Posted on 11/11/2010 6:23:44 AM PST by blam
QE2 Will Not Usher In The Apocalypse
by: David Beckworth
November 11, 2010
Though some folks would have you believe so. It is far from perfect--it needs an explicit nominal target to make it truly effective--but it is a step in the right direction. Martin Wolf agrees: The sky is falling, scream the hysterics: the Federal Reserve is pouring forth dollars in such quantities that they will soon be worthless. Nothing could be further from the truth. As in Japan, the policy known as “quantitative easing” is far more likely to prove ineffective than lethal. It is a leaky hose, not a monetary Noah’s Flood. ...
The sky is not falling. But this does not mean the Fed’s policies are the best possible. It is probable that any impact on the yields on medium-term bonds will have a modest economic effect. It would be far better if the Fed could shift inflation expectations upwards, by issuing a commitment to offset a prolonged period of below-target inflation with one of above-target inflation.
In other words, Wolf believes QE2 may not pack a real economic punch in the absence of price level target. Michael Woodford, William Dudley, Charles Evans, and Paul Krugman agree with this assessment. I too am a fan of level targeting (versus growth rate targeting), but would prefer to see it done by targeting some measure of aggregate spending such as final sales of domestic product or nominal GDP.
There are good reasons to favor an aggregate spending level target over a price level target, but either approach would bring the nominal economy closer to its trend and in turn spur real economic growth. Unfortunately, though, the FOMC for some reason has chosen not to adopt a level target. This decision may amount to keeping the United Sates in economic purgatory. So, rather than worrying about QE2 ushering in the apocalypse, worry about it being much ado about nothing.
A sad, corrupt little article.
The problem here is the probable effectiveness of it. "Effectiveness" is not necessarily a good thing. If it causes a collapse of the dollar and Weimar conditions then it will truly have been effective. Stupidity with a nominal target is not a bit more constructive than unfocused stupidity and probably more dangerous.
Nor will it usher in the Millennium. So why take the risk for so little potential gain?
Ticker Guy’s right. All QE2 does is kick the can further down the road, make the eventual situation much worse, and once again, bend the country over the barrel. Bernanke should be fired with extreme prejudice, and prosecuted. Stop the looting, and start prosecuting, as KD says.
This move has more to do with theatrics than economics. Literally it’s meant to make us all feel better. The dead economy is all our fault for being such big scardy cats.
College professors and other experts!
What would we do without them?
Didn’t experts tell us if the government got $800 billion dollars to tinkle away on their pet projects and hand out to their supporters we would recover from the economic pit they put us in and that unemployment would stay below 8%?
One man’s out of control government and double digit inflation is another man’s Apocolypse.
This author is assistant professor of economics at Texas State University. That might help explain why so many economists today seem to have their heads stuck up their nether regions.
There are many incompetents in academia. Beckwith is obviously one of them.
We have a proposed new policy that will be costly when we are already spending $1.5T a year more than we bring in, and that will be ineffective. Exactly why would a sane person continue considering this QE2 proposal? Never mind, it’s only Obama, Bernake, Pelosi, and others who want America to fail who are considering QE2.
Pimpin’ for da Fed Ping!
Like a good little Obamabot He down plays the extent of the damage that Obama and his buddy Helicopter Ben are doing to the long term health if the U S Economy.
When QE starts getting super bowl roman numerals, will he have the same opinion? I can see it now QE XXXVI!
Quite simply Uncle Sam has issued IOUs all over the world to the point that those holding the biggest piles of them now have to adjust to lower and lower valuations of those IOUs.
They adjust by increasing holding of other less risky assets.
Why, because the central banks want to keep exchange rates steady and to do this they buy or sell their own IOUs.
It is ironic that in the past they would use dollars as the method to regulate exchange rates now with the dollar declining the benchmark they are using keeps getting smaller.
WE are in the best of hands.
/sarc.
If only Lenin, Hitler, Marx, Pol Pot, Stalin knew about central planning via paper money and central banks.
Maybe they just liked the killing.
LLS
” Maybe they just liked the killing. “
That comes later, when the Obama voters realize that the Gummint can no longer afford to ‘feed the tiger’....
The riots in Greece, France, and, now, Britain, are just the warm-up act.....
They need the riots. “Top down, bottom up, inside out” as per Van Jones.
How about QE3, QE4, QE5, QE6, QE7, QE8, QE9, and QE10???.
The president of the Dallas Fed disagrees with him. ‘Nuf said.
” The president of the Dallas Fed disagrees with him. ‘Nuf said. “
The president of the Dallas Fed risks getting ‘disappeared’...
(Think it can’t happen here??)
The key here is putting numbers on the risk. The argument of some really-really-terrible-possibility-no-matter-how-remote is for idiot global warmers. The reason we have to do 'something' is because the constitution says congress has to coin and regulate the dollar's value. We either change the constitution, control interest rates, or come up with another idea and put it up for a vote.
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