QE Forever: The Fed's Dramatic About-Face

Feb. 22, 2019 4:14 AM ETTBT, TLT, TMV, IEF, SHY, TBF, EDV, TMF, PST, TTT, ZROZ, VGLT, TLH, IEI, BIL, TYO, UBT, UST, DLBS, GOVI, DTYS, VGSH, SHV, VGIT, GOVT, SCHO, TBX, SCHR, SPTI, GSY, TYD, DTYL, EGF, VUSTX, TYBS, DTUS, TUZ, DTUL, DFVL, TAPR, DFVS, TYNS, RISE-OLD, FIBR, GBIL, HYDD, UDN, USDU, UUP, RINF44 Comments
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Ellen Brown
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Summary

  • The Fed relentlessly pushed on with quantitative tightening through 2018, despite a severe market correction in the fall.
  • December 2018 was the first time in two years that all loan types and all major metropolitan statistical areas showed a higher default rate month over month.
  • Chairman Powell evidently got the memo. In January, he abruptly changed course and announced that QT would be halted if needed.

"Quantitative easing" was supposed to be an emergency measure. The Federal Reserve "eased" shrinkage in the money supply due to the 2008-09 credit crisis by pumping out trillions of dollars in new bank reserves. After the crisis, the presumption was that the Fed would "normalize" conditions by sopping up the excess reserves through "quantitative tightening" (QT) - raising interest rates and selling the securities it had bought with new reserves back into the market.

The Fed relentlessly pushed on with quantitative tightening through 2018, despite a severe market correction in the fall. In December, Fed Chairman Jerome Powell said that QT would be on "autopilot," meaning the Fed would continue to raise interest rates and to sell $50 billion monthly in securities until it hit its target. But the market protested loudly to this move, with the Nasdaq Composite Index dropping 22% from its late-summer high.

Worse, defaults on consumer loans were rising. December 2018 was the first time in two years that all loan types and all major metropolitan statistical areas showed a higher default rate month-over-month. Consumer debt - including auto, student and credit card debt - is typically bundled and sold as asset-backed securities similar to the risky mortgage-backed securities that brought down the market in 2008 after the Fed had progressively raised interest rates.

Chairman Powell evidently got the memo. In January, he abruptly changed course and announced that QT would be halted if needed. On February 4th, Mary Daly, president of the Federal Reserve Bank of San Francisco, said they were considering going much further. "You could imagine executing policy with your interest rate as your primary tool and the balance sheet as a secondary tool, one that you would use more readily," she said. QE and QT would no longer be emergency measures but would be routine tools for

This article was written by

Ellen Brown profile picture
1.22K Followers
Ellen Brown is an attorney, president of the Public Banking Institute, and the author of twelve books. Shedeveloped her research skills as an attorney practicing civil litigation in Los Angeles. In "Web of Debt," she turned those skills to an analysis of the Federal Reserve and “the money trust.” She showed how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. In "The Public Bank Solution," her latest book, she explores the public banking model globally and historically as an equitable and efficient solution to our banking woes. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” They include "Forbidden Medicine," "Nature’s Pharmacy" (co-authored with Dr. Lynne Walker), and "The Key to Ultimate Health" (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com, www.publicbanksolution.com and www.ellenbrown.com.

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