Open Letter to Bernanke from 23 Economists Complaining About QE II; GOP Lawmakers Call for Abandoning $600 Billion Bond Purchase; Curtain of Idiocy
Please consider this Open Letter to Ben Bernanke from 23 economists posted in the Wall Street Journal.
We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
We subscribe to your statement in the Washington Post on November 4 that "the Federal Reserve cannot solve all the economy's problems on its own." In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.
We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.
The Fed's purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.
A spokeswoman for the Fed responded:
"As the Chairman has said, the Federal Reserve has Congressionally-mandated objectives to help promote both increased employment and price stability. In light of persistently weak job creation and declining inflation, the Federal Open Market Committee's recent actions reflect those mandates. The Federal Reserve will regularly review its program in light of incoming information and is prepared to make adjustments as necessary. The Federal Reserve is committed to both parts of its dual mandate and will take all measures to keep inflation low and stable as well as promote growth in employment. In particular, the Fed has made all necessary preparations and is confident that it has the tools to unwind these policies at the appropriate time. The Chairman has also noted that the Federal Reserve does not believe it can solve the economy's problems on its own. That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators, and the private sector."
For a list of the economists signing the letter please see the article.
GOP Lawmakers Pressure Bernanke Over QE II
I am pleased to report yet another Fresh Attack on Fed Move by members of Congress and others.
The Federal Reserve's latest attempt to boost the U.S. economy is coming under fire from Republican economists and politicians, threatening to yank the central bank deeper into partisan politics.
The economists have been consulting Republican lawmakers, including incoming House Budget Committee Chairman Paul Ryan of Wisconsin, and began discussions with potential GOP presidential candidates over the weekend, according to a person involved.
The increasingly loud criticism of the Fed comes as some economic officials outside the U.S. are criticizing the central bank's move to effectively print money, which has the side effect of pushing down the dollar on world currency markets. President Barack Obama last week defended the Fed. The move to buy more bonds, known as quantitative easing, "was designed to grow the economy," not cheapen the dollar, he said.
Organizers of the new campaign predicted the Fed will increasingly find itself caught in the political crosshairs, though. A tea party-infused GOP is eager to heed voters' rejection of big-government programs, and conservatives say a new move by the Fed to essentially print more money make it ripe for scrutiny by the incoming Republican House majority and potentially an issue in Mr. Obama's 2012 re-election campaign.
"Printing money is no substitute for pro-growth fiscal policy," said Rep. Mike Pence, an Indiana Republican who has been privy to early discussions with the group of conservatives rallying opposition to the Fed plan. He said the signatories to the letter "represent a growing chorus of Americans who know that we should be seeking to stimulate our economy with tax relief, spending restraint and regulatory reform rather than masking our fundamental problems by artificially creating inflation."
Some prominent liberal economists, including Nobel laureates Joseph Stiglitz and Paul Krugman, already have challenged the efficacy of quantitative easing, arguing that more fiscal stimulus is needed to restore the economy to health.
Signatories to the letter criticizing the Fed insisted they aren't trying to undercut the central bank's independence.
"It's fair to have a public debate about what the right monetary policy is," Mr. Holtz-Eakin said. "I'm a long way away from being comfortable with the idea of the Congress running monetary policy."
Curtain of Idiocy
For starters QE II is guaranteed to fail.
Second, the Fed is attempting to hide behind a "dual mandate" which is virtually impossible to meet.
Dual Mandate Equals Mission Impossible
Here's the deal.
1. The Fed can control money supply but it will have no control over interest rates (or anything else).
2. The Fed can control short-term interest rates, but then it would have no control over money supply (or anything else).
That is the full and complete extent of the Fed's "control". Note that neither price stability nor unemployment is in either equation. The reason is the Fed controls neither.
The simple truth of the matter is the Fed can print money, but it cannot control where it goes, or even if it goes anywhere at all. Indeed the Fed can encourage but not force banks to lend, and encourage but not force consumers to borrow.
The Fed certainly cannot induce hiring. The unemployment rate at 10.6% is proof enough.
Thus, the Fed is attempting to hide behind a Congressional mandate that is as idiotic as suggesting black can be white. It does so because Bernanke is an academic fool as well as an economic illiterate, blind to the real world economy.