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Written by Charles Scaliger
Saturday, 15 September 2012 13:00
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Everybody knew it was coming. With the economy continuing to founder, it was only a matter
of time before Ben Bernanke and the Federal Reserve decided to turn once again like the
proverbial pig to its wallow to printing money in a vain attempt to jolt the moribund
American economy back to life. As with the first two such feckless efforts, theyre dressing this
one in fancy verbiage quantitative easing that fools no one. This third round of
quantitative easing QE3 for short announced on September 13, is just the digital
equivalent of printing still more money, money that banks and other financials will either hoard in vaults or pour into equities, driving
up stock prices but doing little to enliven the economy as a whole.
In point of fact, this latest Fed stimulus will end up doing more harm than good, prolonging and exacerbating an epochal downturn
that refuses to go away because Americas financial policymakers refuse to let the Great Correction run its course. The latest Fed
initiative will involve the monthly purchase of up to $40 billion in mortgage-backed securities by the Federal Reserve, which it will pay
for by expanding the money supply. The Keynesian logic (if such it can be styled) of this move is that the Fed purchases will keep
mortgage rates low and encourage skittish American homebuyers to jump back into the market. More home purchases will get
money circulating again, encouraging people to go out and shop and start running up their credit cards like they did in the go-go
days prior to 2008.
The reality, as only a central banker, buffered from real-world business by a comforting cocoon of academic abstractions, could fail
to grasp, is that most Americans are too busy struggling to find or keep employment, pay down debts, and avoid foreclosure to give
any thought to taking out a mortgage on a new McMansion. Meanwhile, banks and big business, the primary beneficiaries of the
Feds latest credit-buying binge, are too worried about dark clouds on the near-term economic horizon continuing fiscal chaos in
Europe and the impending fiscal cliff chief among them to loan out or otherwise invest the new money productively.
What is likely to result from QE3 is rising prices coupled with stubbornly stagnant unemployment figures. With gasoline again at
record highs and grocery costs soaring, inflation is starting take a serious bite at the checkout counter. As Peter Boockvar, equity
strategist at Miller Tabak, told CNN Money recently, I would love for Ben Bernanke to walk into a Wal-Mart and tell a person living
paycheck to paycheck that high inflation will be good for them.
And Boockvar is far from alone among investment professionals and economists in voicing concern over the latest round of
quantitative easing. An August survey by CNN Money showed that a whopping 93 percent of investment strategists were opposed to
QE3, and 77 percent of economists agreed with them. And as Martin Feldstein, Harvard economist and former chairman of the
Council of Economic Advisors under Ronald Reagan, has pointed out, what will happen when the Fed has to begin raising interest
rates once again, as it must? How will the economy fare when borrowing once again begins to cost serious money? This will be a
particular concern for the granddaddy of all debtors, the U.S. government.
In fine, the Fed is caught in a snare of its own devising, unable to resist micromanaging the money supply, and unable to exert any
influence save for the worse. If interest rates are kept at essentially zero, stagflation will continue apace; if they are raised, already
hard-pressed debtors, including, perhaps, the government itself, may be forced to abandon any lingering semblance of fiscal
responsibility.
More in this category: Scientific Evidence Proves Capitalist Ideas May be Innate High Unemployment and Black America

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Saturday, 15 September 2012 20:25 posted by REMant
The point of Keynes' economics is to shift debts to future generations or ppl in other places. The only thing that
will really pay debts back is a gain in productivity. The Fed has been able to get away with this kind of thing
previously only because the country was still in a position to attract suckers or bully them. But as this pyramid scheme
has progressed, it has increasingly widened the gap between rich and poor, decimating the entrepreneurial middle. That
and the rise of independently thriving economies elsewhere means the Keynesian prospects don't look very bright. Still it
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is a cancer, and not bounded by national borders. Things could get a lot worse.
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