American central financial institution Federal Reserve had a goal to stimulate economic growth after the crisis of 2008 by issuing assets ready to be sold on the capital market with the Quantitative Easing program. Released in three series, QE programs were far from boosting growth, on the contrary, they made the economy weaker and more dependable on artificial measures.

This massive financial formation, without real support in the creation of goods and services, has proven to be a disaster. Instead of learning an important lesson on the risks of this type of action, the European Central Bank decided to do the same a few years later.

The only institution that sincerely opposed this type of program was the central German financial institution – Bundesbank. The issue is that the ECB was unable to copy the model and something that was taught to be the derivative was not applied properly.

The Fed was paying off a record dividend to the US Treasury, directly linked to the enormous revenues that the Fed received from its acquisitions of assets under its smallest amount of compliant monetary policy followed in 2015 to grant liquidity to capital markets and ponder on long-term interest rates to encourage economic revival.

It might seem unclear whether the influence of the USA comes from its GDP that is still as high as the real economy is in underprivileged shape. It should be highlighted that most of the wealth produced in that country this way is, in fact, fabricated and comes from financial or banking yields.

Even after completing three series of QE, economic growth in the US continued to be poor, without any visible improvement. One might say that without it, the American economy would have collapsed, but these measures have a result that is financially equal to the amount of resources invested. Contraction of the fiscal conditions of the federal authorities, with a quick turn down in the deficit, could not promote growth, neither in theory nor in practice.

The upper limit of the debt was rematerialized to be renegotiated, causing an increase in real estate prices, matching with tightening credit conditions. Consequently, the unemployment rate became higher than the situation with this program was supposed to allow. Though, at the very beginning, this type of rescue was designed to be something that others would therefore be the supreme irony because, as we know, it is the Fed that has been actively working to set aside the financial institutions in the U.S.

The growth rate since last June is lower than projected, which is certainly the major point. It might mean that there could be doubt in the efficiency of the Fed policy, as that institution could become a victim of the prominent law of withdrawing.

Sooner or later, the operations being discussed become less valuable and apparently create stubborn effects that will be complicated to manage. So, the results are finally rather underprivileged in terms of the means arranged through the amount of money added to boost liquidity.

In this regard, the Fed is paying the Treasury the total of its earnings, reduced in particular by the operating costs of its headquarters in Washington and the dividends paid to the twelve regional banks constituting the Federal Reserve system. This status is supposed to ensure the sovereignty of its choices in relation to the government. The Federal Reserve does not receive subsidies from the Congress for its operation.

The advantage of the current position is derived from accrued interest on financial securities obtained by the central bank as part of its monetary policy support to the economy, consisting of treasury bills and mortgage-backed securities.

Yet the exit strategy of quantitative rate lowering down, which would not only stop buying bonds but also sell them back step by step, could prove disastrous for the Fed if it were to correspond with a strengthening of interest rates.

There is a fear of the explosion of a bubble that never stopped inflating, especially as the number of jobs is falling, and the number of bankruptcies is continuously increasing. Besides that, it should be stated that, unlike the ECB, the Fed has the right to buy public debt securities directly on the primary issues market, so it can consequently directly finance part of the budget deficit of the U.S.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018