Federal Reserve & Obama Make Big Business Richer

Comrades,

There has been some talk about Federal Reserve Chairman Ben Bernanke will stop buying up 85 billion worth of bonds per month. You can find some of the discussion on this subject, amongst other things, with FOX News Sunday with Chris Wallace here.

http://www.hulu.com/watch/504094

Part of the Panel, at the end of the show, made some interesting points.

KRISTOL:” Exactly. (inaudible) mostly took the words right out of my mouth yesterday, five or six different answers about what should I think about this. So I think, yes, there was a reasonable reason for an emergency intervention in ‘08. Keeping a zero interest rate going for five years is just asking for trouble down the road. It’s kind of a Faustian bargain, and I’m afraid we will at some point pay the price for it.

The other thing I will say is I do think the zero interest rate regime has been good for Wall Street, good for big banks, good for big government, which can borrow incredibly cheap. If the interest rates were higher, we would see much more of an impact on the deficit. It’s been bad for small savers who can’t make any return on safe investments. It’s been bad for small business, actually, because community banks are hurting, they don’t benefit from this regime. So I do think the Bernanke policies are part of an overall set of policies which I think characterized the Obama administration. It’s true of Obamacare, I think, true of Dodd-Frank. It’s basically good for big banks, big business, big government, big Wall Street, and not very good for middle class America, for small savers, for small businesses.”

WOODWARD: “Well, first of all, the strategy is a risky one. Five years, effectively zero interest rates. Let’s face it, it’s an experiment. No one has ever done it. And I think within the Fed, they are kind of saying, gee, let’s see – we’re going to have to get out of it at some point in a kind of tentative – he sounded like Greenspan. On one hand, on the other hand, you didn’t know what he meant. But just the idea that it’s not going to last forever sent a real shock to the markets. And the question is, and this is the looming one, what’s the real condition of the American economy? Because this is an artificial boost to it. And if you take the artificiality out, where do we go? And no one knows that answer.

And this is the big — I think this should be Roman numeral one for Obama and the congress. They’ve got to do something. Their role in the economy, and they have just punted by and large.”

HUME: “But worrying, of course, for someone like Bernanke is when you’ve got interest rates at this level and this much stimulus in the economy from that, and the economy strengthens to the point where we have got some reasonably robust growth, you’re right on the danger point for an outbreak of inflation. And that’s what a fed chief has to be concerned about.

And the deft thing that fed chiefs often have to do is try to begin to raise rates in such a way that it doesn’t blow up the force of whatever recovery is going on, but in time to prevent an outbreak of inflation. And once the inflation genie is out of the bottle, as you’ve heard many people say, it’s very hard to put it back in.

The last big experience we had with that was with the new hyper inflation we had in the late 1970s, and a massive recession was induced when Paul Volker clamped down on that and interest rates to the point where we went through a nasty recession with unemployment much higher than it was in this most recent one. And that, of course, is what Bernanke is trying to head off.

But as Bob suggests, this is a dangerous game he’s playing. He’s playing with fire. He has been playing with it for years. And whether he can get us out of the building before it burns down is really the question.”

WOODWARD: “We don’t know. It’s just like Greenspan. It looked like he did a great job and then there’s been lots of criticism. And the impact of what the fed does often comes years later when people look at it and say, oh, they missed this bubble, like the housing bubble.”

So we find out that the FED is buying up bonds from companies, and doing this, along with low interest rates, hurts average people and small businesses and banks. But on the flip side, these programs have helped the rich and big business and banks, the ones who helped to bring about this problem in the first place.

So to get out of the collapse, they perform a new experiment, and this new experiment makes the rich richer and makes sure that small business and people have a tougher time. This is all policies that characterize the Obama administration.

We will not know the consequences of these actions till years later, which is exactly what happened with the housing bubble or housing market derivative bubble which helped facilitate the economic recession, or depression, we are going through.