Bernanke, in the Jackson Hole.How exciting, soon we will be in the midst of a third round of quantitative easing! Does this mean we should break out the Korbel and celebrate? No, it probably does not, because like most of our economic policies, it will mostly benefit Incorporated Americans and people with lots of investments and will punish Poors (i.e. most of America) and possibly cause some social unrest. Here let us Explainer you!

What is Quantitative Easing?

But first, what IS quantitative easing? Quantitative easing means that the Fed creates money out of thin air, and uses it to buy up a lot of long term assets like Treasury bonds or mortgage backed securities, making long-term interest rates go down and giving investors (i.e., Incorporated Americans) a motivation to spend money. So, to simplify: let’s say a bank is holding $50 billion in government bonds that it would like to sell, but no one is buying them. The Fed is now able to step in and buy them, freeing up that $50 billion and allowing the bank to now lend money, thus increasing the flow of capital into the economy. In addition, the purchase of the bonds stimulates demand for bonds, and raises their price. Since private banks hold billions of dollars in government bonds, they can sell them and use the money they raise to make loans to businesses.

So this, in theory, is how it works.

Now that we know what quantitative easing is, we now might be wondering if it works. And the answer is kind of twofold. One: depends on who you ask, and two, depends on what we mean by “works.”

Does It Work?

The Federal Reserve, the Bank of England, and the Bank of Japan have all used quantitative easing in order to boost their respective economies. Supporters of the policy claim that quantitative easing has increased the supply of money, allowing banks to lend money to people who otherwise would not have qualified for loans. According to the Guardian,

It has not worked quite as planned – banks have hoarded the money to boost their reserves. But critics of QE who say it is useless must answer the point that without it banks would have withdrawn even more loans, triggering more bankruptcies and repossessions.

Another pitfall is that higher bond prices also translate into lower long term interest rates (because the rate a bond pays is fixed, if investors pay more to get the bond, the rate it yields starts to look correspondingly lower).

The Bank of England’s own report on quantitative easing found that it helped Incorporated Americans and did little or nothing for anyone else. Via Business Insider:

Last month, the Bank of England issued a report saying … the Bank of England’s policies of quantitative easing – similar to the Fed’s – had benefited mainly the wealthy. Specifically, it said that its QE program had boosted the value of stocks and bonds by 26 percent, or about $970 billion. It said that about 40 percent of those gains went to the richest 5 percent of British households… The BOE countered that the benefits of easing may have trickled down, and that “without the Bank’s asset purchases, most people in the U.K. would have been worse off.”

Donald Trump – not usually one for distributional analyses of monetary policy – said CNBC [on Saturday] that “People like me will benefit from this.”

(By “people like me” he means “rich people,” not “people who believe that the President was born in Kenya” or “people who are orange” or “people with hair that defies the laws of gravity.”)

The reason is simple. QE drives up the prices of assets, especially financial assets. And most of the financial assets in America are owned by the wealthiest 5 percent of Americans.

According to Fed data, the top 5 percent own 60 percent of the nation’s individually held financial assets. They own 82 percent of the individually held stocks and more than 90 percent of the individually held bonds.

Bernanke is probably mindful of this report and of this criticism, which is why is he is buying mortgage-backed debt with the idea that it will lower the rates on mortgages, which in theory will benefit the middle class.

But anyway,  the question might not be “does it work?” but “for whom does it work?” And the answer, even from liberal rags like Business Insider, is that it works, but the direct and primary beneficiaries are not You People — unless, of course, You People have enough money saved for a down payment on a home (or own a home with enough equity to allow for a refi).

To quote Mommy Benson, who has an MBA in accounting from NYU’s Stern School of Business, “this whole thing really fucks the middle class.” Why does it fuck the middle class, Mommy Benson? Well, it fucks the middle class because anyone trying to save money cannot earn a decent interest rate on anything, and the stock market is too volatile for those of us without a significant cushion.

But Will There Be Jobs?

Remember, the Fed is doing something very specific with the money it is making out of thin air. It’s not throwing it out of the windows of an SUV that is careening down the streets of Los Angeles; it’s buying bonds. And it is buying bonds to lower interest rates, and to increase the banks’ supply of money in hopes that they will lend it for low interest rates. According to CNN Money, it might create some jobs, and it might not:

“We know that QE reduced interest rates, but we also know that has not led to more construction, more mortgages, more business investment, or more lending,” [Brandeis University Professor and former Federal Reserve Economist Catherine] Mann said. “Since it hasn’t done any of that, it probably hasn’t created jobs either.”

