It's cost $600 billion of your money. And it was supposed to rescue the economy. But has Ben Bernanke's huge financial stimulus package, known as "Quantitative Easing 2," actually worked as planned?
QE2 is being wound down in the next few weeks. Fed Chairman Ben Bernanke has said it has left the economy "moving in the right direction."
But an analysis of the real numbers tells a very different story.
Turns out the program has created maybe 700,000 full-time jobs at a cost of around $850,000 each.
House prices are lower than before QE2 was launched. Economic growth is slower. Inflation is higher.
Yes, it's sparked a massive boom on the stock market. Ordinary investors have started piling back into shares again. And last week we saw the latest example of the return of animal spirits on Wall Street, as stock in new dot-com LinkedIn [LNKD] skyrocketed on its debut. How to cash in on LinkedIn.
But even the stock market boom hasn't been what it appears. An analysis shows that most of the rise in the Standard & Poor's 500 Index [SPX] under QE2 has simply been a result of the decline in the dollar in which shares are measured.
The truth? QE2 has created a massive new bubble in dollar-based financial assets, from stocks to gold. Meanwhile, it has had zero visible effect on the real economy.
Take jobs. According to the U.S. Labor Department, since last August the number of full-time workers has gone up by just 700,000, from 111.8 million to 112.5 million.
At a cost of $600 billion, that's $850,000 a job.
The picture's even more meager. Over the same period, the number of part-time workers has gone down by 600,000. In other words, we've basically shifted 600,000 or 700,000 workers from part-time jobs to full-time jobs.
The percentage of the population in work is actually lower today 58.4%, compared to 58.5% last August. The percentage of the workforce in actual work, the so-called "participation rate," has fallen by half a percentage point.
Housing is double-dipping. Big time. According to the National Association of Realtors, the average price of an "existing" (i.e. used) home was $177,300 in August, just before QE2.
Today? It's $163,700 or 8% less.
Economic growth has slowed. It was 2.6% last summer. It's a miserable 1.8% now.
Meanwhile inflation has risen, from 1.2% before QE2 to 3.1% now.
Okay, maybe the economy would have been even worse without QE2. But the data do puncture any claim that these economic policies are working as advertised. Economists are now growing more and more gloomy about the outlook ahead. Retailer Gap on Friday became the latest economic bellwether to warn on weak sales and rising costs.
Meanwhile QE2 has created an entirely artificial bubble in all dollar-based assets.
Look at the stock market. Since Aug. 27, when Bernanke unveiled his plan for QE2 in Jackson Hole, Wyo., the S&P 500 has risen by 26%.
So far, so good, right? But it's an illusion. What's really happened is a decline in the value of the dollars that the shares are measured in.
Measured in hard currencies, the stock market boom has been much less impressive. In Swiss francs, the S&P has risen by just 8.4% since Aug. 27. In currencies like the Swedish krone and Australian dollars it's even less. Measured in gold, the S&P 500 is up just 4.5%.
Meanwhile the illusion of a boom is causing all sorts of investors to take crazy risks. Witness LinkedIn's IPO. Economists from the so-called "Austrian" school say this is a reason to go back to a gold standard. It certainly makes you wonder what's next.
We've gained 700,000 full time jobs while losing almost as many part time jobs, which sounds like a net net of converting 700,000 from part time to full time, which is a minute change or improvement. All at a cost of $850,000 per full time job. The benefit in QE2 is definitely not jobs growth, the simple math behind the net change in jobs versus the cost says it has been a losing proposition.
QE2 has failed to help real estate values post termination of tax credits in 2010. Real estate values are double dipping and have been sliding lower for 8 months in a row. The benefit of QE2 is definitely not real estate values.
Stock markets are up 26% since QE2. QE2 is benefiting the stock market and commodity values. While that might sound nice it has the feel of a Ponzi scheme. Would these assets rise in value without Bernanke's policies?
Also, keeping rates artificially low is forcing many to move money out of cash and into investments that do no fit their risk profile. Whether it's stocks or precious metals or junk bonds, Bernanke is taxing cash with Fed Policy and forcing safe money to flow into riskier assets. All to benefit who?
Are we creating a bubble in precious metals? Yes. Are we re-inflating a bubble in stocks? Yes. Bubbles do not form based on organic economic growth. It takes a massive influx of new money to the system, which in this case has come to the world at least in part from Captain Ponzi (Ben Bernanke). His policies create smoke and mirror economic growth.
And he has the audacity to say "QE2 has the economy moving in the right direction."
Hope all is well.
J.D. Rosendahl, Rosey