… The widespread belief that [the fed’s] QE is flooding the economy with money is a myth. Virtually all of the money it creates simply sits in the reserve accounts of banks….
As QE is practiced today, the money created on a computer screen never makes it into the real, producing economy. It goes directly into bank reserve accounts, and it stays there. Except for the small amount of “vault cash” available for withdrawal from commercial banks, bank reserves do not leave the doors of the central bank….
Reserves are used simply to clear checks between banks. They move from one reserve account to another, but the total money in bank reserve accounts remains unchanged. Banks can lend their reserves to each other, but they cannot lend them to us.
QE as currently practiced is simply an asset swap. The central bank swaps newly-created dollars for toxic assets clogging the balance sheets of commercial banks. This ploy keeps the banks from going bankrupt, but it does nothing for the balance sheets of federal or local governments, consumers, or businesses.
Central Bank Ignorance or Intentional Sabotage?
Another Look at the Japanese Experience
That brings us to the motive. Twenty years is a long time [for the Japanese central bank] to repeat a policy that isn’t working. ….
In his book Princes of the Yen (2003), Werner maintains that in the 1990s, the BOJ consistently foiled government attempts at creating a recovery. As summarized in a review of the book:
The post-war disappearance of the military triggered a power struggle between the Ministry of Finance and the Bank of Japan for control over the economy. While the Ministry strove to maintain the controlled economic system that created Japan’s post-war economic miracle, the central bank plotted to break free from the Ministry by reverting to the free markets of the 1920s.
. . . They reckoned that the wartime economic system and the vast legal powers of the Ministry of Finance could only be overthrown if there was a large crisis – one that would be blamed on the ministry. While observers assumed that all policy-makers have been trying their best to kick-start Japan’s economy over the past decade, the surprising truth is that one key institution did not try hard at all.
Werner contends that the Bank of Japan not only blocked the recovery but actually created the bubble that precipitated the downturn:
[T]hose central bankers who were in charge of the policies that prolonged the recession were the very same people who were responsible for the creation of the bubble. . . . [They] ordered the banks to expand their lending aggressively during the 1980s. In 1989, [they] suddenly tightened their credit controls, thus bringing down the house of cards that they had built up before. . . .
With banks paralysed by bad debts, the central bank held the key to a recovery: only it could step in and create more credit. It failed to do so, and hence the recession continued for years. Thanks to the long recession, the Ministry of Finance was broken up and lost its powers. The Bank of Japan became independent and its power has now become legal.
In the US, too, the central bank holds the key to recovery. Only it can create more credit for the broad economy. But reversing recession has taken a backseat to resuscitating zombie banks, maintaining the feudal dominion of a private financial oligarchy. …
But there’s a deeper reality: the debt-based nature of money itself is the biggest instability in the system by turning the entire economy into a pyramid scheme of inter-dependent debt. This is why credit bubbles are so destructive: the volume of the money supply itself is based on nothing but confidence in the perpetuation of the bubble. When confidence goes, loans are called, bankruptcies are triggered, bank runs result in bank closures, all resulting in a drying up of the lifeblood of the economy.
It should also be stressed that like the BOJ, the “federal” reserve is the single most culpable institution responsible for our present predicament. And like the BOJ, they are using the crisis in a larger social control agenda, that being the control of all economic and political activity by the bankster elite. As Carrol Quigley wrote in “Tragedy and Hope”:
“The powers of financial capitalism had [a] far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert by secret agreements arrived at in frequent private meetings and conferences.”
A solution to our predicament: