I’m always happy when Lisa has a new book out and she wants to pay a visit here. This one is especially timely. I always learn something fascinating and hope you do, too!
WHAT IS QUALITATIVE EASING AND WHY SHOULD YOU CARE?
If you are like or have a spouse like mine, addicted to the 24-hour news channels, you may have heard more than you cared to about ‘qualitative easing’ as a response to the past decade’s financial crisis. The plan of the Federal Reserve was to first, buy ‘troubled assets’ from banks and financial firms. This took these bad investments off their books and raised their credit scores, as it were, so that they were more able to buy and sell as normal and get the economy moving again. If the economy is an engine, credit is the gas. Second, the Fed bought Treasury securities with the same goal.
Critics read this as the Fed printing money, wagonloads of it, and as we all know from countless Batman and WWII thriller plots, that would cause runaway inflation and plummet the value of a dollar. This is something like what Japan did after their 1991 crisis, and it didn’t work out so well for them.
But the Fed made these purchases by creating reserves, not by printing more cash. This is a very difficult concept to grasp and I can’t quite get it myself, but it means they create an account in the name of the bank for the purchased items. Therefore the securities go from being a liability of the bank’s to an asset held in reserve. These are eventually resold (at a profit, don’t ask me how—this profit goes to the Fed and, as all their profit is, turned over to the Treasury to reduce the national deficit). These events are more like loans than purchases, and they do not affect the amount of cash in circulation at any point in the process, and therefore cannot affect inflation or deflation. (The surest proof that the Fed was not ‘just printing money’ is that the inflation rate stayed at 1.4%. Which is actually not good—zero inflation is not the goal as that means that the economy has stagnated. An inflation rate of between two and four percent is considered ideal.)
Did this ‘fix’ the problem? Partially. The economy started growing again in 2009, only a year and a half after the crash, but the job market did not. Unemployment stayed high, and then the European market crashed. So QE#1 ended in March 2010, but QE#2 began. (Which does not, to my eternal disappointment, refer to a cruise ship.) In the #2 round the Fed decided not to replace the Fannie and Freddie Mac mortgage backed securities, which was a good way to passively tighten up money over time, but kept purchasing the Treasury securities. Again, this avoided messing with the money supply and the inflation or deflation that might result, but gas and food were still high, credit was tight, and unemployment off the charts.
For QE#3, September 2013 to October 2014, the Fed returned to buying Fannie and Freddie securities as well as Treasury ones. Many of these policies were open-ended so some activities continued until QE4 began in June 2017. QE#4 was meant to be the most passive approach to date, simply letting the securities mature instead of replacing them, eventually condensing the national balance sheet. The unemployment rate is well below 5%, inflation hovering around 2%.
Okay, so, why do you care? First of all, inflation and unemployment rates affect everyone. Second, it’s important to see that how the 24-hour news channels characterize events is dependent on what agenda they’re pushing, and a little information can help us take that agenda with a much-needed grain of salt.
But were these QEs and securities and reserve-creating the best thing to do? Who knows? Econ students will be debating these strategies and responses for decades to come. Some might try to make the argument that these responses aggravated an already bad situation. Most will argue that, as bad as things got, they would have been much worse if the government had simply gone the austerity route (like Europe) or done nothing at all. The 2008 crisis created uncharted territory, so there will never be a way to know for sure.
A Gardiner and Renner Novel (Book 3)
Bestselling author Lisa Black takes readers on a nailbiting journey to the dark side of justice as forensic expert Maggie Gardiner discovers troubling new details about her colleague Jack Renner, a homicide detective with a brutal approach to law and order . . .
The scene of the crime is lavish but gruesome. In a luxurious mansion on the outskirts of Cleveland, a woman’s body lies gutted in a pool of blood on the marble floor. The victim is Joanna Moorehouse, founder of Sterling Financial. The killer could be any one of her associates.
Maggie knows that to crack the case, she and Jack will have to infiltrate the cutthroat world of high-stakes finance. But the offices of Sterling Financial seethe with potential suspects, every employee hellbent on making a killing. When another officer uncovers disturbing evidence in a series of unrelated murders, the investigation takes a surprising detour.
Only Maggie recognizes the blood-soaked handiwork of a killer who has committed the most heinous of crimes—and will continue killing until he is stopped. Burdened with unbearable secrets, Maggie must make an agonizing choice, while her conscience keeps telling her: she’s next.
PERISH by Lisa Black. Kensington (January 30, 2018). ISBN 978-1496713544. 320 p.
About the Author
Lisa Black has spent over twenty years in forensic science, first at the coroner’s office in Cleveland Ohio and now as a certified latent print examiner and CSI at a Florida police dept. Her books have been translated into six languages, one reached the NYT Bestseller’s list and one has been optioned for film and a possible TV series.