in 2010.

The second phase of QE actually saw US banks taking cash OUT of the US economy! The result was a dramatic slowing of economic growth in 2011.

The third phase saw major US banks simply leave the cash on deposit with the US Fed. At its peak, major US banks had $2.7 Trillion on deposit, and they still have over $2 Trillion sitting on the sidelines. The legally required level of deposits is only about $90 Billion.

Some comments.

QE was supposed to stimulate the economy by providing cash to flow into the economy through lending. It was only partially successful, specifically because major US banks simply did not lend about half of the cash that was provided.


QE also created a false economy for US treasuries and mortgage backed securities at a time - a.k.a. during a recession - when it was reasonable to conclude that these assets would not be worth nearly what major US banks paid for them, and then what the US Fed paid the banks in turn. The US Fed is now gingerly selling some of these assets into the market. 

Query...I have to wonder if US banks are doing the US Fed a favour, and simply buying these assets back at full price with cash that the US Fed itself provided. Would you buy mortgage-backed securities in the USA now?

The US Fed pays these banks $36 Billion a year in interest payments. This cash is simply printed - ultimately, US taxpayers could be liable for this. Major US banks made $120 Billion in 2018. This $36 Billion a year represents about 30% of major bank profits; provided free from their friends at the US Fed.

"The swindle continues."