Mostly lost down the page from Mitt Romney's foreign policy meltdown last week, the Federal Reserve announced their new 'stimulus' called 'QE3' (to distinguish it from QE1 and QE2). What's a QE3, you ask? Well, I'm not an economist, but here's what I understand:
For the past couple years, the Federal Reserve has been reaching into its 'magic piggy bank', printing a bunch of money and loaning it to banks for ZERO interest, in the hopes that they will turn around and lend this money to businesses and consumers, thereby stimulating the economy.
Instead, the banks have been beating feet to the Treasury to loan that FREE money to the US government for 2%. Why? Because consumers and businesses default on their loans, but the US government never does. So $1 billion earns you a 'Romney' each year (that's $20 million, btw), risk-free.
Free money, risk-free Romneys.... what bank could ask for more?
OK, so here's where QE3 comes in: Unhappy with the banks refusal to use their free money properly, the Federal Reserve goes back to its 'magic piggy bank', prints a another bunch of money (no, not in greenbacks you or I can use, but in special 'banks only' denominations, sorry) and uses it to buy up the US government debt held by the banks, so the banks will have lots of free cash.... in the hopes that they will lend this money to businesses and consumers, thereby stimulating the economy (where have you heard this before?).
Last question before the jump: What's different about QE3? Well, QE1 and QE2 had limits on them, but QE3 doesn't. The Federal Reserve said they will buy up to about $50 billion a month, for as long as it takes - neatly co-opting the neo-con concept of 'endless limited war'.
That's your quickie course on QE, on to the real questions..... hold your nose and jump!
So my first question is: If the Federal Reserve is loaning money to banks at 0% and they are loaning it to the US government at 2%, why can't the Fed just loan the money directly to the US government for 0%? (I know, there are 'rules', but it seems stupid, doesn't it?)
Next question: Since the banks aren't 'playing ball' with their free money to stimulate the economy, why can't the Federal Reserve just do the stimulating themselves.... maybe loan the money directly to the states to finance road and bridge repair, or to the utilities to upgrade the electrical distribution system, or for any of the myriad other massively job-creating projects that are out there?
It is OUR money, after all. And, after all of this insane 'magic piggy bank' stuff is done, WE are going to have to suffer the inevitable consequence of the Fed's drunken spree of printing money, which is inflation, lots of inflation. The banks will be fine, thank you for asking, because they will still be able to borrow and lend money to make a profit.
I could rant on this subject for quite a while, but I have a day job (for a few more months until I dive into retirement), so here's the answer:
This is all being done by the Federal Reserve BANK, which, despite its government-sounding name, isn't really an agency of the federal government, just a 'quasi-private' BANK. It is the 'banker's bank', of the banks, by the banks and for the banks.
And this 'banker's bank' has a 'magic piggy bank' chock full of OUR money, and the only thing they can do with it is give it to the banks to play with.
And you STILL believe the system isn't rigged against us?