Tuesday, September 18, 2012

QE3 Downgrades America's Credit Rating to AA-

QE3 is Doo Doo Economics
QE stands for Quantitative Easing (QE).  Doo Doo Economics, and our fellow San Diego bloggers, have been dissecting this farce. In short, the Fed buys government bonds. This means the U.S. government buys its own debt with money that is created out of thin air. This has happened 3 times in the last 4 years and America has suffered three credit downgrades as a result. 

Temple of Mut has a nice overview of QE3 to help you get grounded on the subject.

The latest credit downgrade, from AA to AA-, occurred on September 14, 2012:
"(The) Fed's QE3 will stoke the stock market and commodity prices but in our opinion (it) will hurt the U.S. economy and, by extension, credit quality," Egan-Jones said in a statement about the latest quantitative easing program.

Moody's Investors Service currently rates the United States Aaa, Fitch rates the country AAA, and Standard & Poor's rates the country AA-plus. All three of those ratings have a negative outlook.
Fellow SLOBs author Leslie Eastman from Temple of Mut and yours truly will be on CANTO TALK  ( 7 pm Pacific Time, 9 pm Central Time — click HERE) tonight discussing the QE3. We will be discussing whether QE3 is the Answer to our economic problems.  

Despite two previous rounds of quantitative easing, median household income has still fallen for four years in a row, the employment rate has not bounced back since the end of the last recession, and new home sales have remained near record lows.

Well, they have driven up the prices of financial assets.  Those that own stocks (INDEXSP:.INX) have done very well the past couple of years.  So who owns stocks?  The wealthy do.  In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans.  Those that have invested in commodities have also done very nicely in recent years.  We have seen gold (NYSEARCA:GLD), silver (NYSEARCA:SLV), oil (NYSEARCA:USO) and agricultural commodities all do very well.
In short, ETF Daily reveals that the rich benefit from Quantitative Easing. This is in effect the Federal Reserve's version of trickle down economics with one difference. Monetary policy, the Fed's area of responsibility, is not suited to dealing with unemployment, the stated goal of the QE3.

Fellow SLOBs author W.C. Varones concurs, but with more succinctness:

Printing money doesn't create jobs. So Bernanke has just committed to giving us stagflation for as long as he can until inflation gets too out of control.

The 1% thank Zimbabwe Ben for jamming their stocks, gold, and silver higher.
In reality, Fed Chairman Ben Bernanke understands this disconnect. Tax policy can entice a small business into hiring a new employee with tax breaks and credits, but monetary policy rewards financial asset investments and debt. So, the unstated goal of the money printing is to pay for the Obama administration's trillion-plus-dollars-per-year deficits.

Our national debt has been so inflamed and become so dangerous that we now face the fiscal cliff of sequestration. That is another topic for another day.  So, to wrap up, lets point out an article focusing on how QE3 will also benefit the seven safest banks in America. Enjoy!

Bonus video: The Show by Linka because it ends with, "I want my money back, I want my money back..."

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