The Federal Reserve hoped that its three-year-old economic rescue campaign would reach a climax at the end of June. It hoped that consumers and businesses by now would be spending more and more, and the central bank could start doing less and less.
That peak now looks like a long plateau. The Fed still is expected to announce Wednesday that it will halt the expansion of its aid programs at the end of June, as scheduled, when it completes the purchase of $600 billion in Treasury securities. But growth is sputtering, and economists now expect that the Fed will leave its $2 trillion of bandages, props and crutches untouched until next year.
The pace of economic expansion has repeatedly fallen short of the Fed’s predictions, and the central bank is expected to lower its eyes once again when its releases a new forecast after a two-day meeting of its policy board, the Federal Open Market Committee.
[A] number of studies have concluded that the Fed’s efforts have had only a modest impact on the economy. Stock prices have climbed. Corporations have rarely been able to borrow money more cheaply. Mortgage loans have seldom been available at such low interest rates. But companies are hiring few new workers, and people are buying few new homes. Almost 25 million Americans cannot find full-time work, a number that is rising again after declining modestly over the last year.
Thanks to the geniuses at the Federal Reserve, the US dollar has the utility value of toilet paper, and our economy is just as bad, maybe even worse, than it was when it first started creating dollars out of thin air. QE1 and QE2 are failures and the Fed wants to double down on some more.
Interesting take from Kudlow:
[...] Egypt is the world’s largest wheat importer. Because of skyrocketing prices, Egyptian inflation is now over 10 percent.
Commodities are priced in dollars, and the Fed has been overproducing dollars for more than two years. Consequently, emerging markets throughout the world — and the food sector in particular — are suffering from rising inflation.
The CRB food index is up an incredible 36 percent over the past year, including 8 percent year-to-date. Raw materials are up 23 percent over the past year. Inflation breakouts have occurred in China, various Asian Tigers, India, Brazil, and other Latin countries. Even Britain and Germany are registering higher inflation readings.
With the Obama administration’s attempts at fiscal policy on steroids failing miserably, the last tool at lawmakers disposal, to help boost the economy is monetary policy on steroids, or in Federal Reserve parlance: “Quantitative Easing, part II”.
That would mean another $600 billion in crisp, newly minted bills to purchase securities:
NEW YORK (Reuters) – The U.S. economy is expected to grow only modestly through next year, despite the Federal Reserve’s pledge to buy another $600 billion of government bonds and better signs in the job market, a Reuters poll showed.
U.S. gross domestic product (GDP) will grow at a 2.0 percent annualized rate in the current quarter, the same pace as the third quarter and unchanged from the consensus last month, according to the median forecast from almost 70 economists.
Growth is expected to accelerate to an annualized 2.2 percent in the first quarter of next year, and 2.5 percent in the second quarter of 2011, also unchanged from the last poll.
“We expect that the Fed’s new large-scale asset purchase program — dubbed QE2 — will likely boost growth only modestly, perhaps by 0.2 percent to 0.3 percent in 2011,” said Richard Berner, chief U.S. economist at Morgan Stanley.
Berner added that QE2 ought to help limit downside risks to both growth and inflation. The Fed said last week it could make further purchases beyond the middle of next year if it deems that necessary.
The first round of QE totaled about $1.7 trillion. Add in QE II, and we’re looking at over $2 trillion in newly printed greenbacks, in an economy whose GDP is approximately $14 trillion.
Think about that for a moment–the Federal Reserve has created about 16% of the total US GDP’s worth in new currency, right out of thin air. I’m certainly no expert in monetary policy, but that gives me an uneasy feeling. In fact, that should scare the bejesus out of us all.
UPDATE. What happens when the Federal Reserve shifts the printing press into overdrive? You get
too many a lot of greenbacks floating around the world, and when that happens, the value of the dollar heads south. And when that happens, you get a boom in gold. (It’s almost as if the Feds are purposely trying to destroy our currency. That, or they have no clue what they’re doing.) If anything, Glenn Beck is guilty of honesty in advertising.
UPDATE. Welcome The Other McCain readers…