What Bernanke Really Did Yesterday
So yesterday Bernanke finally announced QE3. Stocks shot up; ditto gold, silver, etc. OK, we know all that. How about we focus on what's really important about yesterday's announcement.
First and foremost, as opposed to QE1 and 2, this bond-buying program has no limit. Before you had a target dollar amount of buying. Not now. Now the Fed says they'll keep buying bonds until they see the economy recover. How long with that take? No one knows.
Remember that what the Fed is doing is a form of printing money. Money printing leads to inflation. Oh sure, they say they'll be able to control inflation before it gets out of control. But they always say that. Tell me this: how will they know that the economy is recovered enough to stop the money printing? Also, please tell me how they will know exactly when and how forcefully they will need to act to stop the inevitable inflation that follows money printing?
Of course, we could debate this endlessly. So how about we move on to two aspects of this decision I think it's important to point out. These are my own thoughts and you may disagree. But here goes:
First, I'm thinking that Bernanke's making a play to be re-nominated by helping Obama's re-election campaign. Remember that Romney announced he wouldn't re-hire Bernanke. I thought it was a foolish comment at the time, precisely because of what just happened.
Did Bernanke have to announce QE3 right now? Couldn't he wait until after the election? By announcing now, we may get a big stock market rally and we may get people feeling like things are getting better, and we may then get people voting for the folks responsible for things getting better - the current crew in Washington.
I'm not saying things will actually get better. But by the time people find that our, the election will be history.
Second, I'm thinking that maybe the Fed is scared to death. Their first two attempts at QE haven't straightened out the economy. Is there some reason to suppose this attempt will? On what do they base their reasoning? It's not clear to me? Is it to you?
So if Bernanke isn't playing politics here, maybe he's just getting nervous and feels he's got to "do something" to avoid...well what? Are they seeing the economy on the verge of falling off a cliff.
Then again, maybe the Fed Chairman is playing both sides of this. Maybe he's trying to make sure he keeps his Fed Chairman job as well as covering himself by "doing something" in case the economy really is in a lot bigger trouble than the Fed and the government are letting on.
None of this sits very well with me.
First and foremost, as opposed to QE1 and 2, this bond-buying program has no limit. Before you had a target dollar amount of buying. Not now. Now the Fed says they'll keep buying bonds until they see the economy recover. How long with that take? No one knows.
Remember that what the Fed is doing is a form of printing money. Money printing leads to inflation. Oh sure, they say they'll be able to control inflation before it gets out of control. But they always say that. Tell me this: how will they know that the economy is recovered enough to stop the money printing? Also, please tell me how they will know exactly when and how forcefully they will need to act to stop the inevitable inflation that follows money printing?
Of course, we could debate this endlessly. So how about we move on to two aspects of this decision I think it's important to point out. These are my own thoughts and you may disagree. But here goes:
First, I'm thinking that Bernanke's making a play to be re-nominated by helping Obama's re-election campaign. Remember that Romney announced he wouldn't re-hire Bernanke. I thought it was a foolish comment at the time, precisely because of what just happened.
Did Bernanke have to announce QE3 right now? Couldn't he wait until after the election? By announcing now, we may get a big stock market rally and we may get people feeling like things are getting better, and we may then get people voting for the folks responsible for things getting better - the current crew in Washington.
I'm not saying things will actually get better. But by the time people find that our, the election will be history.
Second, I'm thinking that maybe the Fed is scared to death. Their first two attempts at QE haven't straightened out the economy. Is there some reason to suppose this attempt will? On what do they base their reasoning? It's not clear to me? Is it to you?
So if Bernanke isn't playing politics here, maybe he's just getting nervous and feels he's got to "do something" to avoid...well what? Are they seeing the economy on the verge of falling off a cliff.
Then again, maybe the Fed Chairman is playing both sides of this. Maybe he's trying to make sure he keeps his Fed Chairman job as well as covering himself by "doing something" in case the economy really is in a lot bigger trouble than the Fed and the government are letting on.
None of this sits very well with me.
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