Have 7+ years of QE helped or hurt the U.S. economy?
*Barron's, by Stephanie Pomboy, August 22, 2016
”Over the last four years, U.S. nominal GDP growth has gone from 4.3% to 4.1% to 3% to 2.4%. The deflator, the inflation we are supposed to be targeting, went from 1.9% to 1.6% to 1.5% to 1.1%. What greater proof do you need that lower rates aren’t helping and, to the contrary, are making things worse? Growth and inflation are slowing, and it has to do with this aging demographic. Add the emotional and financial scares from the housing-bubble bust, and policy makers have really got it ass-backwards. They’re taxing the economy, not stimulating it.
Clearly, QE [quantitative easing, in which a central bank like the Federal Reserve buys government bonds to lower interest rates and increase the money supply] isn’t doing the job. The markets anticipate another Fed rate hike. We never should have raised rates in the first place. The question is, how quickly do they reverse? More QE isn’t the solution. But policy makers aren’t ready to concede defeat. So, the Fed will abandon rate hikes and eventually re-up QE in some form. I do see helicopter money getting here, but that kind of fiscal stimulus has a substantially longer fuse. You’ve got to come up with a proposal, get everyone to agree, enact it, implement it. There will probably be some risk-off move that causes the Fed to panic and an interim QE attempt to calm the markets before we get that helicopter in the air.
Bernanke acknowledged at the depth of the crisis that monetary policy isn’t a panacea, and ideally there would be a fiscal stimulus. Consumer-spending growth peaked right after the fiscal stimulus — the tax rebates — wore off. You are still stealing growth from the future. But at least it’s doing something. Current policy is setting us backwards.”
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