QE III: Though We Had Plenty of Money….

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
Though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.”

Federal Reserve Chairman Ben Bernanke announced yesterday that there will be a THIRD “Quantitative Easing”.   QE III will apparently consist of printing money, which the Federal Government will use to purchase mortgage-backed securities, as a means of stimulating the economy.  The bill will be $40 billion a month, until such time as the Fed sees “results”.    The idea is to drive down interest rates on bonds in order to make market investment more attractive to both the lenders and the borrowers.   More money will flow into the economy, theoretically, and create business growth and jobs, jobs, jobs.

However, neither of the first two attempts at “quantitative easing” did much of anything.  Except raise the risk and scope of inflation.    This attempt is, in my opinion, quite unlikely to have any positive effect either.  And since it is open-ended, the downside risk is significantly larger than the previous two.   In his mania for heading off deflation, Bernanke raises considerably the chances of hyperinflation, which would wipe out the savings and purchasing power of the American consumer.  We have already seen both the Producer Price Index and the Consumer Price Index beginning to do more than creep up.

The major problem with the idea of starting the money printing press again is that the “money supply” argument is not one of monetary policy but TAX policy.   Many businesses of all sizes are sitting on significant amounts of liquidity, but are unwilling to kick plans into gear for expansion, capitalization, and hiring because the tax implications of doing so are so unsettled.   The Obama Administration is seen rightly as harshly anti-business, and there is little trust that business and investment tax policy will not be even more punitive than predicted.  The specter of Obamacare weighs heavily into that equation, as well.   The cost to businesses of over 50 employees will be staggering, and will lead to contraction and layoffs rather than expansion and hiring, because such will unsustainable on most P&L sheets.

QE III can reasonably be viewed as yet another major blemish on the independence and credibility of the Federal Reserve, as it is a guarantee to buy whatever massive debt the Obama Administration creates.    QE III, an open-ended commitment to a twice-failed monetary policy, will have no positive and possibly large-scale negative consequences unless tax policy is repaired so that the Government can fill its role of creating conditions for a successful economy rather than trying to sacrifice free enterprise at the altar of Statist Socialism.   One gets the very real sense that Bernanke and the Fed are very desperate, and are tinkering dangerously with the only thing they can control.

It is a game of fiscal musical chairs, with increase of debt limits and printing of scrip being done at ever more frantic rates, until inevitable economic collapse puts a halt to the music.

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wobbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!


3 thoughts on “QE III: Though We Had Plenty of Money….”

  1. If you refuse to learn from history, then you are condemned to repeat it. FDR’s idiots did the same thing Helicopter Ben is trying and it didn’t work in the 30s.

  2. But QM, this time it is SURE to work. Because, well, WE’RE the ones in charge now! We know we can make malignant socialism work! Just like our college professors told us it would!

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