Posted on February 21, 2019 by Ellen Brown
“Quantitative easing” was supposed to be an emergency measure.
The Federal Reserve “eased” shrinkage in the money supply due to the
2008-09 credit crisis by pumping out trillions of dollars in new bank
reserves. After the crisis, the presumption was that the Fed would
“normalize” conditions by sopping up the excess reserves through
“quantitative tightening” (QT) – raising interest rates and selling the
securities it had bought with new reserves back into the market.
The Fed relentlessly pushed on with quantitative tightening through
2018, despite a severe market correction in the fall. In December, Fed
Chairman Jerome Powell said that QT would be on “autopilot,” meaning the
Fed would continue to raise interest rates and to sell $50 billion
monthly in securities until it hit its target. But the market protested
loudly to this move, with the Nasdaq Composite Index
dropping 22% from its late-summer high.
Worse,
defaults on consumer loans
were rising. December 2018 was the first time in two years that all
loan types and all major metropolitan statistical areas showed a higher
default rate month-over-month. Consumer debt – including auto, student
and credit card debt – is typically bundled and sold as asset-backed
securities similar to the risky mortgage-backed securities that brought
down the market in 2008 after the Fed had progressively raised interest
rates.