The big story today is that a former Fed employee involved in operating the QE program has published an “apology” saying that the program did nothing for the economy, and that it was just a big bailout for Wall Street.
The argument is silly.
First of all, the author, Andrew Huszar is not an economist or anyone who helped design the program. He was just brought in to be a trader.
More importantly, his argument doesn’t stand up and that can be established in a few charts.
Here’s a chart of initial jobless claims, which is one of the best, highest-frequency readings we have on the state of the economy. Initial jobless claims started peaking very early in 2009, not long after QE started, so very quickly, the real economy started seeing improvement.
One of his claims is that there was no improvement in banks’ willingness to lend out money. This is also nonsense. While it’s true that the credit system took a huge blow, there was very fast improvement relative to the trend in 2009.
Here are some trends from the October, 2009 survey of Senior Loan Officers. As you can see, there was a decline in inclination to tighten, and an increase in inclination to lend. Again, there was incredible damage and deleverage, but not long after QE began, we started seeing real improvement in the attitudes and decisions of bank officer willingness to make loans.
Ultimately, this improvement in the economy and the expansion of credit caused a big turnaround in household wealth. Household wealth literally started turning around at the time that QE began.
There are some additional points to make. One is that there’s no doubt that part of the calculus for QE1 was to rescue the collapsing financial system. This was never in doubt, and nobody in 2013 needs to pretend like this was some grand revelation. Everything was collapsing, and the Fed took stock of that and engaged in unprecedented action to stave off collapse.
But it’s not true that the subsequent QE programs were about the same thing. It’s a fact that inflation has been non-existent and that unemployment has been above appropriate levels for a long time. The thing the Fed is supposed to do in these situations is to keep easing, but that’s not easy when interest rates are at zero. Hence the (perceived) need for QE.
There’s more problems with the argument (including his characterization of QE as “spending” when it’s really best characterised as an asset swap [cash for bonds]). But the fundamental charge that QE is just a bailout of banks with no effect on lending or the real economy is easily proven wrong.
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