October 30, 2012. New York. QE1, QE2 and QE3 – we’ve all heard of them. But what are they and are they working to help America out of its economic collapse? It stands for Quantitative Easing, three rounds of it now. It’s a term Wall Street and Washington came up with to name their experiment of printing US currency by the trillions and handing it over to the world’s largest banks. But instead of helping Americans, it looks like it will actually hurt them instead.
Over $2 trillion US Dollars have been printed during the Obama-Bernanke Quantitative Easing experiment. This chart doesn't even include QE 2 or QE 3.
For readers who remember history class, when countries and governments print massive amounts of paper money not backed by anything but trust in that government, the result is crippling inflation. People must carry wheel barrels full of money to the store just to buy a loaf of bread. That’s what should have happened here in America after QE1 and QE2. And many well-respected professors, economists and money managers predicted that would happen. But it hasn’t…yet.
Why? Because the world’s super-rich, like the Communist Chinese government, need someplace to invest their massive wealth where it will be safe and still earn them a profit. To give an example of just how one-sided the system is, imagine this: If the whole world stopped and human beings were frozen in time, the rich would continue to get richer and everyone else would continue to get poorer, without anyone doing a single thing. That’s our economic system.
And it’s that constant investment by the Chinese, Japanese, British and Brazilians that has buoyed the US economy until now. But that just explains why America hasn’t collapsed after Ben Bernanke turned on the government’s printing presses and devalued the US Dollar. It actually didn’t have any value to begin with. It’s not backed by anything other than the full faith and trust in the US federal government, which is still worth trusting according to Wall Street economists.
Quantitative Easing not working
According to the National Debt Clock, the United States federal government, that’s you and me, has incurred a debt of $16.2 trillion. And if future obligations like Social Security are included, America is actually $58.6 trillion in debt. And if we add in each of our own personal debts, it’s an additional $15.8 trillion. Read the Whiteout Press article, ‘National Debt – the $77 Trillion Dollar Secret’.
In QE1, QE2 and QE3, the Federal Reserve simply printed trillions of dollars and handed it over to the globe’s biggest banks at zero, or near-zero, percent interest. The Obama administration’s strategy was, the big banks will make loans to little banks, who in turn would make loans to individual Americans and their businesses.
But those loans to regular Americans aren’t guaranteed by the government, meaning the American people won’t pay the banks back if the individual borrower defaults. And as the world is rapidly seeing, the American people are simply not credit worthy. We’re broke, just like our government. See the stats at the end of this article for proof.
So, banks are refusing to use the majority of the QE3 money to make loans to the American people. And when they do, they charge hefty fees to the borrower. That in itself proves that Quantitative Easing is not working as the government keeps telling us it will. They're just not making extra loans, or lowering the highly-profitable interest rates they charge..
Why it’s not working
Two weeks ago on the same exact day, the nation’s two largest mortgage lenders announced they would not be reducing interest rates to aid in rebuilding the US economy. Both JP Morgan Chase and Wells Fargo explained that they were not in the business of helping the American people or the American economy. They were in the business of making profits. And with QE1, QE2 and QE3, their corporate profits have soared, breaking record after record, quarter after quarter.
With QE3, the Federal Reserve is printing $40 billion per month and handing it over to banks like JP Morgan and Wells Fargo, specifically to make cheaper loans to the American people, and more of them. Consider the fact that while banks borrow at less than 1% interest from the American people, they loan the money back to Americans at rates that range from 3% to 300%, depending on the financial institution and loan type. And together, JP Morgan and Wells Fargo make 44% of all of America’s mortgage loans.
“The government can’t force banks to give out loans at lower rates any more than they can force Macy’s to sell me sheets for a dollar,” Karen Shaw Petrou, managing partner at consulting firm Federal Financial Analytics, was quoted by the Washington Post. The report confirms that the banks’ refusal to lower interest rates and cut into their profitability is, ‘significantly boosting bank profits’.
When Wells Fargo made its announcement two weeks ago at the same time it reported its 6th straight record profit, the bank’s Chief Financial Officer Timothy Sloan told investors during a company conference call that lowering interest rates would not be “a good decision from a profit standpoint.” Explaining why the bank has no moral problem with gouging the American people while using the American people’s money to do it, Sloan simply said, “We run the business based on profitability.”
Well Fargo’s quarterly profit rose another 22% to $0.88 per share, or $4.94 billion dollars in the 3rd quarter, the sixth consecutive record quarterly profit by the bank.
JP Morgan Chase
The nation’s other largest mortgage lender made the same announcement on the same day. JP Morgan’s Chief Financial Officer Doug Braunstein seemed to contradict himself when asked about mortgage rates and the bank’s large profits from them. “We’re not going to price a lot lower to create demand,” he said at one point, then contradicting himself saying, “These are competitive businesses and we have to compete.”
Any businessman or economist will tell you that in competitive times, businesses must lower their prices to attract customers that might otherwise go to their competitors. Critics argue that big banks like JP Morgan and Wells Fargo don’t need to compete because the handful of mortgage lenders amount to a monopoly. Again, Wells Fargo and JP Morgan account for 44% of all of America’s mortgages.
Another sign that the banks’ refusal to lower interest rates or the mountainous fees they now charge is harming America as a whole is the fact that while profits from mortgage lending went up 57% at JP Morgan and 50% at Wells Fargo due to higher fees, the number of actual mortgages originated only went up a paltry 6%.
JP Morgan Chase’s quarterly profit rose another 34% to $1.40 per share, or $5.71 billion dollars in the 3rd quarter.
As quoted in the above-referenced Post article, former Federal Reserve examiner Paul Miller remarked, “Banks are in the business of making money and are not going to cut their profit margins for the social good.” The paper went on to explain, ‘The reason why mortgage bankers are seeing so much green is that the gap has widened between what banks charge a homeowner in interest rates and what they must pay those who finance mortgage lending. The latter has dropped significantly, largely as a result of the Fed’s actions.’
What result QE3 may have is yet to be seen. But so far, it seems like the only ones benefitting from the Fed’s Quantitative Easing are the Federal Reserve’s member banks. The American people haven’t been left out all together however. We get to pay all that money back. And for the record, every man, woman and child in America now owes $186,390 in government debt plus an average of $50,450 in personal debt. That comes to a grand total of $236,840 per person that each of us owes to the world, and growing.