More Fed QE won’t help small business
In the fall of 2008, one of the entities charged with helping the U.S. economy avoid a full financial collapse was the U.S. central bank, the Federal Reserve Board.
The Fed has many monetary tools to infuse liquidity into a weak economy, including buying securities with money it creates, literally from thin air. So when the 2008 financial collapse happened, the Fed initiated a plan it called “quantitative easing” (QE), and bought hundreds of billions of dollars of securities from banks and other financial institutions. Most experts consider this step to have limited the depth of the crisis.
When economic recovery remained tepid more than a year after the end of the Great Recession, the Fed launched QE2 in 2010, buying billions more of various securities from Wall Street entities. And even though two years hence a still-languishing economy seems to demonstrate that liquidity is no longer our problem, the Fed recently announced yet another round of accommodation called, wait for it ... QE3.
We wanted to know what small business owners thought about this recent Fed step, so in our online poll, we asked this question: “What do you think about the Fed’s third round of liquidity infusion (QE3)?” Here are the results.
Only 2% of our sample said, “This is good economic policy,” while 11% admitted they “Don’t understand it.” The big group – 86% – reported they thought this move was “Not good economic policy.”
So why are small business owners so anti-QE? Perhaps it’s because they aren’t feeling the love from the Fed.
Remember, when the Fed buys securities that money goes to Wall Street, not Main Street. Since 2009 the Dow-Jones index has risen 1000 points each year and the NASDAQ has doubled. Meanwhile the Main Street economy continues to languish barely above recession levels, contributing to extremely weak small business loan demand from their only direct connection to Fed liquidity: banks. And when the Fed starts taking away the QE candy, which is inevitable, and stock markets correspondingly experience a correction, that downward trajectory will have a negative impact on the economy and small businesses, even though neither really benefited from the the run-up over the past three years.
Furthermore, since many economists believe hyper-inflation will eventually result from the Fed’s QE strategy, small businesses – which have not benefited from QE – will be hurt by the inflation. And unlike Wall Street, small businesses don’t operate with buy/sell limits or hedging strategies that allow them to make money regardless of which direction the market is going. They’re planted in the ground, on Main Street.
We need Fed policies that grow the economy, not just the stock market.
Write this on a rock ... Small businesses need MC (more customers), not more QE.
Jim Blasingame is creator and host of the Small Business Advocate Show. Copyright 2012, author retains ownership. All Rights Reserved.
