Borrowers and speculators benefit at savers’ expense

Published in the Financial Times.

As your report “Fed balance sheet moves up agenda” makes clear (Jan. 19), the Federal Reserve’s quantitative easing experiment is still buying bonds and mortgage securities eight years after the crisis ended and five years after U.S. house prices bottomed. Why? What hath the Fed wrought?

It has helped out the government by seriously reducing the cost of financing federal deficits; it has allocated huge resources to its favoured uses of government spending and rapid inflation of house prices; and it has expropriated the wealth of savers by running years of negative real interest rates. Far from it being the case that “all boats were lifted,” I calculate, using long-run average real interest rates, that since 2008, the Fed has purloined about $2 trillion from conservative savers and given it to borrowers and leveraged speculators. The biggest borrower of all, and thus the biggest beneficiary, is of course the government itself, of which the Fed is such a useful part.