Meanwhile, banks are sitting on $1.5 trillion in excess reserves and haven’t been eager to lend that money out. In fact, low interest rates make it harder for them to turn a profit on new loans.

Still, some economists say QE3 could be modestly helpful. It may drive stocks higher. It could also support the nascent recovery in the housing market.

In sum — liberal rags like Business Insider, CNN Money, and the Bank of England’s recent report, are skeptical about the ability of quantitative easing to create jobs. That is not to say that there are no advocates for it — after all, Bernanke said he is doing this because he is concerned about employment, and in his Jackson Hole speech, told academics that the Fed’s first two rounds of quantitative easing had created more than 2 million jobs.


Some people think quantitative easing works; some don’t. We will all soon find out for ourselves.

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  • Come here a minute

    QEIII may not create many jobs, but at least it won't cause Muslim riots.

  • OzoneTom

    As long as OzoneTom, LLC gets it's share it's all good.

  • ChernobylSoup

    And here I thought it was the next iteration of a transatlantic luxury liner.

    • kittensdontlie

      And metaphorically speaking, we people are stowaways.

    • Come here a minute


  • I still don't understand why they don't just give more munnees to families and let them spend it. It's not like the mortgage crisis is going to get worse from our end.

    • gullywompr

      W did that. Economy still crashed.

      • Wait. When did that happen?

        • gullywompr

          Rebate checks, I think it was 2008? Don't feel bad, I never got mine either.

        • Blueb4sinrise

          2008 I think.

        • fartknocker

          When GWB2 sent some you a check for $635 and Walmart had it's best quarter in 2009.

          • emmelemm

            $635???? Mineses was $300.

          • BigSkullF*ckingDog

            I put mine in savings and told Bush to kiss my ass. So the economy is pretty much all my fault. Sorry guys, my bad!

          • PsycWench

            I made up for you.

        • chicken_thief

          Like 2001 or so. I personally would not relate it to the crash, howevz.

    • TheGyrus

      Because then how will the bankers get their cut?

    • Boojum

      They should quantitatively ease (pay off) student debt, instead, which will put gobs of munnies on the demand side as the Youngs say "free munnies!" and run buy beer and hookers.

  • gullywompr

    Today, we are all Keynesians. Or Kenyans. Or both.

    • Personally, I'm a Ken Keseyean.

      • gullywompr

        I call bullshit – you wouldn't remember if you were.

      • mrpuma2u

        I got your cuckoo's nest right here pal….

      • zippy_w_pinhead

        not such a great notion…

      • bobbert

        Furthur on up the road.

      • sati_demise

        I'm trippin' right now.

  • BaldarTFlagass

    Do I have to read all that before I make a comment? Fuck that.

    • There's a quiz next week

    • noodlesalad

      Controversially hidden in the middle of the text is the audacious claim that Donald Trump is a person.

    • Blueb4sinrise

      Gotta do a coupla lines first.

    • RadioX

      I respectfully disagree.

    • Jus_Wonderin

      BTF, now don't be that way. I read it and got a coupon for a free Mucho Nacho from Taco Bueno. See…………………..

    • kittensdontlie

      What if it added an extra 5 points to your IQ?

  • HempDogbane

    Quick! Plant some corn in your backyard! Or on the balcony.

  • ChernobylSoup

    I wonder if anybody has ever read this Keynes fellow I've heard about. Something about deficit spending and job creation. I think it's even been proven to work. Anyone?

    • Boojum

      And spending on decaying infrastructure having some thing called a "multiplier effect," which is Math for free munnies.

  • noodlesalad

    Quantitative Easing, it's like ExLax for the 1%

    • Nostrildamus

      Be prepared for the trickle down.

  • BaldarTFlagass

    So, the solution is for the Fed to give a bunch of money to banks? Sounds like a good idea to me!!

    • rickmaci

      No point in giving a share to me. I'd just blow it.

      • BigSkullF*ckingDog

        I would just waste it on food and clothes and stuff.

    • emmelemm

      What could possibly go wrong?

    • sati_demise

      at least they are telling us what they are buying this time. during Bush the FED just shoveled it out to rich people all over the place. Bernie Sanders made them cough up the names…..

  • Lascauxcaveman

    I just don't know, QEII just sits there at the dock in Long Beach, not doing a whole lot for our economy.

    Oh, that's the Queen Mary? Nevermind.

    • hey, hey, my husband's people came to America on that boat!

  • coolhandnuke

    Cold Duck and Ripple for all my friends.

