The Fed’s Old Tricks in New Times
by Douglas French
Laissez Faire Books
We’ve been telling anyone who will listen that the Fed has gone where the central bank has never gone before. Pre-crisis, the Fed’s available resource looked like it always had in the postwar period. Nearly overnight, thanks to its magical money creating powers of buying debt with funds it created, the Fed’s balance sheet shot up — like straight up. In fact, it tripled — from $900 million to more than $3 trillion. It’s not stopping either: the Fed will soon have $4 trillion in its coffers.
Why does Bernanke say he did this? To give the economy a jolt and thereby fix unemployment. It’s true that headline unemployment could sink below 6.5 percent. If that were to happen, Bernanke and his posse might douse their QE campfire and head home.
Trouble is that this isn’t likely to happen anytime soon. The latest unemployment number is 7.9 percent. And in the last quarter, productivity as measured by the GDP fell. Fell!
Think of it: the Fed will have quadrupled its balance sheet in five or six years time. The results: stagnation and persistent unemployment.
2013-02-10 11:33:14
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