The Federal Reserve didn't cause the debt crisis. That's 100% Congress. The Federal Reserve didn't even own many gov't securities before 2008. And the crisis is 2008 was caused by the oil price spike which resulted in unemployment. The Unemployment caused mortgages to go bad and the two caused the banking crisis and credit freeze.
A lot of the commodity price increase you are seeing is due to oil, not Bernanke.
The debt crisis will indeed still be here when this is over. And this won't be over until Congress and/or the Executive wise up about trade and energy policies. But none of that is Bernanke's fault.
To the extent that we have inflation the debt crisis may be easier to deal with. But I don't think Bernanke would inflate for that reason. It's not his mandate, and he didn't before the 2008 crisis. And I'm not advocating that. I think he is responding soley to the unemployment as he should. But Bernanke is just first aid. Congress is cause and the cure.
For an individual, we might define a "debt crisis" as a situation in which the individual borrows much more money than he can possibly justify, given that he must pay the money back with interest.
By printing money, Bernanke is most certainly creating the circumstances which are enabling our government to borrow forty cents of every dollar they spend.
Without the money printing, what would be the interest rate that the government would have to pay on its $16 trillion in debt? At an interest rate of 6%, the interest payments would be about $1 trillion. That's just about equal to the annual deficit.
We can only speculate about what interest rate would prevail if Barnanke wasn't creating new money. There is certainly no doubt that it would be higher. There is certainly no doubt that government spending would have to be reduced to pay the interest.
Perhaps we can also agree that there will come a time when such interest rates must be abandoned. I remember having to sign a loan document bearing an interest rate of 13% in the early eighties.
How much would you be willing to pay for the same mortgage-backed-securities that Bernanke is buying? I wouldn't willingly pay a dime for them. Please recognize that when Bernanke is buying these securities, it is you and I and every other American who is buying them.
“That’s 100% Congress.”
For certain Congress plays its role, and mandates to give high risk loans falls on government, but the trillions bundled up in bad debt deals, while trillions were made trading high risk investments, was both creative and criminal. Bernanke was front and center with the bailout when the house of cards came tumbling down. By all means, stop government from social engineering the market, but also stop it from rushing to bailout the market when it fails.
Yes, oil will cause a rise in all commodities, even though experts here at FR have assured me that won’t happen, and that it isn’t important in the greater scheme of things. QE3 will, if it hasn’t already, causes a rise in the price of oil. The lower value of the dollar will be reflected in higher prices of fuel and food. Of course that will be blamed on crisis in the Mideast and drought, while nothing is done about using food for fuel. At least on that point we can agree, as we agree on a number of points regarding energy and growth.
“The debt crisis will indeed still be here when this is over. And this won’t be over until Congress and/or the Executive wise up about trade and energy policies. But none of that is Bernanke’s fault.”
I’m not blaming the debt crisis on Bernanke, not entirely. I am saying that QE3 is the creation of debt in an attempt to cure what is a debt crisis. I am saying that the attempted cure will lower the value of the dollar. The consequences of that are the equivalent of theft. Regardless of how you wish to defend and justify this latest round of QE3, my initial statement about the effect of it remains obviously correct. People are losing wealth they will never get back, and there are people losing ground who don’t have wealth to lose, not at the pump, not in their energy bills, and not at the grocery market.
I don’t have material pre written, as I don’t claim to be an expert, so I’m going to leave this up to you. Perhaps the fact that that I’m not an expert is the very thing that allows me to understand the street impact of Bernanke’s policies. Theft is theft, and Bernanke shares responsibility in it, along with a lot of people who aren’t in Congress. If QE3 could accomplish what it is purported to do, maybe we could all benefit somewhere down the line, and Bernanke could be let off the hook, but not yet, and probably not ever.