Now he’s done it. Not just the QE3 everybody expected, but an open-ended commitment to keep printing money as long as it takes.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.
Translation: we will print $40 billion a month out of thin air because, despite the experience of the past three years, we still believe that printing money fixes the economy.
If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.
Translation: we will keep printing, and maybe even start printing faster, as long as the employment market sucks.
It’s going to be a LONG time before the outlook for the labor market improves “substantially.” Inflation will be a problem long before that. We’ll have $5 gasoline long before we have 5% unemployment and normal labor force participation rates.
Printing money doesn’t create jobs. So Bernanke has just committed to giving us stagflation for as long as he can until inflation gets too out of control.
The 1% thank Zimbabwe Ben for jamming their stocks, gold, and silver higher.
The 99% will have to be content with food and energy inflation.
My friends the SLOBs are going off on Zimbabwe Ben and the Damn Dirty Fed:
And one of my favorite leftie blogs, Naked Capitalism, has a post on QE∞ that sounds positively like something you’d read at the WCV, The Fed’s QE3: No Exit.
The Fed’s launch of QE3 looks more than a tad desperate. If you believe the central premise of the Fed’s action, that propping up asset price gains would have enough effect on consumption to lift the economy out of stall speed, it would seem logical to sit back a bit and let the recent stock market rally and the (supposed) housing market recovery do their trick.
But another big issue is that the Fed looks to have painted itself in a corner. Is the US going to have 3.5% mortgage interest rates forever? If the central banks does manage to create a bit more inflation, how does it think it will exit? A mere 1% increase in interest rates, from 3.5% to 4.5%, increases mortgage payments on a 30 year fixed rate mortgage payments by 13%. That will translate into a meaningful dent in housing prices. And where does the Fed go if a financial crisis or other shock occurs?
The Fed failed to see the crisis coming, failed to push for restructuring of consumer, particularly mortgage, debt, and is now in full bore “if the only tool you have is a hammer, every problem looks like a nail” mode.