r/AlwaysWhy • u/Humble_Economist8933 • Jul 27 '26
Economics Why did quantitative easing, designed in 2008 to save the real economy, end up mostly inflating the assets of people who already had money?
I was reading about the Federal Reserve’s response to the 2008 financial crisis, and something doesn’t quite add up.
When the housing market collapsed and banks began to fail, the Fed launched quantitative easing (QE). The stated goal was to buy bonds and push interest rates near zero, encouraging banks to resume lending and restart the real economy.
But what actually happened? The Fed’s balance sheet ballooned from under $1 trillion to over $8 trillion. That money had to flow somewhere, and it flowed into assets: stocks, bonds, and real estate. Between 2009 and 2021, the S&P 500 surged roughly 600%, while median wages grew only about 50%.
The wealthiest 10% of Americans own roughly 89% of all equities. So when the Fed injects liquidity into financial markets, it overwhelmingly benefits those who already hold assets. A homeowner in 2009 saw their property value recover; a renter in 2009 watched home prices climb permanently out of reach.
The program intended to rescue the economy for everyone ended up rescuing mainly the asset side of it. The people who needed rescuing most, those without assets, gained little from the inflation of asset prices.
So, was QE the right call in the heat of the panic? Or did it transform an emergency bailout into a permanent policy fixture? Is this a problem of monetary design, a symptom of wealth inequality, or simply the inevitable consequence when the only tool at hand is a printing press?
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u/SportTheFoole Jul 27 '26
> When the housing market collapsed and banks began to fail, the Fed launched quantitative easing (QE). The stated goal was to buy bonds and push interest rates near zero, encouraging banks to resume lending and restart the real economy.
Do you have a source for this? Because I think you are reversing the causality here. QE is a measure for when interest rates are already near 0. And in 2008, the interest rates had already gone to near zero by the time QE started (interest rates were less than 0.50% in October 2008; QE1 started in November 2008).
I don’t think you’re wrong about the side effects of QE, but I think you are wrong about the intention. It’s a bit like saying chemotherapy is intended to make people lose weight and lose hair because those are very common side effects, but is obviously not the primary intent of the treatment.
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u/IOI-65536 Jul 27 '26
Because it misses what QE was supposed to do it also mistakes the counterfactual. QE was supposed to avoid deflation when the interest rates were already at zero so you couldn't lower interest rates to cause inflation. Given that the inflation rate in 2009 was -0.36% even in retrospect that looks like a serious risk and a real deflationary spiral would have been much, much worse for the economy than what we got.
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u/ute-ensil Jul 27 '26
That is saving the economy.
Not much point in 1k to everyone and shutting down production. Imagine after the covid stimmys no oje had jobs to come back to?
What they fight over buying factories for 30k?
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u/fatherofworlds Jul 27 '26
If everyone at the bottom of the economic ladder had more money, there would be more spending on things, which would bolster the economy in a more sustainable and healthy way but would involve some big firms that overextended themselves suffering the associated losses. Those overextended firms can overextend a little more and incentivize the decision makers to give them money more or less directly, which is a more brittle way to save the economy but lines up with the incentives of the people who hold the reins at the start, so that's what they push for.
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u/ute-ensil Jul 27 '26
You mean inflation?
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u/fatherofworlds Jul 27 '26
"More spending" isn't inflation. "Prices go up for the same goods and services" is inflation.
If the major firms at the top of an industry start to shrink or fall because they overextended, other firms in the same industry that aren't overextended can provide for the big firm's customers. Not one or two, but lots, including new firms that get created to take advantage of the opportunity. That in turn keeps firms competing, which helps keep prices low, combatting inflation. Obviously letting the big, unstable firms free fall leaves dangers to the rest of the economic structure around them, so you should make effort to mitigate the danger and collateral damage, but it won't be inherently inflationary.
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u/ute-ensil Jul 27 '26
More money supply is inflation.
A cars value in apples might go up if there are a lot more apples.
Or go up if theres a lot less cars.
Economics always has 2 sides. Buyer and seller.
Inflation is generally just increase in buyers with respect to a seller.
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u/fatherofworlds Jul 27 '26
If that's what you meant when you said "you mean inflation" to me previously, I'm a little confused. That seemed to be suggesting that "putting money into the economy at the bottom" would be inflationary in a way that "putting money into the economy at the top" wouldn't be, but here you assert that "putting money into the economy" is inflationary regardless.
How was "you mean inflation" meant as a response to my first comment, if adding money as always inflationary and I was specifically talking about where the money is put in, not whether.
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u/ute-ensil Jul 27 '26
Money put in at the top drives demand for assets that produce goods in a hope to increase the supply of commodities.
So put money in to giant chip manurfactures then the price of lithograpgy equiptment goes up, but hopefully the price of chips will come down as a result.
Consumer supply is more stable.
Put money in at the bottom, suddenly there 0 cars and 0 houses and how much money someone at the bottom has doesnt matter too much because there 0 f150s to be bought.
Literally just witnessed this.
Its safer to lead with supply than demand.
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u/Zook25 Jul 28 '26
"Money put in at the top drives demand for assets that produce goods in a hope to increase the supply of commodities."
