What Has The Fed Done For Us?
We’ve all heard and read plenty about the Fed’s unconventional policies over the last several years. Specifically, the term “quantitative easing” has been tossed about quite a bit by the financial media (and the Fed itself) in regard to the central bank’s bond buying programs.
Basically, quantitative easing describes the Fed’s massive Treasury and MBS (mortgage backed securities) purchases. The idea behind the strategy is to push liquidity into the economy and keep interest rates low.
Although the results of the so-called QE programs are hard to quantify, most economists do believe the unconventional policies have succeeded in their primary goals.
Here’s the thing…
One of the main criticisms about QE is that it’s only beneficial to Wall Street. And while it’s true Wall Street has benefitted greatly from the programs, Main Street has also gained.
The thing is, the benefits to Main Street are less apparent. But less apparent does not equal less effective.
For instance, just because Wall Street banks have benefitted from the extra liquidity provided by the Fed, it doesn’t mean other banks have been left in the cold.
In fact, most banks across the country were scared to make loans after the financial crisis. Because of QE, banks restarted their lending programs – which is good for home buyers, small businesses, and just about everyone.
And that’s not all…
One of the few obvious benefits of QE is what the programs have done for asset prices. Both the stock market and home prices have risen substantially because of the Fed’s policies. Whether it’s due to the extra liquidity, low rates, or just plain investor confidence, assets have clearly done well.
The result of higher asset prices is the “wealth effect”, where people typically spend more because their net wealth has risen. It’s another specific goal of QE as stated by the Fed.
Finally, lower rates (due to QE) have made it much easier for debt holders to pay down their debt. That could mean credit cards for consumers, small loans for businesses, or even mortgages. In other words, Main Street has been able to deleverage in a large part due to QE.
Bottom line, it may not be obvious, but the average Joe has in fact benefitted from quantitative easing. The Fed’s unconventional policies are often questioned – and perhaps there are legitimate reasons for concern. But, helping Main Street certainly is not one of the problems.
Yours in Profit,
Gordon Lewis
Category: Breaking News
