The Problem with "Policy Measures" and "Quantitative Easing"
The Federal Open Market Committee (FOMC) is worried. Very worried. It is worried that it is not destroying the dollar fast enough.
“Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability,” the FOMC declared Tuesday. “Inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.” In other words, as every Ivy-League-educated economist understands very well, the Fed must nourish inflation if it is to have any hope of reviving the economy.
Possessing merely a bachelor’s degree from UCLA, your California editor naively maintains his low-brow economic ideas. He still suspects – poor, brutish lad – that debasing the currency is an ill-advised means toward a dubious end. Rather than debasing the dollar to repel the natural forces of creative destruction, as Chairman Bernanke and his colleagues advocate, your editor suspects that the best means toward sustainable economic growth is to allow failing enterprises to fail, so that stronger enterprises may take their place. (And leave the poor greenback alone, please).
But the Ivy League intelligentsia sees it differently. The intelligentsia embraces an agenda of mere expedience, dressed in the eloquent vernacular of financial euphemisms. To wit: “Money-printing” is now “quantitative easing,” while “throwing spaghetti against the wall and seeing what sticks” is now a “policy measure.”
Harvard grad, Ben Bernanke, insists that the Federal Reserve’s most important near-term mission is to combat deflationary pressures by any and all “policy measures” available. The mission, in other words, is to produce inflation. (We’re not making this up). In the FOMC’s own words, “The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”
Your California editor is from Missouri on this one. The US economy does not need more inflation; it needs less intervention, coddling and do-gooding by central bankers and legislators. The US economy needs to suffer whatever wounds it must suffer, so that it may heal and resume growing. There is no shortcut…and there will be no shortcut, no matter how many Treasury bonds the Fed buys, nor how many FOMC meetings it convenes.
And by the looks of things, the US economy still has a bit of suffering left to do. Housing prices and sales volumes continue to fall, foreclosures continue to soar, unemployment refuses to drop and business spending refuses to rise. Instead, we Americans are, collectively, retreating into our foxholes and trying to fortify our personal finances. We are saving more and borrowing less. But at the same time, our government is going on an unprecedented borrowing and spending binge…which makes all of us poorer, no matter what we do.
These conditions – private sector caution, household frugality and government profligacy – rarely produce national prosperity. Instead, some form of stagnation usually results. We should not be surprised, therefore, if the US economy continues to muddle along for a while…and maybe for a long while.