Dominant Social Theme: The Fed has succeeded and must rest.
Free-Market Analysis: According to the Washington Post, there is a growing consensus for shutting off the Federal Reserve's monetary stimulus plan – see above – that is based on two reasons.
Either it has succeeded brilliantly or it has introduced macro-economic risks that have yet to be realized. We can think of a third reason and will mention it toward the end of this article.
What IS clear is that after five years and somewhere between US$25 and $50 TRILLION (as near as we can tell), the US central bank has been effective at re-igniting portions of the US economy.
There are, of course, those free-market ideologues that will reprove this point of view by saying that the issuance of yet more debt (modern fiat money) cannot stimulate anything – but we trust our eyes. Those closest to the spigot of modern fiat money DO benefit from the issuance of new money, so far as we can tell, often inordinately.
It is no coincidence that the parts of the US economy doing the best now are the paper-driven industries such as the legal profession and those affiliated with the US's blazing stock market.
Much else when it comes to US industry remains, as it should, in the doldrums. Keynesian issuances can only do so much. But as we can see, above, no matter the results, the QE program is coming under increased scrutiny. Here's more from the article:
First, let's consider the hawks, who worry that the Fed is doing too much to juice the economy. They want to scale back on so-called quantitative easing because they are worried that the program's unintended consequences are outweighing any benefits.
Kansas City Fed President Esther George warned that the Fed's exit from the bond purchases could be potentially messy. Fed Governor Jeremy Stein has voted for the measures, but also has expressed worries that easy monetary policy could be creating credit bubbles. Markets shuddered when minutes from the Fed's December policy-setting meeting revealed members had discussed the costs of the program — with some calling for ending it as early as this year.
That put Fed Chairman Ben S. Bernanke and his supporters on the defensive. The Fed promised to keep the punch flowing until there is substantial improvement in the labor market — and the unemployment rate is simply still too high.
But over the past week, there has been a slight shift in tone. The arguments they make to defend the bond purchases also sound like pretty good reasons to start slowing them down: Pushing down long-term interest rates has helped spur the rebound in the housing market and create jobs. Stocks are on the rise as investors seek higher yields. The economy is getting stronger, which means it will need less help from the Fed.
"At some point, I expect that I will see sufficient evidence of economic momentum to cause me to favor gradually dialing back the pace of asset purchases," New York Fed President Bill Dudley, allied with Bernanke as a supporter of QE, said this week.
In a speech Wednesday, Boston Fed President Eric Rosengren, one of the most dovish members of the committee, opened the door to reducing the amount of bond purchases this year. Analysis by his staff showed $500 billion in purchases helps reduce the unemployment rate by one-quarter percentage point, which amounts to 400,000 jobs.
We can see from this reporting that indeed both "hawks" and "doves" are contemplating the end of quantitative easing, albeit for different reasons. Fed chairman Ben Bernanke himself is broadcasting hints he is on board as well.
The question is apparently timing, not fostering agreement. The article concludes by reemphasizing that a tapering off easing programs is going to "find support from both sides."
As we stated above, however, we would tend to believe there is a third side that the Washington Post is not clearly expressing. And that is that quantitative easing should never have been tried at all.
The Post article, like most mainstream articles, presents QE programs as necessity. Bad or good, its implementation was never in question. But, in fact, it shouldn't have taken place because it has just contributed to a further distortion of an already horribly distorted economy, worldwide.
Who knows what economies would like without all this endless monetary stimulation. It is safe to say that interest rates have now been too low for about a CENTURY. Rates were obviously too low in the 1920s, and probably the 1930s, 1940s, etc. When economies get into trouble because of easy money, modern monopoly central banks ... lower rates some more!
Economies exist in a constant state of hyper-stimulation. In the US you get the erection and consolidation of whole industries, with the commensurate cost to entrepreneurs, shareholders and unfortunate families caught up in the mania.
In China, you get a mania of overbuilding that has resulted in empty cities throughout the country. And always at the end of the cycle you get the heartache of consolidation as banks – the only facilities with money – come in and scoop up the blighted dreams and properties of those that banking policies have made jobless and homeless.
The dollar reserve system basically died in 2008. How the US funds its deficit when interest rates start to rise is a conundrum that central bankers have yet to solve. Ben Bernanke has hinted he intends to leave when his term is up. Maybe he, too, has realized that dropping trillions in cash from "helicopters" wasn't such a good idea.
One day, we are convinced, those involved in these various easings will admit in various candid retrospectives and autobiographies that they were not after all a panacea. Economies, in fact, cannot be "saved" or salvaged by printing paper money.
And we are also convinced that some day in the future there will come a "blessed" time when even the leaders of nation-states will admit that monetary policy is nothing but a wretched attempt to fix the price and value of money.
Price fixing never works. It only stores up more trouble. Interest rates will rise. Too much paper money already printed will circulate, causing price inflation.
Conclusion: Those responsible may someday admit they were wrong. Everyone else will live with the consequences.
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