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Quantitative Counterfeiting Forever
Sep 18, 2012 – 09:36 AM
By: Michael_Pento
Last week, Fed Chairman Ben Bernanke announced that the central bank would launch an unprecedented form of quantitative easing. This “new and improved” iteration of money printing will be without limit and duration. The Fed Head launched QE III ($40 billion of MBS purchases every month) on September 13th and stated that it will remain in effect until the labor market “improves substantially.” He also promised that, “The Committee will continue its purchases of agency mortgage backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved…” In other words the Fed will continue to counterfeit money until there is a substantial decline in the unemployment rate.
But there are two major problems with this measure. The first is the Fed Funds rate has been near zero for the last four years and mortgage rates are at all-time lows. Also, the money supply (as measured by M2) is up over 6% from twelve months prior. Therefore, onerous interest rates cannot be the cause of our high unemployment rate. And the money supply is already growing well above productivity and labor growth, so there is already a superfluous amount of money creation. The other major problem with his plan is that the unemployment rate doesn’t fall when the dollar is devalued, the middle class gets dissolved and the inflation rate is rising.
The first round of Quantitative Easing began in November of 2008. At that time the unemployment rate in the U.S. was 6.8%. The second round of QE began in November of 2010 and ended by July of 2011. However, after printing a total of $2 trillion and taking interest rates to virtually zero percent, the unemployment rate had risen to 9.1%.
After four years of money printing and interest rate manipulations, the economy still lost 16k goods-producing jobs and 368k individuals became so despondent looking for work that they dropped out of the labor force last month alone. And the unemployment rate has been above 8% for 43 continuous months. Mr. Bernanke must believe that $2 trillion dollars worth of counterfeiting isn’t quite enough and 0% interest rates are just too high to create job growth, so he’s just going to have to do a lot more of the same. But by undertaking QE III the Fed is tacitly admitting that QEs 1 & 2 simply didn’t work.
