Now he’s done it. Not just the QE3 everybody expected, but an open-ended commitment to keep printing money as long as it takes.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.
Translation: we will print $40 billion a month out of thin air because, despite the experience of the past three years, we still believe that printing money fixes the economy.
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 until such improvement is achieved in a context of price stability.
Translation: we will keep printing, and maybe even start printing faster, as long as the employment market sucks.
It’s going to be a LONG time before the outlook for the labor market improves “substantially.” Inflation will be a problem long before that. We’ll have $5 gasoline long before we have 5% unemployment and normal labor force participation rates.
Printing money doesn’t create jobs. So Bernanke has just committed to giving us stagflation for as long as he can until inflation gets too out of control.
The 1% thank Zimbabwe Ben for jamming their stocks, gold, and silver higher.
The 99% will have to be content with food and energy inflation.
My friends the SLOBs are going off on Zimbabwe Ben and the Damn Dirty Fed:
The Liberator Today: The Most Dangerous Easing Yet
Doo Doo Economics: FED Commits to Devalue the Dollar by $40 Billion Per Month
The Scratching Post: A Trillion Bottles of Beer on the Wall
And one of my favorite leftie blogs, Naked Capitalism, has a post on QE∞ that sounds positively like something you’d read at the WCV, The Fed’s QE3: No Exit.
The Fed’s launch of QE3 looks more than a tad desperate. If you believe the central premise of the Fed’s action, that propping up asset price gains would have enough effect on consumption to lift the economy out of stall speed, it would seem logical to sit back a bit and let the recent stock market rally and the (supposed) housing market recovery do their trick.
[...]
But another big issue is that the Fed looks to have painted itself in a corner. Is the US going to have 3.5% mortgage interest rates forever? If the central banks does manage to create a bit more inflation, how does it think it will exit? A mere 1% increase in interest rates, from 3.5% to 4.5%, increases mortgage payments on a 30 year fixed rate mortgage payments by 13%. That will translate into a meaningful dent in housing prices. And where does the Fed go if a financial crisis or other shock occurs?
The Fed failed to see the crisis coming, failed to push for restructuring of consumer, particularly mortgage, debt, and is now in full bore “if the only tool you have is a hammer, every problem looks like a nail” mode.
My good W.C.,
Agreed.
Despite the fact that my stock portfolio enjoyed yesterday’s transient crack high, this is shrieking, gibbering madness, the epitome of the garbage can model of decision making.
H. M. Stuart
Alexandria
This surprised me. After the Woodford paper, I expected NGDP targeting.
Steve
Addendum- Sumner sees this as a weak form of NGDP targeting. Guess Woodford was noticed.
Steve
Is this some sort of trickle down theory where, by giving money to banks and other financial institutions, eventually the common man gets a few crumbs?
I’d like to see a plan to get that trillion or more dollars in corporate dollars (profit) being held outside the U.S. into the U.S. by re-structuring taxes or something. Apple, alone, has over $100 billion overseas. Our government promoted free trade policies but can’t figure out how to operate in a world with free trade.
We did that in 2004. Did not do anything to economic growth.
Steve
My good DAD,
Reason seems to think so:
“This is ironically a trickle down monetary policy theory”
H. M. Stuart
Alexandria
Thanks, H.M. This paragraph from the article tells a lot:
Quantitative easing—a fancy term for the Federal Reserve buying securities from predefined financial institutions, such as their investments in federal debt or mortgages—is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality formed by crony capitalism. And it is hurting prospects for economic growth down the road by promoting malinvestments in the economy.
Amazing how much Obama’s economic policies have helped the rich while the Dems talk a good story to the proletariat.