What next in this “recovery”? Obama throwing dollars from Air Force One as fast as Bernanke can print them?
Larry Kudlow, as usual, said it best. Writing in Investor’s Business Daily on September 14, he said:
About 30 years ago, Paul Volcker launched a monumental monetary effort to bring down inflation. As Fed Chairman, he sold bonds, removed cash from the economy, and cared not one whit about rising interest rates.
And it worked. Gold plunged. King Dollar soared, and the drop-off in bank reserves and money extinguished high inflation — and actually launched a multi-decade period of very high inflation.”
This week, current Fed Chairman Ben Bernanke embarked on an absolute reversal of Volcker’s policy. He is launching a monumental effort to buy bonds and inject new money into the economy in order to reignite economic growth and job creation.
It is like history repeating itself, but in reverse. Gold is soaring, the dollar is falling. Something’s wrong with this picture.
Kudlow is talking about the Fed’s new policy of QE3, announced last Thursday. Under QE3, the Fed will buy $40 billion of additional mortgage securities each month with money it prints out of thin air. QE stands for “quantitative easing,” which means in English printing new money. It is called QE3 because this is the third time the Fed has pursued a policy of aggressive new money creation since the financial crisis.
But as the Wall Street Journal editorialized on Friday, “the difference this time is that Ben [Fed Chairman Bernanke] is unbounded.” By that they mean that the Fed’s policy is to continue the $40 billion a month magic money creation until the job market improves and the recovery takes hold. Or as the Journal further editorialized, “The Fed has declared that it is going all in to cut the jobless rate, no matter what it takes.”
That echoes the recent announcement of the European Central Bank (ECB) that it will pump up the supply of euros there to “whatever it takes” to forestall the European sovereign debt crisis. What we are witnessing is a global trashing of major paper currencies.
The Fed is effectively in a panic now because it knows what the party controlled so-called mainstream press is so carefully keeping from the voters in swing states — real, effective, unemployment is much worse than 8.1%, somewhere between 11.4% and 19% depending on how many of the disoriented, working-age Americans bouncing around out there without a real job are counted in the workforce. And that double-digit unemployment has now continued for the longest time since the Great Depression, with no relief in sight.
Under the Fed’s QE policies, the Fed’s balance sheet of its asset holdings has tripled from about $800 billion to $2.5 trillion. With QE3, that will now “go to $3 trillion, or $4 trillion, or who knows how high?” Kudlow says. Moreover, bank reserve balances at the Fed, created out of thin air by Fed electronic deposits, have exploded from $8 billion in September 2008 to $1.5 trillion today, an increase of almost 200 times.
And make no mistake about, this Fed policy is Obama Administration policy, backed by the Administration and the President himself.
It Won’t Work
The idea behind quantitative easing is that the new money will increase spending, investment, exports, and consequently jobs, resulting in the long overdue recovery at last. The new money will also support the Fed’s rock bottom interest rates, which is also supposed to spur investment, the foundation for job creation.
It’s standard Keynesian monetary economics. But it won’t work. Quite to the contrary, it will be counterproductive. With the collapse of communism, Keynesian economics is now the second most destructive doctrine in the world, right behind Islamism.
Printing up new dollars and dropping them from helicopters is not going to make America any richer or more prosperous. That is all that QE is. It doesn’t mean any increased real wealth, income, or production. You can’t trick the real economy into producing more just by running the printing presses.
The new money supply just ends up increasing prices, as there is more money out there bidding for the available real goods and services, which are not increased by money manipulation. That is what Milton Friedman finally prevailed in teaching over 30 years ago. But in this new Obama/MSNBC world, civilization is hurtling backwards, losing learning and advancement, just like Europe after the collapse of the Roman Empire. The only question is how long it will take for market prices to catch up to the new money supply. That short-term period can be extended by economic downturn and recession. But as the 1970s showed, Keynesian economics can produce the miracle of inflation and recession at the same time.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?