Posted December 30, 2013
by Jerry Alatalo
Economics is a field that many find very confusing – myself included. Professor Steve Keen, who lectured at the University of West Sydney, Australia, considers himself from the economic school of Modern Monetary Theory (MMT). Let me say first that I haven’t spent much time (yet) researching MMT, but with the few MMT economists I have listened to in interviews, speeches, etc., I have come to agree with their ideas. With regard to Professor Keen, in a separate interview he mentioned his wish that Professor Bill Black had been in charge of investigation and prosecution of financial crimes in the 2007-present crisis – instead of the 1980’s Savings and Loan scandals where Mr. Black was one of the lead investigators.
For the sole reason that he admires Bill Black, Professor Keen from that point became one of my favorite economists and a man who I will spend a lot of time listening to. Mr. Keen’s view is that it is private debt, not public debt, that is the real problem in the USA, Europe, and other nations. Private debt includes mortgages, credit cards, student loans, and transactions of the so-called shadow banking system – financial corporations not subject to regulations like traditional banks. You will understand the shadow banking system is running wild when you understand the supposedly “regulated” banks have run virtually wild since repeal of the Glass-Steagall Act in 1999.
The Federal Reserve began quantitative easing (QE) in the fourth quarter of 2008, with a philosophy that Wall Street (WS) was on fire and no longer lending to businesses and citizens. The result of QE, with $85 billion per month of purchases of mortgage-backed securities and Treasury bonds, has been a stabilizing of WS banks – without any helping of the American people. The stock exchange has broken records, however this has no relation to the economic conditions experienced on the ground by the citizens, as unemployment, foreclosures, poverty, etc. continue at very high levels.
The Federal Reserve has in effect doubled-down on policies that created the crisis in the first place, while credit lending remains almost non-existent – QE being like a Band-Aid on a hemorrhage – without any falsely advocated trickle down effects. QE has not been a solution in the least, and has to be seen as a problem. The Fed has increased the size of its balance sheet five times, from $800 billion to $4 trillion, roughly $1.25 trillion being mortgage-backed securities.
These mortgage securities are the complex financial instruments in which the financial industry bundled so-called toxic assets, subprime mortgages which will probably default, many of them so-called “liars” loans, where millions of people who should never have received a home loan got them through fraudulent, criminal actions by lenders across the nation. False incomes, false appraisals, and other frauds were perpetrated to get as many deals as possible done, with bonus incentives pushing the practice to historic criminal levels.
These liars and “ninja” (no income, no job, no assets) mortgage loans were then bundled into derivatives and other complex financial instruments, fraudulently classified “AAA” by the largest ratings agencies, and sold to unwary, unsophisticated customers around the world. These are what are termed “toxic assets”, and this is what the Fed has purchased over $1.25 trillion of since 2008. These are assets which the fraudsters in the too-big-to-fail banks were unable to fraudulently sell to pension fund managers, city, county, state governments, and other institutional investors. In effect the Fed has been like a “fence” for the banks, buying stolen homes. Stolen because these homes became owned by the banks through fractional reserve lending – creating money out of thin air – through a few keystrokes on their computer screens.
Imagine you stole all of your neighbors’ boats, then your local bank paid you for all of them.
Professor Keen has suggested that QE, instead of going to banks in a backdoor bailout, go to the citizens. If his suggestion had been agreed upon since the 4th quarter of 2008, then $3.2 trillion would have gone into the hands of United States citizens, with an additional $75 billion per month now that the Fed stepped down from $85 billion/month in QE. Professor Keen points out that his plan would require that Americans must use the money to pay down debt. This would result in more spending in the economy as people would have less to pay on debt service, more hiring, more taxes, etc.
Mr. Keen’s idea is creative, makes sense, and needs to be very seriously considered. The American citizens have suffered damage through the massive fraudulent actions which took place in the years leading up to the economic crisis of 2007-8. Because there are trillions of dollars worth of toxic assets/mortgage-backed derivatives purchased by those who were falsely led to believe were “AAA” (safe) investments, recovery for pension plans, governments, and others who bought them is next to impossible.
Instead of continuing to purchase these toxic assets from criminal banks – buying stolen property – direct those resources to the people, who have become the victims of the criminals who committed them.
(Thank to The BigPicture RT @ YouTube)
- The Fed In 2014: Janet Yellen And The Challenge Of Tapering And A $3.6B Balance Sheet (forbes.com)
- Andrew Huszar: Confessions of a Quantitative Easer – WSJ.com (online.wsj.com)
- Take From the Poor, Give to the Rich (lewrockwell.com)
- Ron Paul: Federal Reserve Steals From the Poor and Gives to the Rich (veteransnewsnow.com)
- Steve Keen (Briefly) Explains Why Janet Yellen Won’t See The Next Big One Coming (zerohedge.com)