photo credit |
In 1910, the bankers who devised the Fed, agreed an
important function of the central bank was to protect against bank runs in the
event of an economic crash. Because banks are required to keep only 10% of their
customers’ deposits, a mass of people rushing to close their bank accounts
would quickly deplete a bank’s reserves. This is where the idea of government
protected insurance came in. Why not let taxpayers protect bank customers? And
thus the FDIC (Federal Depositor Insurance Company) was born.
In the aftermath of the 2008 economic crash, in effort to
keep banks solvent, the Fed (unbeknown to anyone at the time) injected $1.65
trillion into the banking system. This was Quantitative Easing 1 (QE1) which lasted
from November 2008 - March 2010. It was a huge success. The banks got lots of
cheap money and no big bank ran out.
But the
economy wasn’t growing very well, and the country stood on the brink of
recession, and to get banks lending and money circulating, the Fed implemented
QE2, and injected $600 billion into the economy. That lasted from November 2010
until June 2011.
Now, with the economy
still sluggish, and banks still not lending to the public, the Fed is embarking
on QE3, and planning to inject $40 billion a month into circulation.
Where is
it getting this money? It is printing it. As readers of the last post know,
printing money dilutes the value of money already in circulation. The banks get
free money, and the value of the dollar for everyone else is worth less.
Quantitative Easing is a great boon to the banks. Not so great for the people.
Why isn’t
there inflation with all this money added to the circulation? Because it has
been given to the banks and they’re holding on to it. They’re not lending it
out to people, they’re playing the stock market. The general population hasn’t
been the beneficiary of any Fed money. It was the big banks. As Senator Dick
Durban knows, money is power. In 2009, he said, "And the banks -- hard to
believe in a time when we're facing a banking crisis that many of the banks
created -- are still the most powerful lobby on Capitol Hill. And they frankly
own the place."