Government-Assisted Economic Suicide

June 6, 2011 04:23

There is no economic case for quantitative easing, nor has there ever been one.  Quantitative easing is simply a political gimmick

Monty Pelerin at American Thinker


QE made matters worse in the sense that it prevented adjustments in relative prices and the liquidation of misallocated resources.  These adjustments are necessary for any recovery to occur.  As expressed by Pater Tenebrarum:

… the Fed managed to quickly arrest and reverse the liquidation of malinvestments. While this has averted more short term pain in 2009 -2010,  the economy is now once again faced with having to deal with a distorted and discoordinated production structure that needs to be realigned with reality.

The political case for inflation or loose money is simple.  It covers over (temporarily) the seriousness of underlying economic problems.  It has been used in this country since the 1930s, when Keynesian economics provided “legitimacy” for interventions.  Similar interventions have been documented for more than a thousand years in other countries.  Nowhere have they worked other than to defer problems for an eventually bigger day of reckoning.

Look at some of the outcomes resulting from QE2:

  • The working labor force dropped as a percentage of the total labor force.
  • The unemployment rate was virtually unchanged.
  • Housing prices continued their downslide.
  • Growth in the economy slowed from 2.6% to 1.8% in the most recent quarter.
  • The rise in the stock market of 26%, according to Mr. Arends, was primarily a result of the deterioration in the value of the dollar.
  • Those who owned stocks had gains, but gave part of the gains back due to the rise in prices, especially of imported goods.
  • Wage gains trailed reported CPI inflation meaning the poor became worse off.
  • Non-investors in the stock market were made worse off as a result of higher prices.
  • The US government further added to the debt burden of the public with virtually nothing to show for it other than speculative financial markets.
  • The US dollar continued to lose value relative to other fiat currencies.
  • Precious metals and other hard assets continue to increase in dollar value.
  • The latest job report (May) showed only 54,000 private jobs created, of which reportedly half were jobs at McDonald’s.

Supporters claim QE2 created 700,000 new jobs.  Mr. Arends points out that, if true, each new job cost $850,000 to create.

The absurdity that printing money can improve the well-being of a people was demolished concisely by Ludwig von Mises:

If it were really possible to substitute credit expansion (cheap money) for the accumulation of capital goods by saving, there would not be any poverty in the world.

According to Whether Tenebrarum, no amount of additional stimulus can remedy this problem.  It really doesn’t matter, because point 3b has also been reached — we are out of resources.  The Federal Reserve has more than tripled its balance sheet in the last three years.  Additionally, the Federal Government has created about $5 Trillion in new debt to fund Keynesian stimuli.

My guess is that politicians will choose to do more QE.  They need to continue to hide the true nature of the economy however possible.  It is all they know and all that stands between them and riots in the streets.

The end is known.  Its timing and severity are not.  Markets, rather than cowardly politicians, will determine both.


Help Make A Difference By Sharing These Articles On Facebook, Twitter And Elsewhere:

Interested In Further Reading? Click Here