The single most significant aspect of The Federal Reserve’s meeting is the giant yawn it solicited as a response to its policy initiatives. No one cares anymore.
The most frightening aspect of Ben Bernanke’s quantitative easing scheme to increase employment through the monthy purchasing of $40 Billion of security instruments is both the open ended nature of this commitment coupled with his intransigence to make no allowance for failure.
The previous “stimulus”, actually two previous rounds came to a dud. So he doubles down? This is similar to the Socialists and other unreformed liberals who are so ideologically fervent they are immune to discovering or recognizing empirical reality. QE3 PLUS will not work, but the debt will rise anyway without any discernible impact on the policy objective of increasing employment.
Two historical points of interest. The myopic vision of Keynesian technocrats permits them to curtail their view of history permitting the “lost decade” of Japananese failure in QE throughout the 1990’s as their only valid source for this arcane monetary policy. They ignore the hyperinflation of the Wiemar republic that ushered in Democratic Socialism under the aegis of Hitler. They also ignore numerous other Civilizations that tried to devalue its currency to prosperity only to usher in unmanageable inflation.
Let’s leave that for the historians to ponder.
As of this writing the Federal Reserve is committed to purchasing $40 Billion worth of toxic mortgage backed securities while continuing Operation Twist, the formal policy of aggressively pushing down US interest rates to the desired hope that dollars will be spent on riskier market bets bringing in tax revenue.
What we’re looking at here is a reckless monetary policy aggressively disguised as a “whatever it takes” mentality in light of a non-existent Congressional fiscal policy. We’re on the road to hyperinflation!
How does QE3 work?
In addition to purchasing toxic mortgage backed assets, the Federal Reserve believes in two distinct channels/levels it can manipulate to get borrowing costs lower stimulating people to either spend or borrow.
The first level is called portfolio balance. The second level is called wage hiring channel. Both depend largely on Federal Policy to affect much higher unexpected prices faster than workers or lenders can respond. In other words, Ben Bernanke thinks that by pursuing QE3 and Operation Twist in tandem he can conjure federal revenue(inflation) faster than the market can respond. He specifically wishes to drive up the prices (value) of assets signaling to producers to increase output. This means an increase in employment.
It will not work for the simple reason that the American citizen is deleveraging debt coupled with the arrival of an completely digital decentralized political economy. If the American economy were completely centralized it may work. It never worked in Japan throuout the 1990’s!
The only thing that can stop this madness is an election.
November will usher in a tectonic shift in the American political economy, chiefly a return to a single mandate for the Federal Reserve (price stability) and a far more engaged Congress.
In the meantime, Ben Bernanke has become Buzz Lightyear. “To Infinity and Beyond.”