Video Summary — “The Power of The Fed”

“The Power of the Fed” is a Frontline Series documentary produced by PBS that explores the actions of the Federal Reserve before, during, and after the Covid-19 pandemic. The documentary highlights how the Fed, primarily through lowering interest rates and through the use of quantitative easing, has significantly aided the markets but has simultaneously widened the wealth inequality gap and, in some ways, failed to assist the average American.

I found this documentary personally relevant because it answered some questions and explained the factors contributing to the current economic situation in the United States, particularly the issue of inflation. I moved from the USA to Asia at the end of 2022, and I noticed that the prices of basic staples, like milk and eggs, had doubled before my move. Conversations with friends back in the USA after my move abroad have revealed that prices continue to rise while salaries remain stagnant.

I had heard the term ‘quantitative easing’ before, but I didn’t fully understand its meaning until watching “The Power of the Fed.” I learned that it involves printing a significant amount of money and infusing it into the markets. This, in turn, has led to decisions that already have and could continue to result in significant negative consequences, which is quite alarming.

The downsides to quantitative easing include the fact that when governments print new money in large amounts, it leads to inflation. Additionally, when that money is infused into the markets, it can encourage reckless behavior, as people begin to believe that the market cannot crash.

In “The Power of the Fed,” Joseph Stiglitz, a Nobel Prize-winning economist, is interviewed. Mr. Stiglitz discusses his concerns about the method chosen by the Fed to revive the economy, as it relies on a trickle-down effect. His concerns lie in the fact that while the method lowers the interest rate, it primarily affects the stock market alone. Stocks are predominantly owned by a limited number of Americans, primarily from the upper classes, with only the extremely wealthy owning the majority of the stocks. This puts the relief/aid meant for the many into the hands of the few who don’t necessarily need such relief/aid.

Another problem with quantitative easing is that it relies on the markets, once thriving from its effects, to be somewhat altruistic. However, the truth is that in a capitalist society, the markets are not altruistic in the least because they usually foster selfishness.

This selfishness/self-interest is not always negative, as Milton Friedman said, “The world runs on individuals pursuing their separate interests.” However, in this scenario, the effects of quantitative easing on the markets tend to foster excessive self-interest. As a result, the combination of quantitative easing and lowering interest rates did not achieve the desired trickle-down effect the Fed had hoped for, particularly for the average American.

The brief interview featuring Jeremy Grantham, about thirty minutes into “The Power of the Fed,” showcases how even someone from the markets sees the potential dangers of the Fed’s quantitative easing and extremely low interest rates. Grantham points out that the GDP allocated to the financial sector has increased from 3.5% to 8.5%, making it, in a way, “like a giant bloodsucker” that has more than doubled in size.

Grantham argues that this doubling is particularly concerning, given that the financial sector does not actually produce any tangible goods or real income increases. He asserts that, although the financial sector provides a useful and necessary part of the economy, it has developed increasingly expensive and convoluted methods through “ingenuity, salesmanship, and lobbying Congress.” By doing so, the sector has perpetuated the notion that banking and finance are of utmost importance at all times, implying that any disruption to these sectors will lead to a complete collapse of the economy — an idea Grantham appears to question.

Overall, “The Power of the Fed” demonstrates that the decision to maintain low interest rates and implement quantitative easing has led to a shell game within the markets, a widening wealth inequality gap, and highlights the fact that even the best intentions can have long-lasting negative consequences. These consequences are evident in rising inflation, continued unemployment issues, and the ever-widening gap between the very rich and the very poor in America.