The Dependence of the U.S. Economy on Quantitative Easing: Creating Bubbles That Pop and Collapsing the Economy
The U.S. Federal Reserve, through its quantitative easing (QE) programs, has become increasingly reliant on printing money to stimulate economic growth. However, instead of fostering sustainable growth, these programs have inadvertently fueled the creation of asset price bubbles that are subject to bursts, ultimately leading to economic collapse.
The Link Between the Federal Government and Quantitative Easing
The federal government is the sole entity directly dependent on the Federal Reserve's quantitative easing (QE) programs. This means that, while banks and other financial institutions indirectly rely on the Fed for liquidity, their dependence on the federal government makes them inherently intertwined with the QE strategy. Consequently, the effectiveness of QE in spurring growth in the private sector is questionable.
Evidence of Ineffectiveness in Spurring Private Sector Growth
Despite the Federal Reserve's claim that QE will stimulate growth in the private sector, the available data and common sense suggest otherwise. The federal government spends the majority of its QE funds on operational costs, payroll, military expenses, and interest on national debt. The trickle-down effect to the private sector has been minimal, if not non-existent.
The reason for this outcome is multifaceted. Banks, which are not true private enterprises but rather socialized institutions managed as such, receive the newly printed money. This process, while designed to regulate the supply of money in the economy, often fuels boom/bust cycles, leading to what is essentially a form of socialized losses.
The Present Quantitative Easing Strategy: A Response to Systemic Risk
The current approach of quantitative easing (QE) is a direct response to potential risks of a systemic collapse. This monetary policy, which was a result of the 9/11 terrorist attacks, actually contributed to the increase in international capital flows to the U.S., paradoxically making the economy more vulnerable to financial shocks.
Economic Bubbles and International Capital Flows
Other prominent economists, such as User-12649606049956233012 and colleagues, argue that significant increases in international capital flows can cause economic bubbles. These bubbles, characterized by asset price bubbles, often lead to dramatic economic downturns. The authors contend that the size of these bubbles can be directly related to the magnitude of capital inflows.
The current crisis, while severe and broad in scope, is not solely explained by monetary policy. The breakdown in the global financial infrastructure, a major contributor to the 2000s financial crisis, played a significant role. However, the present round of quantitative easing has been ineffective in generating real wage stimulus, further exacerbating economic instability.
Thus, while quantitative easing aims to stabilize the economy, it often leads to the creation of bubbles that, when they inevitably burst, cause catastrophic economic consequences. The necessity of repeated rounds of QE to prevent collapse only serves to highlight the underlying structural issues in the economy, rather than addressing them.