19 July 2011

Like A Dog Returns to Its Vomit

Tuesday's release of the Fed minutes contained the first indication that a third round of quantitative easing (QE3) is being considered. The notes described unanimous agreement that QE2 should be completed, along with the following comment: "depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run." Since the unemployment situation is deteriorating, and by all accounts will continue to do so, the Fed is essentially pledging to keep the spigot turned on. The committee also decided to look only at current "overall inflation" in making their judgments, as opposed to "inflation trends." Since new dollars take awhile to circulate around the economy and raise prices, this means the Fed is sure to be too late in tightening once inflation starts to run away, causing more dislocations in the American economy.

Will these clowns never learn?  QE1 didn’t work, QE2 isn’t working, and, contra the Krugster, the problem is not that enough hasn’t been pumped into the system.  The problem is that we have spent tomorrow’s money on yesterday’s stuff and must now pay the price.  Inflating the currency doesn’t change the fact that we have leveraged ourselves to the hilt and have to pay the price.  We’ve spent beyond our means, and it is now time to tighten our belts.  We cannot continue to spend more and we cannot continue to take on debt.  It’s time to stop with this quantitative easing nonsense.

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