Has all the quantitative easing by the Federal Reserve done more harm to the U.S. economy than good? The initial plan of the quantitative easing was to stimulate the U.S. economy after the most severe recession since the Great Depression—create jobs, increase lending, and get the housing market moving.
On all fronts, for the average American consumer, quantitative easing by the Federal Reserve has been failing. And, in fact, it may be creating more economic issues.
Job Creation: This has been the worst job recovery of any post-recession period since the Great Depression. The underemployment rate in the U.S. economy remains at very high levels—14.7% in September, similar to August. (Source: U.S. Bureau of Labor, last accessed October 5, 2012.) There are more than 12 million Americans unemployed and another eight million who are working part-time only because they can’t find full-time jobs.
Increased Lending: Banks’ “bad assets” were being bought by the Federal Reserve and they continue to be. One would link good money coming into banks with bad assets coming out; the banks would be lending more money to consumers. That isn’t happening. In September, consumer lending by banks in the U.S. economy decreased to 1.3% from 2.3% in August. Commercial and industrial loans were in a similar place—loans only increased by 1.4% in September. (Source: The Federal Reserve, last accessed October 19, 2012.)
Housing Market: I have been harping in these pages for far too long about the U.S. housing market. It is still down more than 30.0% since its 2006 highs. From what I can see, investors have jumped into the U.S. housing market and have bought up distressed properties. A healthy, recovering housing market has actual homeowners buying into it—not investors buying properties to rent them.
So what has the Fed’s quantitative easing done?
For me, the quantitative easing by the Federal Reserve has created more money in the U.S. economy, devalued the U.S. dollar, caused prices of commodities to increase, made big banks more profitable, pushed up the stock market (on liquidity, not fundamentals), and punished savers.
The end result of quantitative easing is now trickling down to the average American. He/she is paying higher prices for food, gas, and other basic necessities, while inflation-adjusted personal incomes are declining.
Big banks are making big money again as old junk assets continue to come off their books and fresh new money comes in. Meanwhile, Main Street is struggling to make ends meet. We have seen three rounds of quantitative easing. And it won’t surprise me if there are more rounds in the pipeline.
Where the Market Stands; Where It’s Headed:
We are near the top of a bear market rally in stocks that started in March of 2009. I’m becoming increasingly convinced this rally (what I refer to as the “bounce” or “sucker’s rally”) is getting very close to its end.
What He Said:
“What group of stocks is next to fall in light of the softening U.S. housing market? The stocks of companies that sell retail products to the American consumer, I believe, are next on the hit list. Many retail stocks are already reporting soft sales. In my opinion, they haven’t seen anything yet in respect to weaker sales.” Michael Lombardi in Profit Confidential, August 30, 2006. According to the Dow Jones Retail Index, retail stocks fell 42% from the fall of 2006 through March, 2009.