Forewarnings by critics of Mr. Bernanke’s current fiat money expansion program have been closer to target than Mr. Bernanke’s expectations.
Monetary inflation’s effects under QE2 are becoming more evident; interest rates are up, not down; and bank lending continues to decline.
QE2’s principal effect has been a booming stock market that again fabulously enriches Wall Street traders and brokers. As I wrote last November:
Note that it’s the securities brokerage community who now applaud the Fed’s QE2 program to raise the rate of inflation (i.e., devalue the dollar). Corporations are reporting higher earnings, compared to last year’s depressed levels. At the same time, they are cautioning that sales growth is anemic and cost-cutting opportunities have been exhausted, which means that the outlook for continued higher earnings is unclear. The stock market rise is essentially floating on a rising tide of the Fed’s fiat money.
After the dust settles, it’s hard to avoid the suspicion that the Fed is more concerned about bolstering the stock market than helping the larger economy. After stock market crashes in 1987 and the 1990s (the dot.com bubble), Alan Greenspan, then the Fed chairman, flooded the market with fiat money, just as Mr. Bernanke is continuing to do in response to the 2007-08 housing and financial market meltdown.
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