The Fed’s proposed second round of dumping phony money on the economy arises from eagerness to pursue the religion of socialism, coupled with unwillingness (or inability) to understand empirical reality.
Read QE2 — The Fed’s Plan for Job Growth Could Backfire.
Key quote:
“QE2 will work through several channels,” says Morgan Stanley economist Richard Berner. “It will lower financing costs, boost risky asset prices and household wealth, and continue to weaken the dollar.” The program hasn’t even begun, and already it has started to work, as market expectations work their way into asset prices...Stock prices are generally up about 10 percent, fully reversing their second quarter drop, and the trade-weighted dollar has fallen more than 5 percent.
Readers can judge for themselves the likelihood of economic recovery anticipated by liberal-progressive Keynesians. We’ve seen, during the past two years, the greatest increase in our history of Federal Reserve expansion of the money supply and the lowest interest rates ever. Results have been negative, just as they were throughout the 1930s Depression under Franklin Roosevelt’s New Deal socialism.
The Fed has been, since its formation in 1913, a servant to the United States Treasury, repeatedly expanding the money supply out of thin air to finance World War I, New Deal welfare statism, World War II, the Korean War, the Vietnam War, on and on. Overall inflation has increased more than 1,000% during that period.
The Federal government’s state-planning role and that of the Federal Reserve system as implementer of Keynesian socialistic economic policy were officially articulated by the Employment Act of 1946. Speaking of that act, President Harry Truman said, in his annual Economic Report on January 14, 1953:
The Employment Act of 1946 is one of the most fundamental compacts in domestic affairs which the people through their Government have made during my tenures as President…
It is the purpose of the the Employment Act - the one most widely recognized at the time of its passage - to prevent depressions...
Judge for yourself whether that purpose has been fulfilled in the ensuing 64 years.
In short, QE2 proposed by the Fed is not a rational economic policy. Arbitrary expansion of the money supply has never worked as other than a stimulus to further inflation, with all the distortions of economic activity arising from inflation, such as the dot.com boom-and-bust and our recent housing bubble.
In our current economic crisis, Keynesian spending by the government and by the Fed were, not a depression preventive, but the source of funding for the disastrous housing bubble and creation of securitized subprime mortgage loans.
QE2 will do no more than pile logs on the already flickering inflation fire and continue to inflate the stock market speculative bubble that began last year.
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