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Posts Tagged ‘Quantitative Easing’
September 21st, 2011 at 8:45 pm
Bernanke’s Fed: ‘Twist’ing in the Wind
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It was less than a month ago that the Federal Reserve wrapped up its annual economic symposium in Jackson Hole, Wyoming with all signs pointing to the prospect that the nation’s central bank was going to cool it on the “quantitative easing” (dumping new currency into the markets) for a while. Though the insanity has (at least temporarily) abated, the central bank is still making mischief.

As Politico reports:

The nation’s central bankers dusted off a 1960s-era plan in hopes of rousing the sluggish economy Wednesday, taking the unusual step of shifting $400 billion into longer-term bonds in hopes of slashing interest rates further.

The Federal Reserve’s Open Market Committee voted 7-3 to embark on what’s informally called “Operation Twist,” a move first used during the heyday of Chubby Checker and named for his song of the same name.

The policy is mostly inert, as it won’t actually result in a monetary injection ala quantitative easing. The early consensus is that it won’t have much effect one way or the other. But the possible rationale, if true, is revolting:

Exerting political pressure on Bernanke may have rallied the Fed to act, since the committee likely found “this political meddling repugnant,” wrote JPMorgan Chase economist Michael Feroli in a client note.

Let’s be clear about this: the Fed already operates independent of “political meddling.” Various members of Congress and candidates for president may have been carping about Bernanke’s leadership (a point on which they’re certainly justified), but their influence was limited to the range of their voices. Nothing they said could actually effect policy.

If something so immaterial to the Fed’s work could drive monetary decisions, then this may be the most petulant institution in the federal government. At a time when the economy teeters on the brink of another devastating downturn, making market decisions in response to slights real and imagined shows a staggering lack of seriousness. If this is Mr. Bernanke’s swipe at Governor Perry, he should note that he’s only strengthening the governor’s argument.

March 31st, 2011 at 6:05 pm
So Much for the Federal Reserve Creating Stability

CNBC’s Fast Money quotes an investment strategist who says that when Federal Reserve Chairman Ben Bernanke gives his first press conference on April 27, his remarks “could induce a 10 to 15 percent correction” in the market.  Here, “correction” means “drop.”

The reason the market might drop one-tenth of its value in a matter of hours is due to some analysts’ fear that Bernanke will not continue printing money (i.e. quantitative easing) to inflate the value of assets.  When values return to more realistic levels, investors are likely to stop banking on government-distorted policies to bail them out.

The purpose of the Fed is to tinker with the money supply and interest rates to stabilize the economy.  So far, the only stability it’s guaranteeing is as fake as a free lunch.

March 24th, 2011 at 6:03 pm
Bernanke Thinks Lack of Communication Explains Opposition

According to the Wall Street Journal:

In a break with tradition, Federal Reserve Chairman Ben Bernanke will hold public news conference four times a year, in the U.S. central bank’s latest move to boost transparency and improve communications after its policies came under attack.

Earth to Ben: policies like quantitative easing (i.e. printing more money) come under attack because they devalue the dollar through inflation.  Explaining that reality – or denying it – in more detail won’t make the policy more attractive.  If anything, it will doom any chance of getting re-nominated for your position.

February 9th, 2011 at 10:49 pm
The Authoritative Paul Ryan
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In a November commentary, I warned that Ben Bernanke’s expansionary monetary policy threatened to erode the value of the dollar and weaken the American economy. Now the leading mind of the House GOP caucus is saying the same thing to the Fed Chairman’s face. With Bernanke appearing before the House Budget Committee earlier today, newly minted Chairman Paul Ryan of Wisconsin laid the consequences of “quantitative easing” on the line:

“There is nothing more insidious that a country can do to its citizens than debase its currency,” Ryan told Bernanke. “Chairman Bernanke: We know you know this. We know that you’re focused and concerned about this. The Fed’s exit strategy and future policy – it will determine how this ends.”

Ryan said he believed a “course correction here in Washington is sorely needed.”

“Endless borrowing is not a strategy,” he said. “My concern is that the costs of the Fed’s current monetary policy – the money creation and massive balance sheet expansion – will come to outweigh the perceived short-term benefits.”

“It is hard to overstate the consequences of getting this wrong. The dollar is the world’s reserve currency and this has given us tremendous benefits in the global economy,” Ryan said.

As usual, Paul Ryan is right. Unfortunately, there’s little that can be done from the outside. The Fed operates free of traditional rules of transparency (one of the reasons the push to audit its books has gained so much traction) and it works on the basis of a delusional proposition that it can be an engine of economic stimulus at the same time that it maintains the dollar as a stable store of value (a proposition that Ryan has rightly called into question). There’s still a lot of work to be done to rationalize American monetary policy. But it’s at least heartening to know that we’ve literally got our best man on it.

November 15th, 2010 at 12:09 pm
Princeton Coal Miner Misses Wal-Mart Canary; Continues Digging

Canaries and markets are sensitive creatures.  Take a canary down a coal mine and the poor bird starts dying as soon as the toxic levels of coal dust start rising.  Wait too long, and coal miners will be following their yellow feathered friend down the River Styx.  The key is to monitor the canary carefully for signals that it’s time to stop digging before it’s too late.

The market is a similar beast, even though the data miners of economic trends at places like Princeton and the Federal Reserve Board choose to think otherwise.

Practitioners of microeconomics presume they have “perfect information” by which they mean knowing all the relevant data before making a decision.  Thusly armed they sally forth to wage war on behalf of whatever economic model (or political interest) they claim provides the greatest good.

Such is the case with Federal Reserve Board Chairman Ben Bernanke, the Princeton economist responsible for authorizing the printing of hundreds of billions of dollars to “quantitatively ease” the lack of money flowing in the marketplace, and spur a “healthy” bit of inflation.  Bernanke is doing this because he assumes he has all the relevant data to support such a move.

A new price survey of a Wal-Mart grocery basket says otherwise.  The retail giant is raising prices, a market signal that inflation is already underway without government interference.  Like any market leader, Wal-Mart’s actions will be quickly emulated by others in their sector, with down market effects reverberating across the economy.

The market is already sensing the need for inflation and is acting accordingly.  A massive injection of “Fed Stimulus” to achieve the same goal will result in accelerating inflation beyond what’s considered healthy, devaluing the dollar and making it harder for middle class families to buy necessities.  That kills an economy.  If Bernanke continues to ignore the ability of the market to adjust itself, it will soon be his career lying lifeless in the shaft.

November 10th, 2010 at 10:19 am
Ramirez Cartoon: Quantitative Easing
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Below is one of the latest cartoons from two-time Pulitzer Prize-winner Michael Ramirez.

View more of Michael Ramirez’s cartoons on CFIF’s website here.