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Monday, November 04, 2013

When QE Doesn't Work

The Fed has been printing a trillion dollars a year in a program they call “Quantitative Easing”—QE. Their goal is trickle-down economics. By pumping that money into the stock market, the Fed hopes to raise stock prices, which they have. Stockholders would then presumably spend their profits to create new jobs.

Unfortunately, this crude theory simply does not work. For each job created since 2009, the Fed has had to spend half a million dollars in the stock market buying shares. It would have been cheaper just to have written checks to consumers for $500,000. Clearly, QE isn't working to create jobs. So, what will the Fed do next?

Devalue the dollar. By making everyone in the US poorer, they will create more business. Or, so the theory goes. But, given the stupidity of the Fed, what do you think the chances are that their new scheme will work?

Obviously, the Fed is flailing around and making everyone (except stockholders) poorer in the process. By the time the Congress wakes up and gets rid of the Fed, we'll all be a lot poorer as a group.

Of course, our subscribers will tell you that it doesn't really apply to them. They're making money hand over fist in this market.