Okay, Ben Bernanke has a tough job. The economy is still in the tank, at a time past business cycles suggest it should be rapidly accelerating and back on the long term growth curve. The political process is broken, and the citizens are demanding more from government than they are prepared to pay for. Someone, Bernanke must be thinking, has to do something. And so we get QE3, courtesy of Chairman Ben, the someone of last resort.
Now, “quantitative easing” has a certain ring to it. Complex. Sophisticated. Surely, effective.
Alas, QE3 is neither complex, sophisticated or likely to be very effective. You see, in essence what Mr. Bernanke announced last week was that the Fed – our nation’s central bank – was going to start printing more money. $40 billion every month, until, well, until … what, exactly?
Now, I am not going to say that quantitative easing – excuse me; printing money – is always a bad thing. QE1 was almost certainly a smart move. When QE1 was announced the central economic problem was liquidity. There simply were not enough people with ready cash willing to make that cash available to fuel the economy, whether via consumer spending or capital investment. Someone, Ben and his Fed being the only real candidates for the job, had to pump some liquidity into the economy and printing money was the best way to get it done fast. And it worked: no, it did not lead to a robust economic recovery, but yes, it prevented a liquidity crises from turning a bad recession into something much worse, a depression.
The problem with QE3 is that while printing money – and that is what is actually happening, in terms of the fundamental economic when the Fed starts spending money buying bonds, mortgages and such on the private market – is a good tool for dealing with a liquidity crises, we do not have a liquidity crises right now. The economy is not frozen for lack of liquid assets sloshing about, it is sluggish for lack of what economists call “animal spirits.” People – people, after all, drive the economy – are pessimistic about the government’s ability to live within the peoples’ means. There is a broad consensus that the demands for government services exceed the private sector’s ability and/or willingness to fund them. And that the end result will be an economic meltdown of epic – even Greek – proportions. Who wants to spend or invest their savings with that prospect close at hand.
At the end of the day I suppose I am not really all that disappointed in Mr. Bernanke and QE3. The pressure to act, to do something, can become so great that even a smart chap like the Chairman feels compelled to do something; even something silly like QE3. What’s really disappointing is that we as a nation have come to this point – a point where the only options we have the political will to take will at best postpone, and most likely deepen, the inevitable economic collapse that follows every great nation when its citizenry starts confusing aspiration with entitlement.