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Quantitative Easing and the US Economic Crisis

Simplifying Big Words and the Current State of the United States

Introduction
What is Quantitative Easing Did Quantitative Easing Work Why Did the Federal Reserve Do This A Ton of Charts on Income, Taxes, Wealth etc. Source: Federal Reserve Boards Federal Survey on Consumer Affairs and the US Census

After the Financial Collapse

Banks Lost Trillions During Financial Collapse

The Fed Will Do Anything to Calm the Public

The Fed Will Do Anything to Avoid Further Financial Collapses

Yes The Fed Bought $1.75 Trillion

The Bankers Get Smart

Yes This is How it Works

To Limit the Number of Bonds Available The Fed Buys Them Back from the Bank

The Banks Sell the Bonds Back While Collecting More Fees

Will The Fed Succeed?

With Guaranteed Money Coming in Banks Start Gambling Again

The Fed Had to Do Something to Calm the Public

Yes The Banks Gave Up this Sweet Heart Deal... Hurting Shareholders

What Did the US Get From Quantitative Easing


The Fed spent $2.76 Trillion buying Toxic Assets and US Bonds Financial Institutions had their most profitable years ever The stock market has been artificially driven higher Interest rates are lower than in anytime in history They stopped a run on the banks

Why Did the Fed Do this?


Real GDP historically increases by 3% per year From 29 to 33 real GDP declined by 34% GDP remained below 10% until 41 The dollar fell 58% in value
Robert E. Lucas, Jr. Milliman Lecture University of Washington May 19, 2011

Why Did the Fed Do this?


Deflation had an average rate of 6% year over year (Value of Goods Fell) Economists believe this dramatic fall had little to do with the stock market crash Economists believe it had more to do with the run on the banks and other policy mistakes

A Run on the Banks


Citizens removed their savings from the banks The banks saw a 48% decline in deposits The citizens decreased spending by 58% The Fed thought its goal in the recent recession was to fight deflation and avoid a run on the banks

Economists Believe the Depression Could have been Avoided


Get as much cash as possible into the system Encourage sound banks to lend that money to get the economy going During the depression the Fed did nothing Smoot-Hawley Act increased tariffs on goods coming into the US (This is why the Fed is so anti-tariff)

Economists Believe the Depression Could have been Avoided


President Hoover implemented price and wage fixing policies (This is why the Fed is anti-raising minimum wage and anti-deflation) Unions were formed to protect workers (This is why the Fed is antiunion) The Fed did what it should have done The Banks had other motivations

Massive Fed Spending in Perspective


Fed Spending: $2.76

Net Worth 80%: $4.54 Net Worth 19%: $32.67 Net Worth 1%: $27.74

Where Did the Fed Go Wrong


They thought the money would make its way to the bottom 80% By not regulating the Shadow Banking System the Banks put the money there Corporations know the 80% dont have any money Corporations invested in growth overseas They overreached on fighting deflation, keeping wages low, allowing prices to rise, decreasing protectionism

How Do We Fix it?

Average Income of Citizens

Bottom 80%: $19,352

Source: Emmanuel Saez, University of California-Berkeley 2008 Data

Average Income of Top 1%

Source: Emmanuel Saez, University of California-Berkeley 2008 Data

Increase in Incomes
From 1950 to 1980 the Bottom 90% saw an increase of 75% in incomeFrom 1980 to 2008 the Bottom 90% saw an increase of 1% or $303From 1950 to 1980 the top .001% saw an increase of 80% $2,419,070From 1980 to 2008 the top .001% saw an increase of 403% $21,904,289

Source Pulitzer Prize Winning Economist David Cay Johnston

Net Worth of US Citizens

Average Net Worth of the bottom 80% of households: $48,669.53 (7.1%)Average Net Worth of the top 1% of households: $23.77 Million Source: Federal Reserve Board Survey of Consumer Affairs

Why Didnt the Citizens Notice?


Households were motivated to get both parents in the workforce Citizens thought the stock market would pay for retirement with its dramatic rise Credit cards were used to supplement lower income Home equity loans were used to payoff credit debt

History of Taxation in the US


(1791 1802): Sales tax on only alcohol, tobacco, sugar and corporate bonds (1802 1817): Added taxs on gold, silverware and jewelry (1817 1862): Eliminated internal taxs. The government ran completely on money earned from tariffs. (1862 1913): Income tax was created and changed multiple times. The rate started at 3% and increased based off of income.

History of Taxation in the US


1935: Franklin Roosevelt raised the tax rate to 91%, for people making more than $4 million (todays dollars) 1965: Lyndon B Johnson lowers highest tax rate to 55.3% 1978: Jimmy Carter lowered capital gains rate from 48% to 28% 1982: Ronald Reagan dropped the rate from 55% to 27%. Corporate taxes went from representing 33% of all federal taxs to 9%. Reagan doubled the payroll taxes of citizens earning less than $40,000 per year.

Current Overall Tax Rates


Bottom 90% pays an average of 23.4% Bottom .01% pays an average of 16.9% 75% of income is taxed at 15% Corporations pay an average of 12.6% Tax Deferral allows them to avoid taxes on earnings outside of US
Source: Federal Reserve Board Survey of Consumer Affairs & US Census

Tax Breakdown
Taxes in 1950 Taxes in 2008

Source: Federal Reserve Board Survey of Consumer Affairs & US Census

How Have Changes in Incomes Effected Citizens?


Income Group Loss/Gain in Income Top 1% 96-99% 91-95% 81-90% 61-80% 41-60% 21-40% Bottom 20% $673 Billion more $140 Billion more $29 Billion more $43 Billion less $194 billion less $224 billion less $189 Billion less $136 Billion less Avg. Loss/Gain Per Year Per Household $597,241 more $29,895 more $4,912 more $3,733 less $8,598 less $10,100 less $8,582 less $5,623 less

Source: Jacob Hacker, Yale University; Paul Pierson, UC-Berkeley

Can this Be Fixed?

Jobs in the United States (NonFarm)


1950 2008

Source: Population Reference Bureau US Labor Force Trends & US Census 2008

Steps to Improve Things


Increase infrastructure rebuilding Increase jobs in high tech manufacturing Institute training / apprenticeships in manufacturing Create online free training by partnering with the blog community Citizens need a fair arbitrator that represents labor in all businesses nationwide Basically do what Germany did in 1990 (2nd Largest Exporter of Goods)

Steps to Improve Things


Increase revenue by raising taxes on the wealthiest 5% Relax burden on small medium sized business owners by decreasing payroll taxes Social Security, Medicare and Medicaid The Only Safety Net for the Bottom 90% Net Worth of Bottom 80%: $48,669.53

Taxation Doesnt Hurt it Helps


The only nations with no income tax Cambodia Central African Republic United Arab Emirates The nations with the highest tax rates are also the happiest Denmark wins almost every year

Income Inequality Destroys Nations


Canadian Members of Parliament "This House notes the findings...that societies with smaller income differences between rich and poor have fewer health and social problems, such as teenage births, violence, mental illness and drug abuse; further notes that such societies have higher levels of trust between citizens and more social mobility; and therefore encourages the Government to promote policies that reduce income inequality." What Nation are they Talking About?

Where Does the US Rank? Versus All Developed Nations


#1: Teenage Births #1: Imprisonment #1: Homicides #1: Infant Mortality #1: Drug abuse #1: Inability to Increase Social Status

Who Owns US Debt?