Economic Overview: Is the Quantitative Easing the answer ?
Does the humanbeing learn from experiences or we only delude ourselves ? Time has passed, we have learned new things, have accomplish the challenges and than we stand our head up and say proudly, "We gained experienced, The all things that we failed in the past must be taken as a piece of learning curve. With the light of them It is very hard to fail for us in the future." Because, (Wait for it, Coming...... )
We are EXPERIENCED...
_________________________________________________________________________________
_________________________________________________________________________________
2008 GLOBAL ECONOMIC CRISIS
2008, Global Economic Crisis proclaimed itself with the bankruptcy of Lehman Brothers has maintained its fatal effects until today. It must be seen an opportunity to make structural reforms giving a way economy through tangible investments creating employment, value added product or service. Instead of this, The world go into a quagmire rapidly with the quantitative easing operations leading by FED. We all suffer from it. We lost our jobs, faced a dead lock to pay our loans and mortgages. That was the one industry lead us to that grieving results. !WALL STREET!
What did the Wall Street exactly do?. Before 2001, Local banks were investigating financial history of a person or corporate very carefully to give them credit. Because people pays their credit debts over long period and repaying ability was an indicative for them not to write great losses on balance sheets. It was risky operation for banks.After the reaching the peak point in deregulation and derivatives. Wall Street looked around to make easy money over money without the long-term outlook and responsibility. They produced CDOs (Collateralized Debt Obligations) consists of mortgage payments, student loans, credit card debts. Local Banks sold these all debts to Investment Banks. Investment Banks bring this CDOs to investors to make investments. Meanwhile These CDOs rated AAA(Highest investment grade) by Rating Agencies. This would make them preferable for investors especially for retirement funds. SO
Local Banks gave credits people, who is apparently unable to repay credit, to increase their profits. Because they have no responsibility on paying process. They sold this loans to Investment Banks. It was absolutely investment banks risk. In this securitization chain, investors making investments a sort of home buyers mortgage payments.
(Inside Job,Ferguson et all., 2009)
Wall street were buying Mortgage Loans a much as possible from the Local Banks. So Local Banks were giving credit as much as possible overlooking financial background of people. Investors making investment on them because they are the most secure financial instrument(equal American Government Bond) AAA with higher yield in comparison with alternative instruments. This result with a huge financial bubble. House prices rise up, inflation rise up. But income of the people outside the Wall Street was nearly the same. Inflation affected 91 % of United States citizens. Inevitably, people could not pay their mortgage debts and Financial bubble burst !.
__________________________________________________________________________________
We had a cursory glance to 2008 financial Crisis above. What did U.S. government do in this period to recover economy until today. FED make liquidation operations named Quantitative Easing signifies buying scrap mortgages bonds from banks. In short term, they want to solve the problem or only put the problem under pillows. They give money to money market, Wall street realized that they have enough money to reevaluate in finance sector. They break into money market instruments S&P 500, Dow Jones, Bovespa, Dax, XU 100. All the equity index had a peak point in short term. But, Real economy had not take an advantage from this liquidation. This money was not used by venture capital or corporate funding. This money reevaluated in finance sector. Wall Street shows the people again "How they are apathetic and acquisitive when the money is at stake". Unemployment rate picked up, inflation picked up, industrial orders dramatically falled.
QE2 showed all of us making liquidation is not the answer for economic recovery. Lots of economist hope QE3 will announced on 13th September in FED meeting. This Meeting minutes will be a huge disappointment for them. They think President Mr. Obama have to make something in economy to take the president chair again in the White House. Mr. Obama gather 300 Million money support for election campaign 100 million more compared Republican candidate Mr. Romney. It will be a valid hypothesis under the argument that the main supporter of president election campaigns is always Wall Street. So, we can easily say that Wall Street support Mr. Obama who got more money support for campaign. I would have a hesitation "Is that argument could be real?" If I did not watch Bill Clinton support speech to Mr. Obama last night. In this speech Bill Clinton emphasize the economic condition difference between Republican governance and Democrats governance giving statistic information.
From the year of 1961 until today
Under the governance of Republican (28 years) 24 million jobs has been created,
On the other hand Under the Democrats governance 42 million jobs has been created in 24 years
Bill Clinton made stress on ''collaboration", Micheal Obama made stress on "Change" and mentioned that Change will not come instantly. Patience and trust are the keys for it. Under this atmosphere, Declaring QE3 will be a huge mistake although we all see it do not help economic recovery in the past.
DO WE REALLY LEARN FROM OUR EXPERIENCES ?
