Will the Fed's numerous stimulus programs ever improve the sluggish economy?
'For five years, the Treasury, the Fed, the Congress, and the White House have agreed on little, but they do agree that no more sparrows like Lehman shall fall -- not by accident and certainly not on purpose. The eagles of Wall Street, of course, will soar. And even the gnats have an implicit government guarantee, as Fed Chairman Ben Bernanke demonstrated last week.
Since May, Bernanke & Co. had been publicly warning everybody within smelling distance that it was getting to be time to dial back or taper the Fed's adventure in monetary stimulus. Suddenly, he reversed course.
For those who have lost their way in the fog of euphemisms, the Fed's policy has been known as quantitative easing, parts 1, 2, and 3, with Operation Twist tacked on for bad measure. In operational terms, the Fed and financial experts generally talk about the Fed's buying $85 billion worth of bonds -- Treasuries and mortgage-backed securities -- every month, but that too is a euphemism. The Fed now works like a pawn shop, taking in unwanted assets and lending money in return. There are nine billion names and phrases for it, but only three are honest: monetization, money-printing and inflation.
The practical results, however, have been surprisingly small. Most prices have remained fairly stable -- except gold, commodities, and stocks, which have been volatile with a bias to the upside. Economic growth has been lame. And without much growth, consumer income has been dull.
This was not supposed to happen. Whether a government stimulus is Keynesian, using spending increases and borrowing, or Friedmanesque, using money creation, it's supposed to get the economy moving again. That it has never done so without a major war hasn't stopped American economists from expecting better results from each successive replay.
That's why the inflation policy won't be tapered off just yet, even though the Fed's optimistic forecasters had projected a growing economy that would let it be done without pain. Bernanke said this week the sluggish economic data convinced nine out of 10 members of the Federal Open Market Committee that the economy is too weak to fly on its own power without further monetary support from the Fed. He also claimed that Congress and the White House have been insufficiently stimulative on the Keynesian front. A few trillion here and there are apparently not enough.''