Let’s not forget Quantitative Easing. As Heritage explains,
The Federal Reserve’s Recent Expansionary Policies
Since 2007, the Fed has followed an expansionary monetary policy in an effort to stimulate economic growth. One key part of this effort was to buy short-term Treasury securities through its open-market operations. Through these asset purchases, the Fed injects more money into the economy. These purchases, in other words, were supposed to boost economic activity because they add reserves to the commercial banking system, thus allowing banks to lend more money.
Partly due to the ineffectiveness of these open-market operations in terms of unusually slow economic growth, the Fed instituted several rounds of additional securities purchases known as quantitative easing (QE). Under its QE policies, the Fed purchased longer-term securities in an effort to push longer-term interest rates down and, ultimately, further stimulate borrowing. The Fed engaged in three successive rounds of QE since 2008, and each had its own unique characteristics.
Characteristics of Each QE
- QE1 (December 2008). In December 2008, the Fed started buying longer-term Treasury securities as well as the debt and the mortgage-backed securities (MBS) of Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs). The Fed announced it would purchase up to $100 billion of the GSEs’ debt and up to $500 billion of their MBS from both banks and the GSEs themselves.
- QE2 (November 2010). In November 2010, the Fed announced that it would purchase $75 billion per month of longer-termed Treasuries, for a total of $600 billion. These purchases were to be concentrated in Treasury securities with maturities of two to 10 years, though the Fed also intended to purchase some shorter-term and some longer-term securities.
Trending: CDC Caught Red-Handed: Numbers Do Lie
As of this writing, the Fed holds approximately $2.3 trillion in long-term Treasuries, and $1.7 trillion in GSE securities. According to Richard Fisher, president of the Dallas Federal Reserve Bank, the Fed now holds more than 30 percent of the stock of outstanding MBS and nearly 25 percent of outstanding Treasuries. All three rounds of the QEs, as well as the Fed’s “normal” open-market purchases, were supposed to increase economic activity through additional lending.
Imagine pumping over a trillion dollars annually into an economy, and still not driving GDP over 3 percent for any year. Now that’s unprecedented anywhere in the world!
Heritage continues explaining Obama’s problem,
A large portion of these QE purchases, however, removed some of the riskiest assets—Fannie’s and Freddie’s debt and MBS—from commercial banks’ balance sheets. This fact has led some to argue that the Fed designed the QE programs as a way to bail out banks, not merely as a new form of expansionary monetary policy. Regardless of the true intent, the QE programs have been so controversial because they effectively exchanged cash—created out of thin air—for bank assets that had dramatically declined in value. From the perspective of banks, the QEs could be judged a success because the purchases strengthened their financial position.
Donald Trump now takes over. He knows this money sits in bank vaults (electronically speaking). Those funds await opportunities. I expect an economic explosion soon in America.
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