Posted on 11/14/2010 6:25:45 PM PST by Molly Pitcher
Beautiful, Jem.
Good morning everybody. Busy week here as we prepare to go to daughters for Thanksgiving, will leave on Saturday.
Thanks for the links Molly.
Have a good day everybody.
Jem, you wrote that on ATRW a year ago today.
;o)
I saved it, because I liked it a lot.
Why Bernankes QE Justifications Dont Wash November 15, 2010 4:14 P.M.
By J. D. Foster
When Ben Bernanke became chairman of the Federal Reserve, he was known to have a long history of championing transparency. He believed, correctly, that a more transparent Fed would lead to more effective monetary policy, less disruptive changes in that policy, and greater confidence in the Feds independence from political interference. In light of the recent bipartisan opposition to his new quantitative easing (QE) program, he needs to try harder.
Bernanke faces a difficult dilemma. He can offer flimsy explanations for his new QE policy, explanations that simply will not stand up to scrutiny, or he can explain his thinking fully and risk jumping right into the middle of the biggest political fight of the day, taxes.
The policy at issue is an important variation on traditional monetary policy. Traditionally, the Fed tries to steer the economy, with a sharp eye on inflation, by steering short-term interest rates up or down. The new QE program involves the Fed buying longer-term securities to steer long-term interest rates downward while injecting more liquidity into the capital markets. This policy is disconcerting, because when central banks purchase government debt (i.e., monetize the debt), it is often a big step toward hyperinflation. The difference under this QE is that the Fed will supposedly sell the debt back to the markets sometime in 2011 or 2012. But thats a future that must be taken on faith today.
In a recent article, Bernanke argued that inflation was very low, perhaps too low, and that very low inflation can morph into deflation (falling prices and wages), which can contribute to long periods of economic stagnation. He also argued that there is considerable spare capacity in the economy, which normally puts downward pressure on prices. Both statements are clearly true.
In an earlier speech, Bernanke said that growth in 2011 was unlikely to be much above its longer-term trend, which means that the unemployment rate will decline only slowly. True again.
The conflict in these two statements may not be immediately obvious, but consider: If the economy is growing near its trend rate in 2011, as Bernanke suggests, then there is little to no risk of deflation. Strong growth is a powerful antidote to deflation worries. Either the deflation risk is vastly overstated and QE is therefore unjustifiable, or Bernanke believes growth in 2011 will continue to be anemic at best.
The economy has averaged less than 1 percent annualized growth in recent quarters, once transitory inventory and federal spending surges are weeded out. What Bernanke is silently worried about is the possibility that Congress will allow all the 2001 and 2003 tax relief to expire at the end of the year, or that Congress will allow those provisions most important to the economy to expire e.g., the lower tax rates on small businesses and the lower rates on capital gains and dividends. Slamming a sputtering economy with a major tax hike threatens to induce another recession, and with inflation already near zero, the possibility of deflation becomes very real. But Bernanke cant or wont say so.
Bernankes QE justifications dont wash. If the economy is expected to muddle through, let alone accelerate, then there is no reason to embark on a highly risky, highly controversial new round of quantitative easing.
Why wont Bernanke be transparent in this? Because he also worries about the Feds independence. Imagine President Obamas reaction if the chairman of the Federal Reserve were to point out the obvious truth that the economy dare not sustain a massive tax hike at this time. Or if he were to say that the prospect of such a tax hike is what forced the Feds hand on QE, despite the risks. Whatever Bernankes intentions, this would be interpreted as a blatantly partisan act by the non-partisan Fed.
Bernanke can either base his QE policy on flimsy arguments and face growing opposition, or he can exercise the transparency he once championed by explaining that his policy is a reaction to the likelihood of an ill-advised tax hike, jumping into a highly partisan snake pit. It is a difficult choice. Bernanke has thus far made the wrong choice, but there is still time for him to correct his mistake.
J. D. Foster is the Norman B. Ture senior fellow in the economics of fiscal policy at the Heritage Foundation.
That will be so nice...and do some Christmas shopping while in Austin area? I’ve never been to her downtown, but have done some great shopping in Austin. You’ll have a great time shopping with daughter.
We’ll have a small group here for Thanksgiving then a week later head for Dallas/Allen to do some Christmas shopping.
Need to get some neat small stuff for our Christmas in CA with my sister’s family.
>> Rave, when do you travel next?
Week after Thansgiving - except my better half wants me home.
That’s good, but will they punish him or give him another chance?
It is already devaluing the dollar — notice all the commodities priced in dollars going up...;-))
lysie, how's Sarah's back doing?
a local story: Cleveland Browns' players spoke yesterday, I think it was, to over 3000 people about the role of faith in their lives.
Rain has arrived.
We have had rain for about 24 hours. It helps.
All, I have sent off an article to a children’s magazine. I really need this to be accepted. We do need additional income and I have a lot of pain when I sit for any amount of time. Writing is something I can do in a horizontal position. I would love to be profitable. Just sayin’ and asking for prayers for this.
Yes. I have noticed. That’s why I shop sale items and stock up. I don’t think I have ever had more than 10# of flour in the house. I now have 25#. I also bought a pound of yeast for $2.00 instead of the 2 small packets for $1.99.
Hey girl...just dropped in to say hello to you. I think of you so often. Hope you are well.
Good afternoon.
Thanks for asking. Sarah is doing well. I think her PT is about to end soon.
I was wondering about that. Is this the second? Prayers for success.
You got ‘em. Good Luck.
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