Federal Reserve QE Critic Andrew Huszar.

Posted March 11, 2014

by Jerry Alatalo

After working for the Federal Reserve in the Fed’s original quantitative easing (QE) program, Andrew Huszar gained some fame, and controversy, by writing an op-ed article titled “Confessions of a Quantitative Easer”. Mr. Huszar was intimately involved in his Fed job with purchases of mortgage-backed securities and Treasury bonds, all part of the Fed’s so-called QE1 and purchases of some 1.2 to 1.7 trillion dollars.

Mr. Huszar left the Federal Reserve and it took him some time before feeling compelled enough to speak up on what he saw as certain dysfunctions in the QE programs. The line that caused the most controversy from Mr. Huszar’s article was, “the biggest backdoor bailout of banks in history”. He has come to believe that QE was/is (although “tapered” the Fed still purchases bonds at a clip of 65 billion per month) a very bad path since the program began in the fall of 2008.

He started working for the Fed in April 2009 and his impression was that there would be QE1 and that would be the end of it. The Fed described QE as an effort to stimulate lending by banks, with a semi-official name of “credit easing”. The often heard term “trickle down” was the supposed goal/result of QE1 but, according to Andrew Huszar, the rains did not fall down on citizens and small businesses – “Main Street America”.

He came to see clearly that the costs of QE1 were far outweighing the benefits envisioned or predicted by the Fed’s top management. He left the Fed before the start of QE2, when the Fed for some reason changed the name of – started referring to – their actions from “credit easing” to “portfolio balance theory”. Now the goals of QE2 became driving up financial prices, resulting in the well-off having more cash to spend, stimulating the economy and job creation in the process.

Mr. Huszar saw that the Fed had begun to “spin” the reasons for QE purchases. This is a little reminiscent of the reasoning changes by the George W. Bush administration from the buildup to the years of the Iraq War, where the supposed cause for military action went from “weapons of mass destruction” to “freedom for the Iraqi people” to…

Mr. Huszar points out that minor improvements came about through QE in fits and starts, but that lending to citizens and small businesses are at an all-time low. He further states that the benefits of QE have disproportionately gone to the highest-income strata of Americans – who didn’t need any help financially. After longer than five years since the world’s unprecedented financial crisis, seeing worrying declines in the financial status of average Americans, attributable to an overly financialized economy, QE created an artificial sense of economic security.

So-called “too-big-to-fail” banks have only gotten bigger, in large part enabled by the biggest market intervention by government in history. The Fed balance sheet went from 800 billion in 2008 to over 5 trillion dollars in 2014, while QE’s objectives have not been met and, according to Andrew Huszar, have produced no benefits worthy of mention while causing a lot of negative, unintended consequences.

Mr. Huszar and the woman attorney interviewing him seem to agree that legislation passed to “correct” the financial system to prevent a repeat of 2007-8 are woefully insufficient. One senses that Mr. Huszar and his interviewer agree on a return/reinstituting of the Glass-Steagall Act as an necessary first step. Unfortunately, they also agree that the economic/financial conditions in America are no better than in 2007-8 when the financial meltdown occurred.

He uses the analogy of the Fed using all the tools at its disposal to protect the stagecoach when the automobile was right around the corner, that new ideas are necessary to correct the dysfunctional, over-financialized system. He notes that it is difficult to talk about necessary change to the financial system when the stock market has hit all-time highs. He worries that the Fed will not pull back on QE, and that it will become an institutionalized tool that the Fed pulls out at the next crisis.

Andrew Huszar believes QE represents “kicking the can down the road” and that perhaps 2014 will be the year when the Fed faces up to the consequences of their actions. The only people who have benefitted from QE have been the high-wealth people who never needed any help to begin with. Results of QE have failed and not included a more highly educated people, real and substantial jobs growth, higher incomes, improvements to infrastructure, increases in manufacturing jobs, or any of the varied markers of a strong and healthy economy.

He believes that QE has impeded the larger adjustments that are necessary, so future crises remain probable. Andrew Huszar says, “it took a lot for me to speak out.” He admits his chances of getting rehired by Wall Street firms or the Federal Reserve are, because of his becoming compelled to speak his truth, slim to none. This only begs some questions:

How is it that Andrew Huszar describes his decision to speak his truth as “difficult”?

Because QE by the Fed has benefited only the wealthiest Americans, has the time come to have a very serious national discussion on public banking?

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(Thank you to Dollar Debauchery @ YouTube)