Meet the Fed's New BFF

GasGasGas
Published on Nov 26, 2021
The Fedâ€™s vast expansion of its balance sheet via quantitative easing (QE) since early 2020 differs materially from all its previous QE moves dating back to the global financial crisis (GFC): whereas the GFC version of QE was pretty much limited to the massive creation of new reserves, the 2020 version of QE is something else altogether in that the new creation of reserves this time has been matchedâ€”almost dollar for dollarâ€”by the parallel creation of new bank money.

The question is why. Why are vast new sums of bank money needed now (supposedly) but not in 2008?

Actually, from the point of view of millions of Americans, vast new sums of bank money WERE needed in 2008, but ordinary Americans are wholly unimportant to the Fed, whose only real constituency is its owners, namely, the banks.

And therein lies a big clue as to what went on with GFC edition of QE, in which pretty much the only new money created was reserves, which are created by the Federal Reserve. Because the big banks were all broke, and because reserves function as money for those broke banks, thatâ€™s what the Fed created during the GFC and in its wake: new reserves. The Fed then used those new reserves to buy â€œassetsâ€ like mortgage-backed securities rotting away from stage 4 fraud.

Yes, banks werenâ€™t the only entities bankrupted by the GFC, but they were damn sure the only entities that the Fed cares about, which is why those banks were bailed out with trillions of dollars of new reserves.

But that still leaves the question of why QE2020 involves not only the creation of new reserves, but the simultaneous dollar-for-dollar creation of new bank money.

Prior videos on this channel have explained HOW the Fed effects the parallel creation of bank money (since the Fed cannot directly create new bank money itself), and those same videos have complained that the creation of new bank money is going into the stock market as a sop to the ultra-rich, but that explanation begs the question of why now? The Fed, in other words, could have helped out the ultra rich in 2008 by creating new bank money back then too, but it didnâ€™t.

So why now? Whatâ€™s really going now thatâ€™s so materially different from the GFC? This video starts answering that question.