The Rant – Crisis Bubbles Form From Fed’s QE3

Oct 9, 2012

The Rant – Crisis Bubbles Form From Fed’s QE3

The Federal Reserve’s decision to proceed on an open-ended asset-buying policy is being well-received by other central banks but few others.(1)

The problem for Ben Bernanke and the U.S. dollar is the move’s aim and its outcome are not the same. Bernanke wanted to address unemployment but, by buying American debt–caused by too much demand for social programs like unemployment benefits–what he hopes to get under control is what he in enabling.

The question then becomes, what happens when we can’t get unemployment down?

The “assets” the Fed is buying are pure debt from the U.S. Treasury which are as toxic as TARP was buying only the Fed can print money where nobody else can.

This means reflation of crisis bubbles is inevitable. Popping crisis bubbles are what caused the recession to start in 2007. Bubbles do not lead to more real growth and expose the the country to unusually severe recession risk while limiting the Fed’s stated intent to control rampant inflation.(2)

In its effort to curb the overflowing jobless rate from causing a world-wide economic meltdown, the Fed is joined by the Bank of Japan and the European Central Bank. Japan has been in a two-decade-long slump while the ECB is facing a rising unemployment rate that threatens the entire 27-nation European Union, not just the 17-member Euro zone. In following their actions, the Fed is receiving accolades from those desperate meddling bankers but that seems to be its sole point of support.(3)

Jobless rates have long been a major measuring point for the health of any economy. So the governments involved have actively engaged in covering the true size of the unemployment problem to give the appearance of health to an ailing patient.

But the sheer size of the unemployment problem is starting to provide an unmovable anchor for any puny efforts from central bankers to lift the economy.

All you have to do to prove this point is look at the markets of these countries. The collective Wall Streets are doing quite well even as unemployment numbers rise. The markets are floating on printed cash liquidity. Soon enough this liquidity will have to be matched in other areas which will come in the form of consumer inflation.

Consumers will be paying more for food, for energy and for housing just when the true scope of the unemployment problem can no longer be concealed. But the governments can keep spending money!

Because of this spending, it can be justifiably claimed “taxes have to rise.” Unspoken is the acknowledgment government spending will have to be cut in the future “to balance the books.” That policy has failed the citizen time after time since the Great Depression. Taxes rise but the accompanying government cuts never quite materialize.

Since we are in an election cycle, let’s try it the other way around. Let’s make government get its house in order, tell us what the acceptable spending level is and make sure that limit is not exceeded. Then they can tell us how much more in revenue they need from taxation.

Trim everything not specifically stated in the Constitution from all federal spending and give America a bill for what’s left. Then let the individual states pick up the slack for those woebegone social programs. Those states where the population decides on too severe limitations will begin to fail on their own while those with more relaxed limitations will prosper for a while. Eventually a balance will be achieved.

That will sort out the economic problems the Fed has been trying to handle–without success–since 1913.

The Fed is printing money but it should have been making sure the dollar remained sound, as per its mandate. The politicians gave that task up because it had become too hard to maintain that stability in the face of political considerations.

Now we have a Federal Reserve that is eagerly jumping into politics. Right back into the problems the politicians couldn’t handle.

This time however, the Fed it is bowing to and following the leads of the ECB and Bank of Japan. Bowing and leading by following–aren’t those campaign issues?

“I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man.”–Thomas Jefferson

(1)–CNBC, Oct. 1, 2012, Fed Watchers Join Raging QE Debate

(2)– Bloomberg, Oct. 1, 2012, Jobs Outlook Seen Weak

(3)–Thomson/Reuters, Oct. 1, 2012, Eurozone Joblessness Risks Economic Disaster

Share on Facebook