federal reserve quantitative easing
Last Thursday, Helicopter Ben announced that the Fed would start buying $40 billion in mortgage-backed securities -- for as long as it takes. He also announced the Fed will keep rates between 0-0.25%, until mid-2015.
The goal is to keep supporting the mortgage bond market until the employment level improves "sufficiently."
But given that the last several rounds of multi-hundred billion dollar stimulus didn't accomplish that goal, it's hard to see why they'd expect this time to be any different.
Maybe it's just because Paul Krugman was right: They didn't spend enough the first two times (sarcasm intended). Or then again, maybe that's not really their goal...
Consider this: At Jackson Hole just a few weeks ago Bernanke said that, historically, there has only been limited experience with quantitative easing. Therefore central banks, including the Fed, "have been in the process of learning by doing."
Excuse me, but are you freaking kidding me?...
Did Ben skip all his history classes? Has he ever heard of the demise of Rome or Weimar Germany?
More recently, even Argentina and Zimbabwe have had plenty of experience with quantitative easing. Their zealous over-printing led to major devaluation and/or outright currency collapse.
Couldn't Bernanke have checked in with Cristina Kirchner or Robert Mugabe?
The only real difference, and I'll admit it's a substantial one, is that the U.S. dollar is the reserve currency for the world's central banks. But that won't change the outcome.
Instead it may just delay the day of reckoning. In the meantime, it's very likely going to make the situation much, much worse.
So what's the Fed really up to?
Well, here's what I think...
Start the conversation
"We have tried very, very hard, and I think we've been successful...to be nonpartisan and apolitical," Bernanke said at a news conference Thursday after the official Fed announcement of QE3. "We make our decisions based entirely on the state of the economy....So we just don't take those [political] factors into account. And we think that's the best way to maintain our independence and maintain the trust of the public."
In case you missed it, the Fed's third round of quantitative easing entails the purchase of $40 billion of mortgage-backed securities each month until unemployment shows a marked improvement.
In other words, for as long as it takes.
But with QE3 arriving less than 60 days before a bitterly contested presidential election, the Fed move was bound to get caught up in the campaign.
Both sides reacted immediately, with Republicans criticizing QE3 as unnecessary while Democrats applauded.
A few Republicans even accused Bernanke of timing QE3 intentionally to boost President Obama's re-election chances.
For the record, Bernanke is himself a Republican, appointed chairman of the Federal Reserve by President George W. Bush in 2006 and re-appointed by President Obama in 2010.
But with the Fed becoming a GOP bogeyman in recent years (thanks largely to the attacks from Rep. Ron Paul, R-TX), QE3 was bound to become weaponized in this year's increasingly acrimonious campaign.
Don't be fooled when each political party throws out the following QE3-fueled lines to get your vote.