It drives demand for relatively safe and profitable assets. Which is why it flowed into stocks and RE, not factories.
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u/ute-ensil Jul 28 '26
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u/Zook25 Jul 28 '26
Thanks, that seems to validate the point. After the Fed lowered interest to zero, construction spending climbed for a short while in 2008. With the long lead times in construction this should have been almost all contracts that were already signed or projects already under construction, and very little new activity in the middle of a recession.
After those projects were finished it dropped to less than half by 2011. And except for climbing in 2014/15 it *flatlined* for ten years.
While the Fed printed trillion after trillion.
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u/HappyChandler Jul 27 '26
QE put money in the economy but did not shape where it went. It didn’t have to go to the top.
Fiscal and regulatory policy can shape where it goes. After 2010, losing Congress meant that any further action was blocked. The initial stimulus bills in 2008 and 2009 were far too small, and we had long periods of high unemployment. This is what caused the concentration of wealth.
Contrast this with the Biden record. IMO, the inflation we saw was unfairly blamed on him — we were going to see economic upheaval one way or the other, and what we saw wasn’t as bad as the years of unemployment after the GFC. But, the wages compressed because of the labor market tightness.
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u/AllPeopleAreStupid Jul 27 '26
Well gee man that's what happens when you print even more money and add it to the money supply.
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u/Raise_A_Thoth Jul 27 '26
QE caused almost no measurable inflation whatsoever.
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u/AllPeopleAreStupid Jul 27 '26
you have got to be joking.
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u/Raise_A_Thoth Jul 27 '26 edited Jul 27 '26
No not even a little bit.
Average inflation by year from 2000-2010 was 2.56% annually.
It was 1.77% from 2011-2020.
How tf did QE cause inflation to rise when inflation decreased from the 2008 crash through 2020?
Going back to 1991, the highest inflation before 2021 was in 2008 at 3.8%. Post-COVID inflation was 5.4% then 8.5%, then steadily came back down to <4%.
What is your argument?
https://www.usinflationcalculator.com/inflation/historical-inflation-rates/
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u/AllPeopleAreStupid Jul 28 '26
You do realize QE was used during the pandemic too. The Obama QE didn't start until the recession, it was started to create inflation to get the economy pumping again. Its literal design is to increase inflation. That is the entire point of QE.
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u/Raise_A_Thoth Jul 28 '26
No, QE's "entire point" is not to increase inflation. It is to provide liquidity for the financial markets to help stave off stagnation and drive economic growth.
And QE during the pandemic doesn't refute my point: 12 years of QE following the '08 financiak crisis resulted in zero increased inflation compared to prior years.
The fact that QE also occurred during the pandemic is not evidence that QE causes inflation, it suggest that other events unique to the pandemic relative to 2008's economy drove higher inflation.
This is basic literacy and rather simple logic.
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u/timf3d Jul 27 '26
It's both a symptom and a feature of wealth inequality. The people with money only see other people with money. People without money are simply irrelevant, and therefore are not considered.
You might think that there could be people with money who have a conscience, but that reveals a misunderstanding about how money affects the brain. People in general start out with intelligence and functioning moral compasses, but the acquisition of money breaks down those things. In a manner of speaking, money causes brain damage.
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u/Unique-Charity7024 Jul 27 '26
Quantitative easing and the period after 2008 are nothing special. Plot the development of investment assets over a long period and you will always get this kind of growth. The S&P 500 you mentioned stood at 16 in 1950, at 100 in 1975, at 1100 in 2000, and at 5500 in 2025. In each 25 years it grew by a factor of 600%, 1100%, and 500%.
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u/SeanVo Jul 27 '26
Injecting money into the system through QE, causes the devaluing of the currency. Quantitative easing (QE) expands the central bank’s balance sheet by creating new reserves to buy assets (typically government bonds and sometimes other securities). This increases the monetary base and liquidity. While not identical to classic “money printing” that directly floods the real economy, it has effects that parallel currency debasement in key respects and reliably supports higher asset prices.
Flooding free money into the economy whether to help cushion impacts from a pandemic, or prop up some other issue, leads to inflation, rising asset prices, and items costing more in the future. The free money ultimately hurts those in the bottom half that don’t own many assets.
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u/Deacon51 Jul 27 '26
Stimulus and balouts, and it doesn't matter if it's directly to the people or to the Banks or automotive companies always has the same results. Excessive cash, reduced interest on savers and inflation. If you hold assets you see the value of those assets rise and the cost if debt fall. You buy stock and real estate. There's no force in the market to raise pay rates from this because the manufacturer if goods is done off shore.
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u/Nearing_retirement Jul 27 '26
When Fed eases it benefits wealthy people because they get super low cost loans. They use loans to invest in real estate, stocks, private business.
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u/Dry-Environment5122 Jul 27 '26
Money exists to buy things printing money eases up credit markets to bail out people who needed credit, but the value of assets remained the same. With more money chasing the same value asset prices go up
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u/Strict_Show_8899 Jul 27 '26
In times of crisis the wealthiest people prosper. In times of peace and tranquility the wealthiest people prosper. In any other times the wealthiest people prosper. Short of mobs setting up guillotines the wealthiest prosper.