  • Quantitative Easing is a veritable thrill ride — one that's been dismantled and is sitting in pieces waiting to be put in the trailer.

  • Speaking of Fed Chair-rubs, and although we thoroughly trashed Newzweak earlier today, they do have an interview with 800-yearold Paul Volcker who clearly states that Paul Ryan's Plan is a pandering pile of pachyderm poo.

  • Peckerwood_Pete

    No matter who gets elected this year… Big Ben ain't goin' nowhere…. get ready for your money to be even more worthless….

    • JerkCade

      Yes. Somehow it always gets left out of these overviews that printing more money makes what little we have even less valuable.

      But, low interest rates!! Woot!!

  • anniegetyerfun

    Korbel? Fancy.

    • It's really just store brand ginger ale.

  • chicken_thief

    Ben jes has the hots for that negroidal Kenyan muslin in the White House. That's what the headline I saw on redstate said.

    And media in the tank for Obummerz. Because welfare for the New Black Panther Party.

    • oenspiek

      The New Black Panthers are working in the media now? Maybe that's why I haven't seen them around the conspiracy lately.

      A jerb is a heckuva thing.

  • Pragmatist2

    When I get worried about the world economy, I find a trip to Jackson Hole makes it all go away

    • LaToya or Tito?

      • Pragmatist2

        LaToya – no contest.

    • natoslug

      A trip to anywhere makes all my money go away these days.

  • chicken_thief

    All that was tl;dr. I'll just wait for Lou Sarah's facebook post to let me know if this is good news or not.

  • Fukui-sanYesOta

    I'm liking this Kris E. Benson chap.

    QE's goal is to increase liquidity in banks which is supposed to spur lending to small businesses and so on. Whether this actually happens is up for debate; much bank spending is on semi-liquid assets and is intended to help the banks' bottom lines. Which is capitalism and rational for the banks.

    I'd argue that the low interest rate is bad for the economy. It deters saving and holding cash – which a lot of people are doing anyway, because jesus fuck, the economy ain't great. A moderate increase in interest rates would inveigle some silly people to buy jet-skis or hummers or whatever the fuck people buy since the value of the dollar decreases and thus people feel like they have money in their homes again.

    This round of QE benefits Pimco and banks and traders, not Americans in general. I hope that it stimulates something, but the winners aren't us, in general.

    Bang up the interest rate a bit, deflate the dollar, and something might happen that's good.

    This post is depressingly snark-free.

    • So it's supply side banking… great.

    • emmelemm

      "K"ris-es are usually girls-es. But I'm not positively in the know.

      • Fukui-sanYesOta

        Really? Damn. I apologise to the Kris in question if I'm wrong.

        But, really? I figured it was just a middle-state thing with boys.

        • BloviateMe

          Kris Kringle was a chick?

          Explains Santa's "belly"…they were just saggy tits the whole time.

        • BigSkullF*ckingDog

          Either girl or aggressively Germanic spelling.

    • Boojum

      I say just spend money on building shit, said money to go directly to people building shit, not to pass through the hands of banksters.

      • Fukui-sanYesOta

        Keynsian Marxist.

        I'm quite liking this new Caldecott tunnel bore, which is a stimulus project.

  • Serolf_Divad

    What's Quantitative Easing? It's the only thing that's left to fight a recession when interest rates are already at the zero bound and Republicans have declared that as of January 20th, 2009, government spending is no longer capable of, in any way, stimulating the economy and they'll filibuster any attempt to do so.

    • HistoriCat

      Bah – I can solve this problem for a tiny fraction of the cost. All I need is some lamp-posts and some rope.

      • Boojum

        Rope = votes. Right?

  • mrpuma2u

    "It has not worked quite as planned – banks have hoarded the money to boost their reserves. "

    You mean when you gave big banksters big hoards of money they just sat on it, like that narcissistic dragon in "The Hobbit"? That IS shocking.

    • Boojum

      Well, they did pay some of it out in bonuses for executives.

    • natoslug

      If I'm dressed as a knight, am I allowed to slay the dragon and take its hoard?

    • sati_demise

      as if the "banks are hoarding the money". they are gambling in the commodities market raising prices for all of us on food & gas & pork bellies, they are gambling in the derivatives market- and losing at times.

      Maybe they are hoarding their winnings from this casino, but they certainly are not making investments in 21st Century innovation.

  • Supply side banking will work out as great as supply side economics…

    Oh shit.

