I just can’t believe it. I thought we had more responsible people at the helm of the Federal Reserve, which is one of the most powerful institutions on the planet. I was in shock when I read the headlines that the Fed was debating a third round of quantitative easing or QE3 during their last FOMC meeting. Could this really be true?
Of course stocks got a nice lift (although fleeting) on the headline because that would mean more easy money created from thin air to buy riskier assets and commodities. Gold shot up and seems destined to keep rising under these circumstances. Traders are acting like junkies by feeding off the easy money provided by Bernanke. The problem as always is the hangover.
Some Sanity
I was happy to read that there were some glimpses of sanity on the committee. Here is a snippet from the meeting: “On the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant” the FOMC “taking steps to begin removing policy accommodation sooner than currently anticipated.”
The big point is that inflation is already starting to build up and several reports have shown troubling increases in inflationary pressures. If another round of quantitative easing occurs, it might push prices over the top and really do long-lasting damage to the economy.
The lower and middle classes would be hurt the most because food and energy costs would continue to skyrocket, which would curtail their disposable income even more. I am hoping this point was discussed in the meeting because the livelihoods of millions are at stake here.
Economic Alchemy
It’s tough to say where we would be without the first two rounds of QE, but I am not convinced that a ton of good came out of them. I don’t think that real growth in employment and output can be generated by simply creating money out of thin air over and over again. If that were true, countries like Zimbabwe would be the most prosperous on Earth.
Let’s hope the Fed comes to its senses and simply fosters a very accomodative environment rather than embarking on endless QE programs. The fruits of the first two rounds of QE are murky at best, but the side effects are not. Let the economy work its way through this.
Bernanke’s Stock Keeps Dropping is an article from: 
