Is the purpose of the Fed's quantitative easing about keeping interest rates low? Or is the aim of the US government buying $600 billion of Treasuries really about driving up stock prices to make the richest Americans even richer?
Stock prices have risen since the Fed announced its QE program and critics are saying it has created an alarming asset bubble. Indeed, Fed chairman Ben Bernanke admits a lot of it is designed to drive up the price of shares, according to MarketWatch. "Our policies have contributed to a stronger stock market just as they did in March 2009 when we did the first iteration of this program," Bernanke told a Federal Deposit Insurance Corp forum on small businesses. "A stronger economy helps small businesses more than larger businesses. Interest rates are higher but that's mostly because the news is better. It has responded to a stronger economy and better expectations."
Maybe, but it doesn't actually do anything to fix the US economy. The Fed is making the mistake of thinking that the stock market is the real economy when it's anything but. According to economic consulting firm TrimTabs, it does nothing to address the structural problems of the US economy which include unemployment at nearly 10%, a depressed housing market, enormous state and local government budget shortfalls and higher energy prices. "Quantitative easing is supposed to produce stronger economic growth and lower unemployment," said Madeline Schnapp, Director of Macroeconomic Research at TrimTabs.? "While QE1 and QE2 have worked wonders on the stock market, their impact on GDP and jobs has been anemic at best."
So the Fed's actions will not help ordinary people at all. In fact, it's more likely to make them angrier and hungrier. The only ones it will help are the rich. As Professor William Domhoff says in this study: "The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America."
Fed chairman Ben Bernanke, an academic with no experience of the real world, is just locking that in.
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