    See you out on the breadlines people

    • rickmaci

      Can you spare a dime? (I still haven't figured out what that is in Ameros.)

  • chascates

    Is this the same thing as 'priming the pump'?

    • EatsBabyDingos

      Or is it "pimping the prime (rate)?

    • Boojum

      No. Priming the pump refers to demand side interventions, such as work programs and infrastructure. This is more in the nature of fluffing the Fed.

  • randcoolcatdaddy

    Quantitative easing works, but only with the right amount of alcohol, dim lights in the bar, and the right pick up line.

  • RadioX

    The third round of quantitative easing!? The doctor recommends Pepto-Abysmal®.

    • Fukui-sanYesOta

      The Doctor is right.

      QE buying MBS again?

      Straight up Keynesian stimulus again, please. Because that works.

  • Queen Elizabeth the 2nd is dead? Where did they dig up another Queen Elizabeth?

  • MonkeyHamlet

    You lost me at quanta….quannit….quntat… I'll wait for the Kardashians' explanation since they know all about money coming out of thin air.

  • barto

    I, for one, would like the CBO to score "throwing it out of the windows of an SUV that is careening down the streets of Los Angeles" before I'm willing to buy into this.

    • Boojum

      It would work pretty well, actually.

  • BloviateMe

    I bet this article would be vastly interesting if a fella had money.

  • PsycWench

    For some time I've been hearing that big companies are making serious money but deliberately not hiring. But I'm sure banks holding more serious money would never do anything so selfish and craven.

    • HistoriCat

      Of course they're not hiring – why hire two employees when things are slow and you can terrify one employee into putting in an extra 20-30 hours of work at home so that they can hold on to their crappy job?

  • Poindexter718

    Unless Treasury intends to hold these bonds till maturity, the eventual and intevitable quantitative tightening is going to be painful.

  • PsycWench

    How long before this post is cited in someone's Econ 101 paper?

  • BigSkullF*ckingDog

    Can we just have negative interest rates already? Can the bank just fucking take 1% of my savings every year?

    • savethispatient

      Aren't they already charging you a $30 just-cos-we-feel-like-it convenience fee, randomly twice a month?

      • BigSkullF*ckingDog

        No, but then all my monies are in an online bank that may or may not actually exist.

  • BigSkullF*ckingDog

    Quantitative easing is when I unbutton my pants after a big dinner.

    • PsycWench

      Does burping count?

  • "Ben Bernanke's Def Finance Jam", however, launched many Spoken Balance Sheet artists.

  • kittensdontlie

    In these trying financial times, we are all in the same boat, although most of us are riding in steerage.

    • emmelemm

      Or working the oars.

  • BigSkullF*ckingDog

    Mommy Benson is kind of a downer.

    • Fukui-sanYesOta

      How did you intuit that Kris was a lady and I totally missed it? I suck.

  • pdiddycornchips

    There's a very simple way to think about all this. Bernanke and Geithner have spent their tenure coddling rich investment bankers. If they're doing it, it's helps the banksters and hurts the rest of us. That's their record. I see no reason to believe QE 3 will be any different.

  • ChernobylSoup

    Quantitative Easing is when you lower your standards as it gets closer to closing time.

  • Jus_Wonderin

    Mom's comment about QEIII and the continued lowered interest rate on her precious Certificates of Deposit.

    "Oh well, I am in my twightlight years. Soon I won't know or care what percentage rate I get on my money."

  • OneYieldRegular

    I suppose I'll come off as uneducated if I say I'd prefer the throwing of cash out of the windows of SUV's careening through the street of Los Angeles, or off of bicycles careening through the streets of San Francisco.

  • mull_man

    Keep pushing that string*, Ben you motherfucker

    *subversive keynes reference

  • BlueStateLibel

    Didn't the banks just get a whole bunch of money just a few years ago? Yeah, I think so. I'm not going to repeat the whole-known definition of insanity, but it certainly applies here.

  • I read the whole article assuming there would be something about QEIII's granddaughter's topless photos.

    I was terribly disappointed.

  • savethispatient

    Did Mommy Benson also learn her potty mouth at her fancy elitist New York school, or was that good old-fashioned blue collar swearing?

  • BartStarrland

    I get why banks are under greater pressure to hold more capital. I get why companies like Microsoft are sitting on all that cash. What I don't get anymore is any persisting idolatry of the corporate CEO. Seem like a bunch of pussies to me.

    • sati_demise

      they are chickenshits afraid to invest in the 21st Century.

  • magic_titty

    There's no real incentive for the banks to not hoard the money, so, uhh, good luck with that, BB.

