Fed Bankrupting Consumers While Enriching Wall Street As A Matter Of Policy?

Majority of Wall Street dealers still expect Fed QE3 ... Despite improved hiring last month, most Wall Street economists still expect the Federal Reserve to do more to stimulate growth this year, with the majority looking for action as soon as September. The median of forecasts from a Reuters poll of 17 primary dealers - the large financial institutions that do business directly with the Fed - showed a 63 percent chance the central bank will for the third time expand its balance sheet via large-scale bond purchases. If the Fed does act, 13 said they thought it would do so at its next policy meeting in September, up from eight in a July 6 Reuters poll of 16 dealers. There are 21 primary dealers. Friday's poll was conducted after a government report showed employers added 163,000 new jobs. − Reuters

Dominant Social Theme: We are doing all we can to benefit the average consumer and job-holder.

Free-Market Analysis: Here is a question that needs answering: Why is the Fed giving away money freely to big professional investors that hold massive amounts of government bonds ("quantitative easing") while starving small businesspeople and investors of loans?

In this article, we'll try to provide an answer. Let's re-examine the business cycle in order to set the stage for our analysis.

It is government that creates recessions and depressions to begin with via the overprinting of money. Over time, the booms grow stronger as more and more money is pumped into the economy. The busts likewise grow deeper. The current bust is among the deepest in recent memory.

Many paper-money pundits have advocated reinflation via Fed money printing. In fact, the New York Times' Paul Krugman wrote the following in 2002:

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

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