"Top-down economics doesn't work," President Obama told an adoring crowd this September in Virginia Beach. "We don't need to double down on the same trickle-down policies that got us into this mess in the first place," he continued.
Fighting income inequality has been the "driving force" of Obama's entire tenure as president, the Washington Post's Zachary Goldfarb tells us. It certainly explains why Obama is willing to risk sending the U.S. economy into a second recession in order to obtain a $1.6 trillion tax hike on the richest 2 percent of Americans.
But if redistributing wealth from rich to poor is such a high priority for Obama and the progressive movement, one wonders why they have been so supportive of Federal Reserve Chairman Ben Bernanke.
This week, Bernanke announced that the Fed would literally double down on its existing efforts to decrease unemployment by creating money out of thin air. Since September of this year, the Fed has been buying $40 billion worth of mortgage-backed securities from financial institutions. On Wednesday, Bernanke said he would increase his purchases to $85 billion a month and would continuing this buying spree until unemployment reached 6.5 percent.
Bernanke's announcement marked the fourth round of what is commonly known as quantitative easing. When Bernanke began the first QE experiment back in December 2008, the unemployment rate was 7.3 percent. It then rose to 10 percent in October 2009 before falling to 7.7 percent today. Bernanke's supporters claim it would have risen much higher had he not eased more than $2 trillion into existence over that same time.
Supposedly, when the Fed creates money by buying assets from financial institutions, like Goldman Sachs, for example, it helps the economy grow by lowering interest rates, making it easier for businesses to borrow money. This increased borrowed cash would then -- ahem -- trickle down to average Americans as businesses expanded their operations.
By purchasing mortgage-backed securities instead of U.S. Treasurys during the last two rounds of QE, the Fed hoped money would trickle down to homeowners too as they refinanced into lower mortgage payments, thus giving them more money to boost consumer spending.
So has QE worked as the Fed intended? Not really. Bank lending has inched up. It rose a whole 0.9 percent last quarter. But bank profits have skyrocketed. They grew 9.4 percent last quarter, their best performance in six years. And Bernanke's QE is a big reason why. According to Businessweek, banks are keeping most of the benefits from the lowered lending rates, not passing them on to consumers.
And banks aren't the only ones profiting from Bernanke's money creation bonanza. Stocks are up too. As Bernanke himself testified to Congress, "This effect is potentially important because stock values affect both consumption and investment decisions."
Which is great news ... if you own stocks. And guess who does? The rich. The wealthiest 5 percent of Americans own 82 percent of all individually held stocks. So whatever wealth effects Bernanke has created for the rich won't be felt by the rest of us until they ... trickle down.
The Fed has been pumping hundreds of billions of dollars a month into the U.S. economy for four years now. Four years that have also witnessed the weakest economic recovery since the Great Depression. Four years in which, according to University of California, Berkeley, economist Emmanuel Saez, inequality has not only grown, it has grown faster than it did under President George W. Bush.
Obama not only reappointed Bernanke in 2009, he also has now appointed six of the seven members of the Fed's Board of Governors. All of them voted in favor of Bernanke's QE double down.
Obama may not be repeating the same trickle-down policies of Bush, but he seems to be creating quite a powerful set of his own.
Conn Carroll (firstname.lastname@example.org) is a senior editorial writer for The Washington Examiner. Follow him on Twitter at @conncarroll.