(Willard/Getty Images) It’s absurd to pump money into the economy with one hand while draining it with the other.
The Federal Reserve injects $120 billion of Quantitative Easing into the financial markets monthly. At the same time, the Fed is withdrawing even more money from the markets through financial transactions called reverse repurchase agreements (RRPs), because otherwise investors would receive negative interest rates; they would have to pay for someone to take their funds.
The absurdity of the Fed’s pumping money into the economy with one hand, while draining it with the other, recalls boxer Roberto Duran. Like the champion in a rare loss at the end of his career, the U.S. economy can’t take any more debt and is gasping, “No mas, no mas.”
Since the last week of April, the Fed has purchased $311 billion of securities to stimulate the economy, but during this same period, the Fed has absorbed $750 billion from the financial markets, so over $400 billion net was removed from the economy. There is no conceivable economic benefit from these combined actions.
The Fed’s absurdity is compounded because $40 billion of the $120 billion shoveled into the financial markets