Why isn’t QE working?

The simple answer is that Quantitative Easing (QE) is working as planned; it’s just that it is not working as advertised to the brainwashed masses. Just to be clear, the advertised purpose of QE is that it originally was supposed to boost the economy by injecting money into it by the Federal Reserve (Fed – a privately owned central bank) buying back treasury bonds from banks who would then lend the cash back into the economy making more money for the banks while expanding the money supply (though banks don’t actually lend anything, they create loaned money out of thin air – another blog). These loans to people and businesses would be spent into the economy buying company products thereby increasing company sales, profits, etc. Recent QE versions have the Fed also buying corporate bonds, etc., accompanied with loans to banks at virtually zero interest rates, but the advertised principle is still the same.

So what is actually currently happening?

The money is not being loaned back into the economy. The banks are using the money to shore up their required reserves which have been depleted during this depression (yes we are in a depression – the government fudges the numbers to pretend we are not) and like other corporations are buying back their own stock to boost share prices. In addition to banks supposedly lending out this newly acquired money, other corporations would supposedly invest QE money into capital expenditures boosting manufacturing, sales and profits. I state supposedly, because it is not happening. The QE money is being used to retire debt and buy back company shares of stock.

So why do CEOs use the money to buy back company stock?

Buying large quantities of shares of company stock artificially boosts the share price which makes shareholders happy and the CEOs rich. CEOs usually get bonuses in the form of stock options. Options give the right to buy shares at a certain price (strike price). When the company issues these options to the CEOs they are usually at the current share price, so are not worth anything when issued except for the fact that they can be held and exercised in the future up until their expiration date when the share price is hopefully higher than the strike price. This is supposed to be a performance incentive for the CEO to increase the business value and therefore the share price. When the share price increases, the CEO makes the profit of the difference in the share price and strike price times the number of options. However, CEOs knowing we are in a depression and any increase in production will not be sold and simply increase inventory, they instead buyback shares to increase the price and make themselves rich while actually decreasing the value of the company. The inflated share price will eventually crash back down and the company will be left with a loss, but only after the CEOs have cashed out their options and made their millions.

So why does the Fed do QE?

For the same reason they bailed out the banks in 2008 with the Troubled Asset Relief Program (TARP). Because they are crooks! QE also makes the members of the Fed rich who own these stocks and so collude with their CEO buddies. Also, it makes the rest of us poorer, more in debt and thus more enslaved to them. To quote George Carlin, “They own this f**king place. It’s a big club and you ain’t in it!”