Firedoglake on the Impact of QE

     Hat tip to Nanute for giving me this link. I shouldn't really refer to it as the Firedoglake view when it's just one writer in question but it makes for a sensational title! I have something of a history at FDL-not to put to fine a point on it but I was banned... Let's just say I differ with them over Obama

    Nanute however was right that I shouldn't get bogged down by the source. It's an interesting analysis of QE and its impact-and the future of the banks by E.L. Beck. He argues that we've essentially funded the banks next bailout via QE. He starts from the premise that the banks know that there won't be another bailout next time:

     When the Wall Street banks received their bailouts or soon after, in closed-door meetings between these banks, The Fed and the Treasury, government officials may have informed the banks that should another financial collapse occur, no second round of bailouts would follow. This inability to muster additional rounds of bailouts may have been caused either by the assumption that a lack of political will be there for subsequent bailouts due to popular outcry, or that simple, straightforward bailouts can no longer be pursued (but stealth bailouts, on the other hand, can still be pursued).

Now consider this in juxtaposition with what the Wall Street banks may be seeing from their exclusive 60,000-foot view of the global monetary system: high levels of stress remaining in global financial markets. Thus, the Wall Street banks are sitting on their excess reserves, understanding full well that they will have to bail themselves out after the next financial collapse.

The insidious unknown is whether the Wall Street banks will actually be capable of saving themselves.Yet this would explain not only the banks’ reluctance to tap excess reserves, but also the insatiable appetite for using their liquid capital to generate returns from commodity and equity investments. These banks are simply trying to build their war chests as quickly as possible.

     http://my.firedoglake.com/thesmallr/2013/03/12/bankings-excess-reserves-are-a-war-chest/

     He argues that Bernanke's fear of deflation has inspired 4 rounds of QE and that this effectively has led to a transfer of wealth from the middle class and the poor to wealthy banks and investors. His argument is that while many of bemoaned the banks sitting on all that cash, we have contributed a large part of it through the medium of higher gas and food prices:

    "Bernanke’s quantitative easing (QE) efforts have been a reaction to his singular obsession with preventing the onset of deflation. His wish may be to “create money and credit to serve the needs of (our) national (economy),” but QE isn’t working towards this end. Rather, it has fueled the rise in commodities and equities and the returns from these investments, actively pursued by Wall Street banks and their protégé hedge funds."

    "That Bernanke’s QE efforts have prevented deflation from setting in cannot be argued with, but it has also created a negative externality: In a period when most household incomes are in decline, any rise in commodity prices squeezes out what little money remains in circulation at the low- to mid-levels of income. There is no growth in incomes to cover the growth in food and energy prices. The money to cover the difference is coming out of households’ discretionary income, which of course assumes a discretionary income remains."

     "In essence, lower- and middle-income households have bailed out Wall Street banks (for the next financial crisis) by paying more than they should for food and energy. In fact, consumers of food and energy around the globe have contributed."

      http://my.firedoglake.com/thesmallr/2013/03/12/bankings-excess-reserves-are-a-war-chest/

      This is an argument I've heard other MMTers-and Woj at Bubbles and Busts make. That QE leads to more inequality and a negative wealth transfer. It makes sense though the question I have for Beck is whether  he thinks Bernanke wrong with his singelminded determination to avoid deflation or is it wrong on it's face?

      Is Bernanke right to worry about deflation but should have used a different means or is the concern wrongheaded. As I'm banned form FDL-and don't feel like setting up a new account-I guess I can't simply ask him this.