It is not so much what they do is a mystery....
It is why they do it is baffling.
Take QE 1, 2 & 3 for example. How did all that money creation helped the main street economy and the middle class? It benefited the bankers and their rich friends alright. They could borrow cheap money and buy stocks and other assets and create a bubble level prices in them.
If that same amount of money was given to small businesses and medium businesses and large businesses in the form of tax reduction, capital investment credit, etc. we would have lot more jobs and a much better economy.
Who are the people running the Fed? They are academics, having never worked for a main street business which actually produce and manufacture something.
How has keeping interest rates artificially near zero helped? In reality it has reduced buying power of savers and seniors, and reduced demand for goods.
It is akin to giving enema from the wrong end. Sure if you pump enough water through the mouth, eventually the poop will come out. But it is much more effective when done right.
“Take QE 1, 2 & 3 for example. How did all that money creation helped the main street economy and the middle class?”
Actually we were helped by something that didn’t happen, namely a collapse in the banking system. I know that the Fed was very worried about the potential for that to happen and QE was one of the tools they were using to prevent it.
It was all a consequence of the housing bubble. When the housing bubble popped prices fell and people began walking away from their loans. That set in motion a vicious cycle where each further drop in prices put more people underwater and then they would default as well. Defaulted loans blow holes in a bank’s balance sheet. If that wasn’t stopped there could have been widespread bank failures and a resulting collapse in the money supply. That was the vicious cycle that made the Great Depression what it was, when one third of American banks went under from 1930-33. No one wanted a repeat of that situation, it would make our current malaise look like nothing.
“If that same amount of money was given to small businesses and medium businesses and large businesses in the form of tax reduction, capital investment credit, etc. we would have lot more jobs and a much better economy.”
That wouldn’t have prevented a collapse in the banking system which was the number one worry.
“Who are the people running the Fed? They are academics, having never worked for a main street business which actually produce and manufacture something.”
There’s five on the current Board of Governors with two vacancies. They all have academics in their background but three have some private sector experience.
“How has keeping interest rates artificially near zero helped? In reality it has reduced buying power of savers and seniors, and reduced demand for goods.”
Well I don’t like it for the very reasons that you cite, but the reasoning is that it props up asset prices and makes loans more available than they would be otherwise.