It’s obvious that Wall Street investors don’t like tapering. But why?
When it was announced that Lawrence Summers withdrew his name to be selected as the next chairman of the Federal Reserve, the markets ticked up. When it was officially announced that Janet Yellen would be nominated as the next fed chair, the markets ticked up. Why does Wall Street like Yellen over Summers?
The most distinguishing difference between the policies of the two is that Summers was for tapering the use of quantitative easing and Yellen isn’t. Quantitative Easing is an economic strategy that has been ongoing since the last year of President George W. Bush's administration where the Federal Reserve buys bonds by printing off more money. The purchasing of the bonds and subsequent influx of cash into the markets provides more cash to trade. Besides the obvious threat to deflate currency, it also provides a weak base for economic growth.
Look at another government program as an example. With the program Cash for Clunkers, the government provided significant cash rebates towards the purchase of a new car for trading in an older model vehicle. During the program the new car sales spiked upwards, however as soon as the program ended car sales dropped immediately to pre-program levels. The program was unsustainable as the government couldn’t keep spending tax dollars to falsely stimulate the car market and paint a rosy picture of vehicle sales.
The same model was used for housing with a “new home buyer” credit that was introduced shortly after Cash for Clunkers ended. The housing market boomed...until the credit ran out.
What will happen when the current unsustainable program of Quantitative Easing ends?
Meanwhile, who really benefits from these false economies generated by government policy? Not the middle class. The Census Bureau reported that 2012 had the fifth straight year of decreased median wages. Not the poor. Since Obama took office, recipients of food stamps (or the Supplemental & Nutritional Assistance Program -SNAP) have increased by nearly 16 million people.
However, the rich are getting richer. A recent World Wealth Report by the Swiss Bank, Credit Suisse, states that the world has 2 million new millionaires compared to 2012, the majority of which are living in the United States. They summarize that, “Millionaires are experiencing even better times now than before the financial crisis.”
Although the Democrat Party has done a great job of branding themselves as the party of the Middle Class, it’s clear that the Federal Reserve, under the Obama Administration’s leadership, has been helping the rich. The Sunlight Foundation reports that President Barack Obama has done better at getting Wall Street donations than any other President in the last 20 years.
It looks like the leader of the self-proclaimed ‘party of the middle class’ has introduced a little pay-to-play Chicago style politics to D.C.
Featured Photo Credit: Richard Drew/AP
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