Never surrender: Fed fights failure with more of the same
The current policy of quantitative easing has had the opposite effect from what was intended, but the Fed is staying the course.
"Shoot, if you must, this old gray head,
But spare your country’s flag,” she said.
Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning (dailyreckoning.com).
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A shade of sadness, a blush of shame,
Over the face of the leader came;
The nobler nature within him stirred
To life at that woman’s deed and word:
“Who touches a hair of yon gray head
Dies like a dog! March on!” he said.
It’s the Ides of December, if December has ides. Some months do. Some don’t.
But you’re probably wondering what the Fed’s FOMC did yesterday, aren’t you? You’re not? Well, good for you. You must have a life. Or a brain.
Those of us who are condemned to follow such things found out that the Fed is standing pat. You can imagine how that stirred our blood. We had barely slept wondering what the Fed would do. We had worn out the carpet, pacing back and forth. And now we discover that the Fed will do nothing!
The “recovery” is too weak to raise rates, said the Fed. And the economy may need more stimulus, it added; so it will stick with its plan to buy $600 billion worth of US government debt.
You’ll remember that the Fed purchases were supposed to drive down long-term interest rates so that mortgage borrowing and capital investment increased. But instead of falling, long-term rates went up.
On the surface of it, you might think the Fed chief would lower his head…and admit that his quantitative easing plan is a colossal failure. Since March ’09, he has committed an amount equal to more than an entire year’s output of the US economy to his QE initiatives. With so much of the nation’s treasure lost, you’d think he’d offer to slit his wrists…or at least resign. But that would just go to show that you’ve never studied modern macroeconomics. If you spent a few more years in school, maybe you too could begin to see that up is really down and black is actually white. The Fed’s actions will multiply the US monetary base by 4. Is it any wonder investors are getting suspicious of US dollar-denominated paper?
In theory, the Fed’s purchases of Treasury debt are absurd. In practice, they have backfired. So, the Fed will do more of them. Makes sense, right?