We Don’t have a Monetary Problem, It’s Fiscal

The Federal Reserve just announced today that QE3 (also now known as ‘Unlimited QE’) has set sail. This was to be completely expected, and the markets today reacted somewhat higher. Since 1977, the FED now has the dual mandate of targeting inflation and unemployment. Federal Reserve can you please explain how printing and bond buying will help increase employment? Increasing inflation it’s pretty easy to understand. How has it moved the needle in the past 4 years? All QE does help increase is inflation.

While I agree with what they did during 2008-2009, I don’t agree with QE2, Operation Twist, or this new initiative. During the economic crisis, “helicopter Ben” did the right thing. At that time we had a monetary problem. At the current moment do you know of any bank, or institution that is short of cash? Are we seeing disinflation or deflation?

QE2 has shown the effectiveness was OK at best. The problem is we have trillions of liquidity in the market place, so I’m not sure I understand how more liquidity solves unemployment. Unfortunately, to the FED when they have a hammer, everything appears to be a nail. Bernanke should admit his bullets have run out. Repeating the same policies, but expecting a different result, is a definition of insanity.

This is why I am voting for Mitt Romney. The existing President and Congress in the past 3 1/2 years have done little to help with fiscal policies. If anything, they’ve made them worse. My point fiscal policies will be more effective than Federal Reserve monetary policies. Much more effective policies should come from the Treasury and from Congress/President. Though right now all are inept. The impending fiscal and tax cliff at the end of this year is certainly not helping the economy. All of this stagnates growth and could put us into a recession if we’re not careful.

I predict these policies from the FED will only cause a “wealth effect” for the wealthy and do little to improve the economy and help individuals (middle class) who need it most. It will help increase the prices of commodities: gold, silver, oil, and food. It will devalue the dollar, and make stock prices super frothy. Don’t expect other central banks to sit on their hands either, as James Rickards mentioned in the great book “Currency Wars“. It’s a race to the bottom, and all countries are seeing who can devalue their currency faster.

It also conveniently allows for the continuation of unsustainable deficits from our government and “free” money all round. Pass the champaign around and party like it’s 1999. All of this will make investing pretty easy, until the music stops and someone is without a chair.

Readers: Do you think the FED policies will help or hurt the economy?

Comments

  1. JT says:

    I don’t think Fed policy will help the economy, nor do I think it will hurt it. It’s a simple transfer of wealth shell game where people on fixed incomes (especially debt investors like seniors) lose a tremendous amount of purchasing power each year. The only ones who benefit from QE are the people who own productive assets, primarily public and private businesses.

    Time to load up the truck on risky assets – you don’t have much of a choice any more.

    • Larry Ludwig says:

      but as you describe a wealth transfer.. doesn’t that actually hurt the economy?

  2. Ken Faulkenberry - AAAMP Blog says:

    The Feds policy is legal theft from savers by keeping interest rates artificially low. It is an economic distortion that hurts economic growth and devalues the dollar. Fiscal policy is a catastrophe in waiting. Bush/Obama and the democrats in congress are all to blame for a policy that could bankrupt the greatest country in the history of the world.

Leave Your Comment Below

*