Ben Bernanke and QE3

Print, Print and Print more…

Monopoly Money

Monopoly Money

As first reaction, people may think Fed chairman Ben Bernanke made his latest decision on another quantitative easing—“printing” more money to buy bonds to drive interest rates down—for more political than economic reasons.  

Was it?

Why may Bernanke’s quantitative easing (QE) be political?

—Mitt Romney already announced that President Romney would replace the incompetent Bernanke.

—and by dumping hundreds billions of dollars that the government does not have into the economy, it will cause temporary bumps on the economy leading people to believe perhaps the economy is on its recovery path.

—the stock market has been going up the last few months on every bad news on the economy because it anticipated the Fed would trigger another round of money into the economy. Why? The main goal of QE is to keep interest rates low. This leads to bond being un-attracted to investors. Therefore, more investors will put their money into the stock market, driving stock prices up. When the stock market is up, Obama will use it as a positive sign for his economy.

What did Bernanke’s quantitative easing (QE) decision really mean?

Ben Bernanke and the Fed already pumped over a trillion of dollars into the economy in QE1 and QE2—hoping to drive a strong economy recovery after the Bush recession ended in June 2009.

Those QE actions did not work.

Ben Bernanke admitted QE1 and QE2 could not help Obama’s economy. And now, he needed to do more. He needed another quantitative easing—QE3—to help this hopeless economy.

Unemployment rate has remained stubbornly high—over 8% for the last 42 months.

The millions of new jobs addition that Obama often touted may not be results of his policies. Rather, they occurred at the end of a recession when companies added jobs back in after panicky layoffs during the recession.

Obamanomics has not worked. Bernanke’s action said we are running out of time—and yet Obama is asking for 4 more years of the same with no new economic plan.

What does QE mean for John and Jane Doe?

So what if the Fed keeps dumping virtual money into the economy?

After all, they did not have to raise taxes to get those dollars, why should we be concerned?

When the government keeps printing money, it devalues the dollar because the supply of dollars increases. What costs today at $1.00 will cost perhaps $1.10 or more afterward.

Why should John and Jane Doe worry about QE while they are struggling to make ends meet?

—as mentioned above, the Does would need to pay more for their groceries, gas, clothes for the kids, etc

—if the Does are lucky enough to have been saving for their retirements or for the kids’ college, then these savings will go down in value as more virtual money dumped into the economy. This is just like the government robbing the people’s saving in broad day light so that they can make the economy appearing better.

This is the third round of quantitative easing. The first two did not work. Is the third a charm? Not likely.

You can keep perfuming a stinky pig, but you can’t make it smelling any better.

 

Ch3 Nguyen

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