From Zero Hedge:
…what (former Fed vice chairman) Blinder says makes one wonder just who is on the tenure committee at Princeton – when asked how we bring the deficit in without austerity, the Princetonian responds: “Unfortunately I think it is very subtle for most political processes especially for the political process in the US. What we should be doing is somewhat more fiscal expansion but at the same time legislating into law fiscal consolidation for the future. Starting 2 years from now, 3 years from now, 18 months from now. But not now.” Of course never now: why bite the bullet now when it can be kicked to some other administration in the indefinite future? Especially when tenure money and/or Wall Street bribes are at stake…
Basically, let’s just incur as much debt as possible now, and eventually it will get better. And this is happening now almost 2 years after the recession supposedly ended. Naturally, there will be no fiscal expansion: not with the current political set up. Which leaves just one option – monetary stimulus. And since Blinder is very close to the Fed, we are confident that the two-way dialog between academia and Federal Reserve is already under way, making it clear that if no fiscal stimulus will be forthcoming, then QE3 certainly will have to take its place. Especially now that the Economy has once again taken a turn for the worse…
Lost in all the discussion – but endlessly referred to at places like Zero Hedge – is the fact that the way “quantitative easing” has been executed is by the Federal Reserve printing up money and then buying US bonds. This has kept interest rates low, provided massive liquidity to the financial markets, boosted stock prices and bank profits…and caused inflation. It hasn’t done much to help the economy – though US manufacturing has got a boost because with our dollar collapsing in value, US exports have become much cheaper in the global market. If the money spigot is turned off – and the Fed says it will turn it off in June – then stock prices will fall, bank profits will dry up, the dollar will rise in value…and we, the people, will get a little easing in our cost of living. But where is the upside in that for the bankers, well-connected politicians and others in the Ruling Class? Especially as we’ll almost certainly drop in to officially recognized, full-blown recession just in front of Obama’s re-election effort?
No one really knows if the Federal Reserve will go for “QE3”. Officially, it is still a big, fat “NO”. But with the way things are trending – ie, a slow drift back in to recession – the pressure to do something to avert the worst possible outcome (the loss of the White House…possibly to someone who doesn’t give a darn about the banks) will become immense. I agree with Zero Hedge on this – this is a shot across the bow; a trial balloon to see if anyone is willing to try and stop it before it starts. They can’t get any more fiscal stimulus because the GOP controls the House…and if they don’t get some sort of stimulus to puff up a dead economy, then official recession looms. They’ve got to do something, right?
There is not much anyone can do in official terms to stop the Fed – our central bank is set up in such a manner as to preclude direct, prohibitive action on the part of government. But if the GOP starts calling hearings and starts putting out the word on what is involved in money printing, then we might be able to scare them off. It can be stopped – and it should be stopped. Yes, we’ll head back in to recession – or, more accurately, will just finish off the recession and get to the economic rock bottom, from which we can start to genuinely recover. But if we don’t stop them, then we might get even more bags of money printed, more banks living off of us, more inflation…and eventually an even worse recession than if we just let things take their course.
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