What Quantitative Easing (QE) is in Real Terms

ByPrimary Researcher

Table of Contents: Select a Link to be Taken to That Section

Executive Summary

  • Quantitative easing is a deliberately obscure term that means taking bad assets from banks and placing them on the government’s balance sheet.

Introduction

Private central banks create a fiction about QE, which is then repeated dutifully by mainstream economists. This explanation is that it is a stimulus. But, while it is a stimulus, what it is specifically is another subsidy for private banks. The private central bank (let’s say the Fed) takes assets that are worth less than what private banks say they are, and the Fed places these overpriced financial assets on the government’s books. This is said to “make the banks healthy.” This is an agreement between the private banks (many of which own the Fed) and the Fed.

There is no transparency to this process, and the private banks can say the assets they are selling to the government are worth whatever they like. How this works is explained by then-congressman Alan Grayson in the following video.

Furthermore, there are no rules about how the private bank sets the price on financial instruments that it sells to the Fed. The private bank sets the price to a “model” (i.e., whatever they want it to be), this is called “mark to model” accounting, and it is how Enron was able to fake its accounting so effectively. This is covered in the following quotation.

Mark to Model

“Mark to model accounting means an asset is being valued based on a “model,” in this case, the bank’s own internal “model” of risk and value. After all, asking a bank to accurately value an illiquid asset that is selling (and that no one else can accurately price) is like asking a raging alcoholic to determine his blood alcohol level using his own judgement instead of a Breathalyzer. To stop the derivatives market from imploding and taking down the financial system, Bernake had to reinstall investor confidence in the OTC derivatives market and its methods for valuing these securities. The problem was that in the depths of the 2008 crisis, NO ONE wanted to own this garbage, let alone buy it as an investment. So Bernake had the Fed print money and then use this money to buy these assets via a process called Quantitative Easing, or QE. And he didn’t just buy a few other OTC derivatives…he bought $1.35 TRILLION worth of them. starting in late 2008, the Bernake Fed and other financial regulators lobbied hard for the FASB to suspend mark to market accounting standards for the big banks regarding their mortgage backed securities and other OTC derivatives. This policy change, the result of pressure from the Bernake Fed, gave the banks the ability to value their assets at whatever level they wanted. Indeed, according to the new rules, banks could even tell their clients “the market value for this asset is wrong, the TRUE value is what we say it is.”” – The Everything Bubble

QE would be completely unnecessary if the government kept its money creation capability and outlawed private banks.

Source: The Everything Bubble

https://www.amazon.com/Everything-Bubble-Endgame-Central-Policy/dp/197463406X