1. It hasn’t worked: no meaningful improvement in aggregate demand in spite of trillions of govt debt having been monetised.
2. Asset bubbles are everywhere (stocks, IG bonds, Junk) and their popping would be far more calamatous than what we are now seeing were they allowed to grow as before
3. Inflation IS already a problem, its just hidden in manipulated official data. For example, Owners Equivalent Rent is a huge part of PCE and yet somehow as house prices shoot up 12% it is not showing up. You ask any middle class American if their “basket” is 0.7% more expensive than last year and they will laugh in your face. I’d hazard a guess of 4-5% right now.
4. The Fed now sees their actions are the great enabler of absurd levels of public spending and bad policy generally. Politicians looking at 10 year financing cost of 1.5% feel no pressure to exercise restraint and will merrily continue to steer the country towards bankruptcy at an accelerating pace.
5. Americans know that QE and fiscal profligacy is inherently bad and there will be payback at some point. Knowing that, they naturally hold back on discretionary spending. Why is a 2% GDP growth rate such an emergency that it requires historic measures like QE? I dont get it. It isn’t great for the US but it’s no disaster either. American’s implicitly understand this and know in the back of their minds that Washington is feeding us sugar water and it will end badly.
LET THE MARKETS CLEAR, CUT THE DRUNKEN PUBLIC SPENDING & TAX and then we can restart this amazing wealth-generating machine that is the US economy.
81.5% of Money Created through Quantitative Easing Is Sitting There Gathering Dust … Instead of Helping the Economy
Robert D. Auerbach – an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and now Professor of Public Affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin – notes today:
There is a massive misconception about where the Bernanke Fed’s stimulus landed. Although the Bernanke Fed has disbursed $2.284 trillion in new money (the monetary base) since August 1, 2008, one month before the 2008 financial crisis, 81.5 percent now sits idle as excess reserves in private banks. The banks are not required to hold excess reserves. The excess reserves exploded from $831 billion in August 2008 to $1.863 trillion on June 14, 2013. The excess reserves of the nation’s private banks had previously stayed at nearly zero since 1959 as seen on the St. Louis Fed’s chart. The banks did not leave money idle in excess reserves at zero interest because they were investing in income earning assets, including loans to consumers and businesses.
This 81.5 percent explosion in idle excess reserves means that the Bernanke Fed’s new money issues of $85 billion each month have never been a big stimulus. Approximately 81.5 percent (or $69.27 billion) is either bought by banks or deposited into banks where it sits idle as excess reserves. The rest of the $85 billion, approximately 18.5 percent (or $15.72 billion) continues to circulate or is held as required reserves on banks’ deposit accounts (unlike unrequired excess reserves).
Will Ben Bernanke’s QE3 Work? No, It’s Already Failed
People can stop wondering if QE3, Fed Chairman Ben Bernanke’s latest effort to “do more”, will work. It has already failed.
The futility of QE3 was made clear by the financial markets’ reaction to the Fed’s announcement. The Real Dow, which is the Dow Jones Industrial Average divided by the price of gold, actually fell by 0.65% on September 13, the day that QE3 was announced. While the Dow gained 1.6% on the day, gold went up by 2.2%. In real terms, QE3 made the economic outlook worse, not better….
QE Has Been and Will Be a Complete and Utter Failure
The Fed is now blaming Congress for the failures of its QE policies.
This is to be expected, given that no one in the power elite ever accepts responsibility for their own failures. Congressional members blames each other (depending on which party they’re in), the Fed blames Congress, the White House blames the GOP, and on and on.
Behind this façade of bickering is the total and complete failure of the Fed’s policies to generate economic growth OR jobs. Regarding #1, the US has not had a single year of 3% GDP growth since Bernanke became Fed Chairman. End of story.
As for QE… there is not one single example in history in which QE has successfully created jobs. The UK has engaged in QE equal to over 20% of its GDP and hasn’t seen a real recovery in employment. Similarly, Japan has employed QE equal to nearly 25% of its GDP and GDP growth continues to slow while unemployment stays elevated.
As for the US, the Fed has spent roughly $2 trillion in the last year via QE. During that time a little over, 500,000 jobs were created… So the Fed is spending roughly half a MILLION dollars to create each job.