Page 133 - TrumpsEconEra_Flat

Trump’s Economic Era

earn substantial in interest because they deposit trillions
of dollars annually.

Third, a sluggish economy can impede
borrowing, causing a slow down in the velocity of
money. Velocity measures the speed at which a dollar
changes hands from person to person. A decrease in
velocity can inhibit inflation despite the increase in the
quantity of money in circulation.
Fourth, the banks have paid out $250 billion-plus
in penalties to the federal government in recent years.
Some of this money does not circulate because the
government uses it to pay interest on the national debt
owed to foreigners.
Quantitative easing creates unpredictability as
traders speculate whether the Fed will intervene again.
By replacing the large decentralized markets with
centralized control of a few officials, the Fed is distorts
the free market.

THE GREAT UNWIND

In September of 2017, the Fed began to shrink its
$4.2 trillion bond portfolio by allowing some securities
to mature without replacing them. When the Fed
embarked on this grand experiment of quantitative
easing in 2008, it was in uncharted waters—by
divesting itself of these securities the Fed is again flying
blind. A minor misstep will cause anxiety with
investors and lead to disruption in the markets. Just as
quantitative easing and lower interest rates encouraged
savers to take their money out of interest-earning
accounts and invest in the stock market, higher interest
rates will have the opposite effect.

-132-