And the basic idea was Fed creates all this money

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buy canada goose jacket cheap SMITH: And it made sense to do the PLANET MONEY indicator because this was right after the financial crisis. And the world felt like it was canada goose outlet changing. Literally every day there was some number that around here at PLANET MONEY we would go, like, oh, my God. I can’t believe that. Now, of course, things gradually settled down. The numbers stopped changing so fast, canada goose outlet online uk and we stopped doing the indicator. But today, at least for this episode, we are bringing it back. buy canada goose jacket cheap

Hello, and welcome to PLANET MONEY. I’m Robert Smith and today on the show, the return of canada goose outlet online the PLANET MONEY indicator. Stay with us.

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SMITH: For our very special indicator show, we asked several of the hosts and reporters here at PLANET MONEY to go out and look for a number that said something to them, a number that taught us something about where our economy is today. Now, of course, there are a lot of good numbers out there. You probably hear them on the news all the time. There are more jobs being added month canada goose outlet orlando after month. Home prices are up. But when you look under the hood of the economy, you see in a lot of ways the crisis the crisis that started the whole PLANET MONEY indicator the crisis is still with us. In PLANET MONEY indicator tradition, first up, Jacob Goldstein.

Canada Goose Jackets GOLDSTEIN: You know what it’s going to be? It’s the Fed. During and after the financial crisis, the Federal Reserve created $3 trillion out of thin air. So I’m talking, of course, about quantitative easing. This was this canada goose outlet edmonton big project the Fed had to stimulate the economy during canada goose outlet in canada and after the crisis. And the basic idea was Fed creates all this money, puts it out there, get people spending, get the economy going again. Canada Goose Jackets

canada goose coats SMITH: Yeah, this is part of the big history of the financial crisis, this they refer to it as QE QE1, QE2, QE3. It was this thing that every month, you’d hear, oh, they’re producing this much more money billions and billions of dollars a month. And then they stopped creating the new money, and nobody talked about it anymore. canada goose coats

GOLDSTEIN: I talked to this guy Alan Blinder when I was putting together this indicator. He’s a Princeton canada goose premium outlet economist. He was the vice chairman of the Fed back in the ’90s. And I asked him, where did that $3 trillion go?

Canada Goose Outlet ALAN BLINDER: Ah, that’s the 64 billion or trillion dollar question. The answer is, surprisingly very surprisingly basically all of it went to idle cash in the banks. Canada Goose Outlet

GOLDSTEIN: Idle cash in the banks basically means the Fed created all this money out of thin air, bought bonds from the banks. The banks took that money and sat on it and basically didn’t do anything. And so it’s not creating inflation ’cause it’s canada goose outlet england just sitting there in the banks. But it’s likely that at some point, as the economy continues to improve, things really start canada goose outlet locations in toronto humming again, banks will start lending more. That money will be out there more. And it will, you know, then potentially start driving up inflation. And that is what the Fed has to worry about. I mean, that’s always the Fed’s job.

canada goose deals SMITH: What does the Fed do about this? They have never had this much money out there before. canada goose deals

GOLDSTEIN: Right. And in a basic way, they’re facing the same challenge the Fed always faces, which is you want to put money out there to get the economy going. And then, once the economy really starts taking off, you want to pull some of that money back before inflation gets out of control. But there’s canada goose outlet 80 off a couple reasons why it’s a much harder job this time, right. The first reason is the magnitude is canada goose parka outlet just much larger. There’s a lot more money out there. And one canada goose stockists uk of the things Blinder told me is that means even a small mistake by the Fed can have real, large consequences out in the economy. The other reason, which I think is actually even more interesting/kind of scary, is the Fed has canada goose outlet montreal never done this before. The Fed has never, ever done quantitative canada goose outlet authentic easing before. And he said, look, during the financial crisis, the central banks the Bank of England, the Fed were making it up as they went along. They didn’t know what to do. They’d never seen this before. And Blanchflower is pro quantitative easing. He thinks the Fed did the right thing. But he says, look, we were making it up during the crisis. And when it comes time to undo QE, to start taking that money out of the economy, the Fed is still going to be making it up.

DAVID BLANCHFLOWER: They don’t have a nice chapter in a textbook to tell them what they should do. They’ve never done it before. They they’re struggling.

canada goose black friday sale GOLDSTEIN: So the Fed doesn’t know was going to happen when they finally wind down QE? canada goose black friday sale

Canada Goose Parka BLANCHFLOWER: Absolutely not. Sorry. Canada Goose Parka

buy canada goose jacket BLANCHFLOWER: They absolutely don’t know. buy canada goose jacket

GOLDSTEIN: That sounds terrifying.

Canada Goose sale BLANCHFLOWER: It is terrifying. Canada Goose sale

canada goose VANEK SMITH: Seventy two percent. mortgages. So in other words, if the people borrowing money to buy houses don’t pay their money back, don’t pay those loans back, the federal government will step up to make sure the lenders get paid back. canada goose

SMITH: Seventy canada goose outlet phone number two percent of new mortgages?

cheap Canada Goose SMITH: Yeah, didn’t we learn this canada goose outlet trillium parka black lesson? I’m getting a weird, deja vu about this. cheap Canada Goose

VANEK SMITH: Right, right. Well, I mean, this all goes back to 2008, the government bailout of Fannie Mae and Freddie Mac. You might remember Fannie and Freddie were these two big mortgage companies. And they would canada goose outlet vancouver buy mortgages from banks and sell them to investors. But this is the key part. They guaranteed those loans. So if people paying those mortgage loans defaulted, Fannie and Freddie said to investors, we’re on the hook for those mortgages. We will back them up.

canada goose store SMITH: And then, of course, when the housing bubble canada goose outlet online store crashed, Fannie and Freddie were in trouble. canada goose store

canada goose clearance VANEK SMITH: Yes. They went bust. The government swooped in, bailed them out for $187 billion essentially took them over, essentially took over the mortgage market. canada goose clearance

canada goose clearance sale SMITH: And everyone at the time said this is canada goose outlet in montreal temporary. This is just crisis thinking here. We’re going to bail them out temporarily, and then we’re going to get the government out of the mortgage business. And yet, you’re telling me 72 percent of mortgages are still guaranteed. canada goose clearance sale

VANEK SMITH: Yes, exactly. And these are new mortgages, 3 out of 4 new mortgages goose outlet canada the government is guaranteeing. So I wanted to find out what’s going on, why the government still basically owns this business. I put that question to Guy Cecala. He is the publisher of Inside Mortgage Finance.

GUY CECALA: Right now it’s kind of a moot canada goose parka uk point because there’s such an important element of the mortgage market, and the housing market is still fragile enough, there are not many people who think we can exist without them.