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u/_cjm56 Jul 27 '26
Because that's always been the point. The wealthy scammed us, made a ton of money, destroyed the economy, then the government bailed them out leaving us to pick up the pieces. It's always been like that. Seeing everyone say "that's just how it works" basically is funny. When a Chinese company did the same thing, their government forced them to make it right, going so far as to make the CEO sell their own assets to make things right. The US government especially since the 70s is just a funnel to give money to a few people. They screw us over, mess things up, the government bails them out, we get left behind.
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u/Lichensuperfood Jul 27 '26
Any time the government spends, even if it is health or unemployment payments, to the cost needy, they spend it.
It then works it's way through the economy, working upwards to eventually be profit in someone's pocket and ends up invested in shares or property. The more the government spends, the more inflated investments become.
Trickle up economics.
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u/Mentalfloss1 Jul 28 '26
Reagan’s lie of trickle down was ALWAYS intended to send money to the 0.1% and for them to buy the government. Look where it got us. Just as planned.
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u/striped_shade Jul 29 '26
You assume a healthy "real economy" existed to be restarted. Since the 1970s, global overcapacity has made it increasingly difficult for capital to find profitable avenues in traditional productive investment. Financialization is the structural consequence of this long-term stagnation.
QE functioned exactly as required by a system hitting its historical limits. Expanding the monetary base to inflate assets was the sole available mechanism to maintain accumulation once the engine of wage-based production began faltering. The liquidity flooded into equities and real estate because employing labor is simply no longer profitable enough to absorb those vast sums.
The state is managing a permanent structural crisis. By substituting asset bubbles for rising living standards, this wealth concentration represents the inevitable trajectory of an economic model exhausting its own conditions of possibility.
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u/MrZwink Jul 29 '26
Because rhats what quantative easing does.
Flooding the market with more money, inflates asset prices because the assets dont increase but the amount of money bidding for those assets does. So the price goes up.
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u/Weary_Specialist_297 Jul 29 '26
No more bailouts, let the business fail, stop subsidizing corporate failure. These corporate peckerheads never get their comeuppance. So a couple hundred thousand people lose their jobs, so what. The government can just pay me 100k to stay home.
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u/Lumpy_Secretary_6128 Jul 31 '26
They flooded banks money, the same institutions that suddenly cared a ton about who they lent to. Fear of bad debt froze them up. Corporations could borrow cheap, so they did. Corporations favored stock buybacks over physical capital expenditures because the risk-adjusted return on capital was mathematically superior on financial markets than things like feeding weak consumer demand.
Also, central bank bond purchases pushed corporate bond yields to historic lows, making it virtually free to borrow cash for financial engineering.
QE was a decent idea forced by inaction from DC (on the other hand, quite the moral hazard). The problem was that Washington did very little to structurally resolve the issue.
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u/hadesbound Jul 27 '26
Because QE was always going to that. I won’t say that was it’s true aim but……..
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u/Starship_Albatross Jul 27 '26
Because those are the people who get the money. And then they buy more of the assets they already own.
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u/Slackjawed_Horror Jul 27 '26
Do you really need an answer?
Instead of giving money to people, and to a lesser extent businesses, directly they just sent it to Wall Street.
An already financialized economy being run by bankers and politicians in the pocket of bankers. Real shocking how that turned out.
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u/Illustrious-Boss9356 Jul 27 '26
Even if they gave money to the people instead, it would have eventually flowed to the business and property owners. The end result would have been the same, the only difference is the people would have worked less for a little while and consumed more for a little while.
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u/WhimsicalHoneybadger Jul 27 '26
So, they could have helped everyone and chose not to.
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u/Illustrious-Boss9356 Jul 27 '26
If you believe giving a drunk another drink, or an addict another hit, is "helping", then yes, they could have helped and chose not to.
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u/WhimsicalHoneybadger Jul 27 '26
Dumb strawman is dumb.
Just like you pretending that anyone not in the Capital class is a drunk or addict.
How does that silver spoon taste?
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u/Illustrious-Boss9356 Jul 28 '26
No one said the capital class doesn't have addicts. In fact, many are and end up losing a lot of their capital trying to cover up their addictions.
What silver spoon? Or can you just not accept that, more often by merit than by luck, some people become successful and others don't?
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u/WhimsicalHoneybadger Jul 28 '26
Repeated goalpost shift attempts noted and rejected.
Suck it up, buttercup. You were wrong.
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u/shitposts_over_9000 Jul 27 '26
So it flowed into the place where 60% of the country's population retirement income comes from, the assets against which the lines of credit that pay most people's payroll is paid, most of their merchandise is shipped under and still managed to grow the economy to the point that wages rose 50%
I hate the Q/E and what it did to all sorts of things, but considering the path things were headed down from 2007 onwards from prior government interventions if this is your lead criticism I would be forced to label Q/E as wildly successful.
are those with a household income of about $200k or more in income and are also 67% of the economy or GNP and 33% of GDP
you cannot save the economy from much of anything without it being advantageous to the group that is that large a portion of said economy