Bernanke Opens The Spigots

The Wages of 3-Plus Years of Loose Monetary Policy (HT: Karl Denninger)

I pity the USD. To quote an old pun, “The beatings will continue until moral improves!” The Fed was someone less jovial and avuncular as they announced yet another round of Quantitative Easing (AKA Currency Devaluation).


“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” said the Fed in a statement.

They have specifically announced a policy to buy $40B (HT:Freemaniii) a month in mortgage-backed securities in an effort to liberate market participants from the negative impact of their own collective enstupidation. The Federal Reserve has a stated intent of continuing this policy until unemployment decreases. Market participants are enthusiastic that Christmas will arrive early indeed. Joe LaVorgna of Deutsche Bank Advisors describes the euphoria below.

“There’s strong hints that they’ll do Treasurys next,” Joe LaVorgna, chief economist at Deutsche Bank Advisors, said in a phone interview from London. “They’re pulling out all the stops to try to get this economy to gain some traction and, most important, to get unemployment down.”

According to The Bank of England, the benefits of QE go overwhelmingly to the rich. I’m totally excited by that. Rich people hire people like me. The question I have is whether this policy will have significant benefits beyond the pre-election economic meth-hit eagerly sought after by President Obama’s re-election campaign.


David Harsanyi all but argues that the Fed has become a member of The Obama Administration instead of an independent agency. My five or six constant readers can read between the lines below.

The perception will almost certainly be that the Fed is trying to bail out Washington, and specifically the Obama administration. At one point, the Fed was polling behind the IRS in popularity, and open-ended money printing can only corrode confidence in the institution even further. Voters are going to have a tough time compartmentalizing monetary policy from Obama policy — and in many ways it’s the same.

I’ve taken a deep breath since the Fed announcement of QE III and no longer care whether or not The Ben has a bumper sticker supporting Obama/Biden on the bumper of The Benmobile. I can’t stop the man, so the deeper question is one of whether he has improved my existence or made it worse. I disagree with many here and opine that QE III will make America a worse place in three respects. It will make us all more susceptible to moral hazard, it will make politicians less accountable, and it will fail in its stated objective of ever improving unemployment.

Walter Russell Mead describes what I believe will happen in America as we increasingly just decide to let Ben take the pain out of crappy decision-making. He describes how perpetual dead-beat debtors such as Greece hold their creditors hostage.


Greece still does not have enough money to pay its debts, and may require a third bailout, says the Wall Street Journal, quoting an IMF official:
“Greece will require additional financing, which may take the form either of official-sector involvement or of additional loans, hopefully on more favorable terms,” Thanos Catsambas, an IMF alternate executive director, who represents Greece at the Fund’s board
As Europe contemplates a third Greek bailout, the €173 million from the second bailout has yet to be fully disbursed.

I’m missing how Americans would behave any differently than Greeks. It’s not like we’re any smarter or better than the people who gave the world Aristotle. As long as the Fed is always around to buy up the crap-quality mortgage paper, why should we behave intelligently or morally? Moral hazard sets up an environment where nice guys finish last. This leads me into a statement made by GOP Vice-Presidential Candidate Paul Ryan that deals with my 2nd reason why QE III is such a deleterious public policy.

“There is no substitute for good fiscal policy. You can’t expect central bankers to bail us out all the time.” He warned against the danger of leaning on monetary policy to sustain bad fiscal policies.”
Ryan reiterated this warning in a campaign appearance in Wisconsin on Wednesday, saying he and Romney believed a third round of quantitative easing “would do more harm than good,” particularly in the long run. He cautioned that QE3 “would damage the dollar, raise the threat of inflation down the road and let lazy fiscal policymakers off the hook.”


Nobody in Washington DC has to do consequences either. Ben Bernanke is there to bail them out. This means that people in Washington just pass out the Hershey Bars. Why care about consequences? That’s why you have a Fed.

Finally, what if this idea is absolutely dead wrong? Given the results of the last three years of QE, (a drop from 63% in the Employment Rate of The Population down to 58.5%), why would we continue to do this as a remedy for unemployment? Karl Denninger argues that QE III will lead to a market decline and job loss. I’m not completely convinced by his argument. What his data does show is that QE III has given us no recovery or positive impact on employment. The 200-pt market meth-hit is just that.

I have an even deeper concern than what my 401K does or whether anyone else finds a job. I worry that my purchasing power will be reduced. It won’t show up on the BLS inflation index. Gasoline has gone from $1.85 to $3.85 since President Obama took office. That isn’t counted on BLS Inflation. That is counted when Visa sends me my bill at the end of the month.

As the Federal Reserve fights to save bankers and politicos from their own stupid decisions, they do it by taking sustenance away from my family. QE III can only make commodity prices go up. This is of grave concern, far beyond whether it helps rig Barack Obama’s reelection or not in 2012. QE3 will make America more susceptible to moral hazard, less likely to adopt intelligent fiscal policy and a harder place for a simple man and his family to make ends meet. For those three reasons, this is a terrible and reprehensible policy for The US Federal Reserve to have adopted.




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