Yet Federal Reserve Chairman Ben S. Bernanke and his cohorts will likely expand upon their ineffective policies next week by announcing a new "Operation Twist."
That begs the question: Why?
If ultra-low rates and quantitative easing haven't put a dent in unemployment or spurred economic growth, then why expand on those programs?
The answer: Because the Fed doesn't work for the American public - it works for Wall Street .
That's right. It's not the economy the Fed has on life support - it's the banks.
America's banks are facing huge litigation costs. Worse, they've grown entirely dependent on the Fed's easy-money policy.
So the Fed is going to bail them out - again.
And we're going to be the ones who pay for it.
Federal Reserve Policy FolliesTo really understand what's at play here, let's start by taking a closer look at the Fed's misguided policies.
There are two reasons why Federal Reserve policy hasn't worked: First, the Fed's artificially low interest rates are handicapping the economy. And second, Bernanke is telegraphing Fed policy decisions to the markets, giving speculators an edge over investors.
By keeping overnight lending rates between 0.00% and 0.25%, banks can borrow at next to nothing and buy risk-free U.S. T reasury securities that yield a lot more than their financing costs. The result is a "positive interest rate spread," which is the basis for banks' revenues and profits.
Additionally, banks can borrow more money by using their Treasury securities as collateral for overnight and "term" loans. Then they use the cash they borrow to buy more Treasuries. They do this over and over again to leverage themselves.
Essentially, banks have become giant hedge funds that finance their "trading books" with virtually free money, courtesy of the Fed's zero-interest-rate policy.