There seems to be a general consensus out there that QE2 was the US Federal Reserve “printing money” to buy T-bills.
I wondered about that.
So I looked at what the Fed has to say in their FAQ entry for “Is the Federal Reserve printing money in order to buy Treasury securities?” at http://www.federalreserve.gov/faqs/money_12853.htm.
Well, the first word there is very clear: “No.”
But then they say that:
The term “printing money” often refers to a situation in which the central bank is effectively financing the deficit of the federal government on a permanent basis by issuing large amounts of currency.
Ah. Well, “printing money” may “often refer” to whatever straw man one wishes. But that doesn’t answer the question. Furthermore, when they explain what they actually do, they go vague and, one can’t help but think, purposely obfuscatorial.
Suspicions, after all, can’t help be be raised when the amount of QE2 pretty closely matched the US government’s deficit.
So, here’s the way I read their FAQ entry:
We don’t print money. We just give our computers bigger numbers. That’s not “printing.”
And, if it is, we are really not printing the money, we’re buying T-bills, which other people can buy, albeit at higher prices. And, since we’re buying T-bills, we’ll eventually get our money back, so we didn’t “print money.” We only loaned money we didn’t have until we made it by magic. And we expect to get it back and then throw that money away. So the money wasn’t permanently “printed”. So it wasn’t printed.
Well, I don’t believe they ever will throw that money away. But let’s examine the situation if they do:
I print some Ben Franklins.
I loan them to you.
In a few years you pay me back.
I burn the bills you pay me back with.
Did I “print money?”
Why, “No!” says the Fed.
But all this isn’t particularly interesting.
What’s interesting is this FAQ entry is from the world’s premier central bank. This blundering lie is the state of the financial industry’s art!
Now, the “industrial” world has recently been going through a great transition. Despite what a recent spate of political axe grinding says, there has been and continues to be a tremendous broadening of ownership of stored wealth, Statistics on percentages of US people who own stocks are telling. 50 years ago no one owned stocks. Now most people own stock – if largely indirectly.
And, the financial industry is still run as if it’s 50 years ago.
Because they can.
Consider how many people in the US have interests in funds that have a house rake of over 1%. … Per year.
But why would people pay that kind of rake? Almost anyone can make their own mutual fund – an index fund – for nearly 0% overhead. Simply buy 20 or 30 stocks and hold them. Heck, just buy the Dow Industrials if picking a random 20 or 30 stocks is too hard.
As it is, though, there are billions of dollars being paid for slick brochures and a few peoples’ high salaries.
This is a field begging for disruption.