According to former Federal Reserve Chairman Alan Greenspan, quantitative easing or QE has been a failure.
Greenspan served as chairman of the Fed from 1987 until 2006 and his comments about the lack of success were made to the Council on Foreign Relations. While Greenspan was making his remarks to the Council, Federal Reserve officials were meeting in Washington, D. C. with plans to announce the end of the program.
In short, quantitative easing allowed “primary dealers” (not banks), such as Goldman Sachs, JP Morgan Securities and Morgan Stanley to sell treasury bonds to the Fed, which would then print money to cover the cost of the treasuries. Ideally, this money would then be used to make loans, buy stock options and conduct normal business. In other words, help the real economy.
These dealers usually sell these bonds from their clients, and when the Fed buys these bonds, the money moves through the dealer into the clients brokerage account and from there, into the economy. The primary dealer also has the same options as their clients. They can either pass it off to the client or invest it.
CT spoke with Nathan Wosnack, Chief Operations Officer of uBitquity about the former Chairman’s statements. “Greenspan's comments at the Council on Foreign Relations in New York regarding Quantitative Easing are factually correct,” said Nathan. “There is no way to unwind the stimulus without causing turmoil in the financial markets. As an Ayn Rand acolyte, he knows better.” Nathan continued:
“This neo-Keynesian economic system of printing money has detrimental effects beyond the financial markets. It affects the global economy since the US Greenback is still the world reserve currency. It can be felt the hardest by the poor and struggling middle class, while continuing to help widen the gap between the rich and everyone else. As always Greenspan quotes price-to-earnings ratios, capitalization rates, and reserve balances. But the problem is the US Federal Reserve exists, it prints endless money, causing massive inflation, and it helps to incentivize war/interventionism, and the expansion of government of all types, while harming the real producers in the world. Ayn Rand is rolling in her grave, I'm sure.
“I'd like to point out, of course, that Alan Greenspan during his tenure as Federal Reserve Chairman from 1987 to 2006 with artificially low interest rates, and central economic planning policies, helped create bubbles and the financial crisis (‘the great recession’) in 2008. He is largely to blame for being another major cog in the FED machine which has resulted in America's current disastrous economic situation. You can't convince someone like him to support free markets, the gold standard. And forget Bitcoin. In Dec 2013 he called it a bubble without intrinsic currency value.”
The problem with a program like this is that there are literally millions of market participants. Anyone claiming to be able to correctly forecast the inflationary and deflationary adjusts that need to be made could be simply be blowing smoke.
Greenspan did mention that while the program did lift the value of asset prices, it really did nothing to help the general economy and withdrawing from it could very well spark a “crisis.”
“I don’t think it’s possible for the Fed to end its easy-money policies in a trouble-free manner. Recent episodes in which Fed officials hinted at a shift toward higher interest rates have unleashed significant volatility in markets, so there is no reason to suspect that the actual process of boosting rates would be any different. I think that real pressure is going to occur not by the initiation by the Federal Reserve, but by the markets themselves.”
- Alan Greenspan
The fact that this QE program was Greenspan’s idea in the first place did not come up in any of his comments. It was Greenspan’s disastrous policies that caused the price of gold to rise exponentially during the 1990’s in the run up to the dot-com bubble. According to the ex-Fed chief, gold was a good place to store money because it was outside the purview of governments.
Nevertheless, gold is not immune to manipulation via derivative markets and high frequency trading. Despite gold being theoretically finite, the amount that is allowed on the market is controlled by the people who already control significant amounts of what is currently available. These people can choose when and how much gold to put on the market, either driving the price up, or down, to suit their particular trading needs.
Interestingly enough, Greenspan already made his feelings on the cryptocurrency known last year in a Bloomberg Television interview in which he said:
“It’s a bubble. It has to have intrinsic value. You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven’t been able to do it. Maybe somebody else can.”
Bitcoin, because of its capped production, is guaranteed to be non-inflationary in nature (like gold) but because it is decentralized unlike gold, which can be physically hoarded, the banks, the Federal Reserve nor the government can tamper with it, bringing the economy to the shaky ground where it is now.
Did you enjoy this article? You may also be interested in reading these ones:
- The Economist catches readers up on quantitative easing
- Bitcoin: But what about gold?
- Nathan Wosnack