On Wednesday, Federal Reserve Chairman Ben Bernanke did what we warned you about in November and introduced another hyper -aggressive monetary policy that has been nicknamed "QE4." This fourth round of quantitative easing comes on the heels of QE3 back in September.
QE3 was the Federal Reserve buying up $40 billion of mortgage-backed securities per month. This inevitably led to the second credit downgrade to the U.S. credit rating, from "AA" to "AA-." At that time, it was Texas Congressman Ron Paul who warned that the "Country should panic over the Fed's decision."
Iain Davis at Spread Liberty News detailed the press conference introducing the latest round of QE:
The 75 minute press conference by Bernanke allowed economists and journalists in the audience to analyze the Fed’s new measures in regard to its treasury purchases. Bernanke announced that there will be an additional $45 billion purchase in U.S. treasuries on top of the current monthly $40 billion in mortgage-backed securities purchases, thus increasing the total printing to $85 billion per month by the central bank. The goal for the Fed is to reduce unemployment to 6.5%, while keeping inflation near the 2%-2.5% objective. The Fed has also continued its decision to allow more transparency in its decisions, in regard to the FOMC and interest rates.
The audience had much to ask the Chairman, including whether this will be a devaluation of the dollar, if this is a bond bubble, and whether or not the Chairman has received word from Obama in regard to a further extension of his term. Bernanke assured the audience that the Federal Open Market Committee’s decision to increase the easing measures is in the best interest of the economy, and that this is only temporary. Bernanke stated that he underestimated the growth in the economy, yet it is continuing to grow at a moderate pace that is not suitable enough. In addition, Bernanke has received no word from the President in regard to a term extension.
Now, atop QE3's lousy performance, the Federal Open Market Committee (FOMC) announced that the quantitative easing rate would now be more than double QE3 to the tune of $85 billion a month and Bernanke indicated that this will stay in effect until unemployment falls below 6.5% and inflation projections remain no more than half a percentage point above 2% two years out.
This has to be the most irresponsible thing someone could do, besides what took place with the stimulus cash, or the TARP bailouts, or the auto bailouts, or, well, you get the idea. This is not going to help the situation. It is only going to aggravate it.
While unemployment numbers dropped to 7.7%, at least how the federal government defines that, but the numbers are still higher than when Barack Obama took office. Forbes reported that Mark Zandi, chief U.S. economist at Moody's Analytics, believes that the numbers that will be coming out may indicate that unemployment will be moving back up to 7.9%.
The markets certainly didn't respond favorably to the QE4 announcement.
Dr. J.D. Foster at Heritage Foundation assesses the risks of QE4. He writes:
what are the risks from QE4? The first risk obviously is that inflation may pick up quickly. Some argue that this is unlikely because there is too much slack in the economy, as evidenced by the high unemployment rate. Those making this argument echo a similar refrain from the 1970s. They were wrong then (the unpleasant term “stagflation” was created during this time), and they could well prove wrong again. Economic slack is no defense against strong, sustained inflationary impulses. Thankfully, inflation remains tame—for now.
A second risk arises from the amazing expansion of the Fed’s balance sheet since 2008, which now accelerates under QE4. Some day the Fed will have to unload all the bonds it is buying. When it does, the Fed will be pushing up long-term interest rates. The Fed is pushing on a string today and will be yanking on a taut rope tomorrow.
Can it be done safely? Of course. But it has never been done before, and serious doubt is the only reasonable attitude. The consequences of failure could well be to hold the economy at below-par growth for many years as the Fed’s bond sales artificially elevate long-term interest rates.
Foster rightly asserts that the nature of our problem is not the economy, but is both fiscal and regulatory. With that in mind, I would direct readers to Dr. Robert Owens excellent article yesterday on the fact that everyone wants balanced budgets, sound fiscal policy and savings along with lower taxes and the like, but are completely unwilling to do the hard work of cutting spending and living within our means to achieve those ends.Don't forget to Like Freedom Outpost on Facebook, Google Plus, & Twitter. You can also get Freedom Outpost delivered to your Amazon Kindle device here.