Financial Fundamentals

$1.05 Trillion Printed, 1.3 Million Fewer Jobs – The abysmal failure of Bernanke’s QE3

By Thomas K. Brueckner, Strategic Asset Conservation

 

Consider the following staggering statistic: Since 2008, Ben Bernanke has increased the Fed’s balance sheet from $480 billion to $3.5 trillion, a 730 percent increase in five years. So what did we get for all of those asset purchases? Predictably, it depends on who you ask.

If you ask Wall Street, clearly they’re happy. Since March 9, 2009, after a 57 percent sell-off of the S&P 500, that index has posted a gain of 144 percent to now find itself fully recovered and in the black by almost 5 percent above the previous market high in October of 2007. Bottom Line: After contributing substantively to the Subprime Mortgage Crisis and the resulting 2008 Market Meltdown, Ben Bernanke’s “fix” has caused the markets to “fully recover” over the five years since, and even gain 4.92 percent—or a gain of less than one percent per year at a cost of $3,020,000,000 in “printed” dollars—to buy assets the Fed will likely be unable to sell for a profit any time soon.

Since Americans won’t pay for this for at least a generation or two, and since their 401(k) plans at work are finally back in the black, most remain oblivious to the ultimate cost of this folly.

What about the Fed’s own standard for success? When Bernanke and the Federal Open Market Committee recently met to decide against tapering their $85 billion in monthly purchases of mortgage-backed securities, one metric they cited to define “success” was getting unemployment back down under 6.5 percent. In fact, their announced reason for a third round of quantitative easing (“QE3”) last year was the disappointingly slow recovery of our labor markets, making it entirely appropriate to judge their success or failure by any changes in the employment arena. And here, Bernanke’s feat is even more horrendous. As Forbes columnist Louis Woodhall recently pointed out,

“If we compare the 11 months of QE3 to date with the 11-month period immediately prior to QE3, we discover that Bernanke printed an incremental $1.05 trillion in order to prevent the creation of 1.3 million (full-time equivalent) jobs. That’s right. If the Fed had not done QE3, and had simply continued with its previous policy, it is reasonable to expect that today the Fed’s balance sheet would be $1.05 trillion smaller, and there would be 1.3 million more Americans working.”

This brings us to Obama’s announced selection of Janet Yellen as Bernanke’s successor. As many in the financial media and on Wall Street have giddily observed, Yellen’s free-money approach is likely to be “Bernanke on steroids,” continuing this madness well into next year. If she places that same job-market improvement condition ahead of any eventual tapering of the Fed’s $85 billion per month in ongoing asset purchases, I wouldn’t hold your breath.

With Obamacare already causing hourly cutbacks from 40 to 29 per week throughout the service sector of our economy, it is unlikely that an economy 70 percent dependent on consumer spending will be expanding any time soon. When secondary breadwinners are unable to find part-time work to replace those 11 lost hours, consumers with 25 percent fewer dollars in their pockets won’t be stimulating the economy, nor will they be adding to our jobs markets.

Prediction: Yellen will spend (or outspend) like Bernanke, and our markets will celebrate ongoing free money and crawl even farther out on a limb to the breaking point while defying an economy that is slowing by every metric that matters. So says a Business Insider headline: THE BIG SLEEP: Why the Stock Market Will Crash In A Few Months, Then Go Nowhere For Years. It highlights a forecast from French banking giant Société Générale, calling for “a 15 percent correction in the stock market, followed by a multi-year journey back to where the index sits today,” essentially repeating segments of the market’s loss-recovery pattern of the last 14 years.

And racking up a trillion a year in ongoing debt with no end in sight.

 

Thomas K. Brueckner, CLTC, is president/CEO of Strategic Asset Conservation in Scottsdale, a conservative wealth management firm with clients in 18 states and six countries. He is a 2011 Advisor of the Year national finalist, a radio talk show host, and a mentor to other advisors nationally. He may be reached for comment at go2knight.com.