Former FDIC Chief William Isaac to Moneynews: Fed's QE Not Working, Causing More Confusion

Thursday, 19 Sep 2013 05:20 PM

By Glenn J. Kalinoski and David Nelson

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The Federal Reserve's quantitative easing program is not working and causes confusion, according to William Isaac, former head of the FDIC and senior managing director of FTI Consulting.

The decision announced by the Fed not to taper the program was "quite surprising, almost stunning," Isaac told Newsmax TV in an exclusive interview.

"[QE is] taking money away that would be going to retirees or people close to retirement, making it very difficult for them to make spending decisions. It's creating great uncertainty in the business community. Loan demand has flattened at all of the major banks in the past month or two. We don't know what the future is."

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The Federal Open Market Committee said it wants more evidence of an economic recovery before paring its $85 billion-a-month bond-buying program, surprising economists who predicted a reduction in the plan, according to Bloomberg News.

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

The Fed has held the main interest rate near zero since December 2008 and pushed its balance sheet to a record $3.66 trillion through three rounds of stimulus, helping send the S&P 500 155 percent higher since March 2009.

"We don't know when they're going to … start to taper … whether they will, how much," he said.

"There was a clear path to beginning to wind down the quantitative easing and to try to normalize interest rates and let people have confidence that they can predict the future, and now it's all up in the air again on top of all of the other confusion that's created by budget crises and the like," he said.

"We know it's got to end. We know it's artificial. It's propping up markets that shouldn't be propped up and causing distortions in markets that we shouldn't be causing. They are hurting this economic recovery."

Isaac also discussed companies tending to hire temporary workers, not permanent employees.

"Part of that may be because of Obamacare," he said. "Part of it because they have no clue where the U.S. is going in terms of fiscal, monetary and regulatory policy. The system's broken and it's time we all get involved and try to change these policies."

Fed actions were also discussed in the context of a great wealth drain in American society.

"[We] are taking money away from the older people … and they can't earn anything on it," he said.

"The fiscal policies are taking money away from the next generations because these bills have got to be paid someday, and it's apparently not going to be by us. It really is an intolerable situation and we've got things wrong on the regulatory policies, monetary policies, and fiscal policies, and if we don't fix them, we're headed into another crisis.

"We are still propping up this economy in unhealthy ways and we're causing things to be distorted. Is the stock market real or is it because there's no other place to put the money? Is what's happening in real estate or the commodities market … real or is that because there's no other place to put the money? Is the escalation, the speculation, in farmland, is that real? Is that natural because there's a lot of demand and so forth, or is that because of what the Fed is doing with monetary policy? We don't really know where to put our money because we know the markets aren't real right now."

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

Isaac also said the Fed's policies are helping the rich get richer.

"There's no doubt that the people who are in the stock market tend to be people who are the fortunate people in our society," he said.

"The lower third's not much worried about what the stock market's doing. The bond market is a play for large institutions and people who have lots of money. I don't think the Fed can create a single job."

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