Confessions of a quantitative easer

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Above is an interesting segment aired on ABC’s The Business last night featuring Andrew Huszar, who in 2009-10 managed the Federal Reserve’s $1.25 trillion agency mortgage-backed security purchase program.

According to Huszar, who has also written an opinion piece in the Wall Street Journal, quantitative easing (QE) is nothing more than a backdoor Wall Street bailout, which has done little to help the real economy. Importantly, it hasn’t helped to make credit any more accessible for the average American, with Wall Street banks instead pocketing the extra cash from the wholesale reduction in funding costs.

To make matters worse, the banks haven’t only benefited from the lower cost of making loans, they’ve also enjoyed large capital gains on the rising values of their securities holdings, as well as fat commissions from brokering most of the Fed’s QE transactions.

In over five years, the Fed’s bond purchases have totaled more than $4 trillion to become the largest financial-markets intervention by any government in world history. Yet the impact on US growth has been negligible, and has probably acted to damage longer-term prospects by delaying much needed structural reforms to the economy.

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In short, QE has become America’s new ‘too-big-to-fail’ policy and the ultimate form of ‘extend and pretend’.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.