Dear Mr. Berko: In simple, noneconomic terms, could you tell me why the Federal Reserve's three rounds of quantitative easing either failed to work or are taking too long to work? Some five or six years ago, you wrote an article about how a town in Arkansas had solved its debt problem. It made such good sense, and I'd like to see it again. — LD, Jonesboro, Ark.
Dear LD: Give me a couple of weeks and I'll write it again.
Congress and the Federal Reserve believed that a trickle-down approach — giving money to big banks, which in return would lend the money to consumers — would solve the nation's economic problems. The Fed believed that consumers with pockets of cash would increase buying power and stimulate demand for goods and services, which would improve economic activity and put millions of Americans to work. Now, that sounds like good economic theory, but the problem is it's only theory. The approach didn't work, because banks that were supposed to trickle down kept most of the "trickle" for themselves.
QE1, QE2 and QE3 failed to adequately stimulate economic activity because quantitative easing was a political solution to an economic problem rather than an economic solution to an economic problem. To effectively goose the economy, the QEs should have provided immediate infrastructure jobs for millions of Americans. Those shovel-ready jobs are needed to rebuild thousands of bridges, clean our rivers, enlarge our deep-water ports, improve our electrical grid, strengthen our dams, rebuild our highways, modernize our airports, etc. In this manner, millions of Americans would receive paychecks for supercharging our economic infrastructure, which is responsible for creating new jobs and maintaining most current ones. In this process, millions of Americans' paychecks would be deposited in the nation's 90,000 branch banks every week from coast to coast. Certainly, an improved rail system, modern airports, a more effective highway system, larger deep-water ports, etc., would create a perpetually moving job machine, virtually funneling trillions of "Q-wages" flowing from consumers' pockets into the banking system.
New Q-wages would quickly generate higher demand for goods and services, quickly creating new jobs and new demand needed to support a healthy, growing gross domestic product. However, the Fed gave those trillions to the nation's biggest banksters. The banksters were supposed to lend those huge piles of excess cash, in small amounts, to Bobby Brown, Judy Lane or Alphonse Miller to finance and expand new business opportunities.
And this is where the Fed and Congress made a huge political mistake. Every fool knows that you can't trust a starving dog that smells red meat. Nor can you trust a bankster who smells money. In the years between QE1, QE2 and QE3, the economy limped forward like a ruptured duck. Wages and disposable income fell; interest rates crashed; GDP growth was anemic; inflation was tired; corporations were purging employees to reduce costs; and consumer debt grew to record numbers. However, the big banks were having profit orgies with those trillions. They gobbled up stocks and bonds; the stock market more than doubled; and banksters made billions. The rich became terribly richer and, with their Q-money, bought garbage by de Kooning, Pollock and Klimt from Christie's for hundreds of millions of dollars. Multimillion-dollar museum homes were being built by traders and hedge fund owners. Investment banksters at JPMorgan Chase, Goldman Sachs, Citigroup, Bank of America, Morgan Stanley et al. used those trillions to corner the world markets in airline fuel, nickel, aluminum, cooper, wheat, oil, etc. Then they directed hundreds of billions of dollars' worth of commodity profits into personal and corporate balance sheets, handed out unlimited political contributions and enjoyed frequent soirees aboard their gleaming mega-yachts. And while record numbers of Americans defaulted on their mortgages, millions of other Americans were having trouble remaining current on their revolving loans.
Meanwhile, the American Society of Civil Engineers has given our infrastructure a D-plus. Frankly, it's probably worse than that. And some cynical observers believe that Congress is saving infrastructure repair for the next recession.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.