Quantitative easing is the process by which a central bank, such as the Federal Reserve of the United States, purchases government bonds and securities from domestic financial institutions in order to reduce interest, stimulate lending and so stimulate the economy.
It is also what led author Christopher Leonard to investigate the actions taken by the Federal Reserve.
“The Federal Reserve is by far the most powerful institution in American economic affairs,” Leonard said.
The decisions made by the Fed have widened the gap between rich and poor, created asset bubbles, increased personal, corporate and national debt and made our financial system “prone to these huge crashes that we still see and again,” according to Leonard.
“The Fed engaged in a series of truly unprecedented experiments” to inject dollars into the US economy, the author said.
To get an idea of how far we’ve come, Leonard points to the period from 2008 to 2014 when the Federal Reserve created $3.5 trillion in monetary value, the equivalent of 350 years of revenue.
In Leonard’s investigation, he met a man who warned against a series of policy decisions made by the Federal Reserve in 2010.
It was Thomas Hoenig, chairman of the Federal Reserve Bank of Kansas City and a rotating member of the Federal Open Markets Committee who votes on Federal Reserve policies and actions.
“There’s just incredible pressure inside this committee to act with consensus or unanimity,” Leonard said.
But in 2010, Hoenig did the exact opposite, voting “no” at every meeting that year.
Leonard recounts how Hoenig raised concerns about the future of the economy due to quantitative easing. He warned that the move would benefit the wealthiest Americans, the biggest banks and create instability on Wall Street.
“And on each of these points, Thomas Hoenig has been right about the events of the last decade,” said the author.
“We’re in such a precarious position today,” warns Leonard. “If the Fed backs off and says, ‘Oh, we don’t want the markets to crash,’ well, then inflation can really get a foothold and keep growing. But if the Fed pulls that money out aggressively and raises interest rates, we could see a stock market crash.”