Saturday, January 15, 2011

Don't Bet on More Quantitative Easing

Some people have gotten the idea that the Federal Reserve is going to destroy its valuable franchise (after nearly a century of power) by printing "trillions and trillions" of dollars and causing "hyperinflation".

But, the winds are shifting. Here's a quote from a recent speech titled The Limits of Monetary Policy (!) by Dallas Fed president Richard Fisher.

"...we are purchasing the equivalent of all newly issued Treasury debt through June. [...] By this action, we have run the risk of being viewed as an accomplice to Congress’ fiscal nonfeasance."

"The entire FOMC knows the history and the ruinous fate that is meted out to countries whose central banks take to regularly monetizing government debt. Barring some unexpected shock to the economy or financial system, I think we have reached our limit. I would be wary of further expanding our balance sheet. But here is the essential fact I want to emphasize today: The Fed could not monetize the debt if the debt were not being created by Congress in the first place."
The Second Bank of the United States only lasted for 20 years. Right out of the gate, they created a massive real estate bubble. [I was very interested to read that the boom period saw the establishment of the NYSE (in March 1817) which was the first formal indoor stock exchange in the country.] The bubble led to the Panic of 1819 - a horrible crash.


whydibuy said...

Oh, here we go again. The bears desperate hope that the qe2 will be stopped because of some fed board member comment.

The dumb bears fail to see that the fed guys have been playing this game all along. Every week, one or more feds try to throw a little doubt on qe2 as a red herring for the market.
Thing is the only suckers to believe that gibberish are bears desperate for a crash that will never come.

The yapping of a fed head is proof that qe2 will continue.

Eric said...

I think the current size of the federal government's deficit -- it's HUGE, and that's not even considering the states -- more or less guarantees a sort of rolling QE into the forseeable future. All of that is just not finance-able otherwise.

The major media is basically ignoring the fact that SS has gone cash flow negative, and there is also absolutely no sign this will reverse either.