    • sati_demise

      word. they can make more gambling on commodities and derivatives than investing in the real economy. the Shadow Banking system has taken over

  • DahBoner

    But, but, but Goldman Sachs says it's creating 10,000 Small Businesses, so for over 30,000 American towns, that's one new business for every 3 towns!


    • JerkCade

      It's God's work.

  • Generation[redacted]

    I say we use that money to buy monocles and top hats for all the homeless people. This will do much more to improve consumer sentiment and get us on the path to prosperity.

    • BartStarrland

      Fake it 'til you make it!

  • LibrarianX

    OK – show of hands. Who could use a 0% loan from the Fed?

  • JerkCade

    I'll take that 0% loan and loan it back to them at interest!

    Then, once I'm rich enough, maybe I'll create a job or two.

  • mull_man

    You know, Quantitative Easing, QEIII, seems so pedestrian. How about
    Financial Instrument Limited Liquidition and Intermediation Operation, or FILLATIO III

  • vulpes82

    What would really create jobs would be stimulative action from Congress, but, you know SOCIALIZMS, so all we have to pin hopes on is this Fed stuff, which may or may not work, but, hey, at last SOMEONE is doing SOMETHING.


    "In fact, low interest rates make it harder for them to turn a profit on new loans."

    Actually, prime interest rates charged by banks to the public are at least 3% higher than the Federal funds rate, so WTF? Is not enough? Sorry about that.

  • SheriffJoeBiden

    All due respect, Momma Benson is wrong when she speaks so broadly about how QE "really fucks the middle class."

    It "fucks" only those people who depend heavily on interest income right now or in the very near future. Maybe it "really fucks" some of those people, I don't know. But they'd be fucked by the standard, uncontroversial efforts of the Fed to lower interest rates during recessions anyway. Meanwhile QE is merely annoying, possibly anxiety-provoking, for the vast majority of the "middle class" who are looking for a decent rate on a CD, for example.

    And that leaves aside the good effects. Any criticism of QE has to be weighed against the alternative. For example, the benefits of QE accrued chiefly to the banks, who got crazy cheap money, but they didn't lend much of it. OK… but how much less THAN THAT would they have lent, had we not done QE? Or, QE helped only people who owned stock. OK… that's a problem? Such criticisms are of a piece with right-wing criticism of the stimulus–"We had a stimulus, the economy still sucks, so obviously it's bullshit."

    Overall, this post kinda misses the whole point of why this round of QE, in particular, is a huge deal.

    When it was announced, Bernanke took the unprecedented step of saying we're gonna keep doing this indefinitely until the jobs situation improves. That's where this post misses the point–this is gonna lead to inflation, and that's a GOOD thing. We want some inflation now. We want businesses to say, hey, we'd better invest in some shit right now cuz it's gonna cost more next year. We want people saying, hey, I'd better find a place to invest my money because it's going to lose value sitting under the mattress.

    (Inflation also lowers the national debt and deficit.)

    Read more about this by googling "nominal GDP targeting".

    All in all, not a great Explainer. Sorry!

    • Fukui-sanYesOta

      But they'd be fucked by the standard, uncontroversial efforts of the Fed to lower interest rates during recessions anyway.


      That's where this post misses the point–this is gonna lead to inflation, and that's a GOOD thing.

      Yes yes yes and yes again. It'll hurt short-term, but longer-term it'll be worth it.

  • pdiddycornchips

    "Such criticisms are of a piece with right-wing criticism of the stimulus–"We had a stimulus, the economy still sucks, so obviously it's bullshit."

    No, they are not. Stimulus can be done in any number of ways that does not funnel every penny through the banks. For instance, the stimulus package passed early in the Obama administration sent large amounts of federal dollars to struggling states. That money enabled states to keep thousands of people on their payroll. Since then, many struggling states have had to cut services which means not only does the public suffer from shorten hours at libraries, courts and other services but many state workers had to be laid off. Bernanke has myopia. He can't see beyond the edge of Battery Park.

  • Huzzah! An relevant excuse to link to another old post from my neglected blog!

  • well if it pisses off baggers, i'm all for it.

  • ttommyunger

    "…Another pitfall is that higher bond prices also translate into lower long term interest rates (because the rate a bond pays is fixed, if investors pay more to get the bond, the rate it yizzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz"

    • Fukui-sanYesOta

      Tim? Tim Pawlenty?

      • ttommyunger

        Also, too.Sent from the Field, not in Garrison.

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