The Fed Has Failed… And Wasted Trillions of Dollars

The Fed Has Failed

The Fed has long believed that money printing or credit creation equals growth.

In an effort to prove this (and to prop up the insolvent big banks), the Fed has embarked on QE 1, QE 2, QE 3, QE 4, Operation Twist 1 and 2, and kept interest rates at zero for over five years.

All told, the Fed has spent nearly $4 trillion. To put this number into perspective, it comes down to a little over $12,000 for every man woman and child in the US.

The end result has been the single weakest recovery in over 80 years. Adjusted for real inflation, we’ve essentially flat-lined.

And now, we have a clear illustration that the Fed’s theories are totally false.

Below is a chart of Loans and Leases in Bank Credit for All Commercial Banks in the US. Note how credit growth shot up at the beginning of 2014. All told, we’ve seen over $200 billion in credit growth in the first half of 2014 (h/t Bill King).

Despite this growth, GDP growth has been an absolute disaster. Officially the GDP shrank at 2.9% in the first quarter of 2014.

The fact that the economy shrank like this, DESPITE all of the Fed’s interventions over the last five years AND the credit growth in the first quarter of 2014 is proof point blank that the Fed’s economic models are wrong.

The Fed is now tapering QE, but one could well make the argument that the Fed has wasted trillions of Dollars. There is no evidence from history that QE creates economic growth (see Japan and the UK). Moreover, the ‘70s debunked the Phillips Curve (the notion that high inflation cannot coincide with high unemployment).

In simple terms, the Fed has failed.

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Best Regards

Phoenix Capital Research