Stop Printing Money
The Fed: The nearly $1.7 trillion in new money printed by the central bank to ease the financial crisis didn't do much good, and its new plan for "quantitative easing" won't work much better.
We have largely supported the Fed's efforts to keep financial markets from imploding. But we believe the central bank's recent hints that it will begin a second round of quantitative easing - dubbed QE2 - don't make sense and will put the economy's soundness at risk.
A little history: In March 2009, the Fed began its "shock and awe" quantitative easing, buying up nearly $2 trillion in Treasury and agency debt in a year. It didn't work.
Official interest rates had already been slashed to zero, yet companies weren't borrowing. Even as the first round of quantitative easing ended in March of this year - and nearly a year after the recession ended in June of 2009 - the economy sputtered.
Today, despite TARP, the "stimulus" package and the Fed's best efforts, the economy is still sputtering.
Just last week, the Fed stated that inflation was below the level "most consistent, over the longer run, with its mandate to promote maximum employment and price stability.
The remarks made clear the central bank fears deflation and a double-dip recession. So, throwing caution to the wind, it's gearing up to buy another $1 trillion or so of Treasury and agency debt.
But this isn't stimulus. You can't print $2.7 trillion in new money and not have it distort markets. This is the kind of thing that got us into trouble in the first place. We shouldn't do it again.
Plenty of money is available to fuel economic growth. Businesses themselves have a record $1.8 trillion in cash and equivalents on hand, and banks have nearly $1 trillion in reserves that can be used to back up loans.
As we've noted and surveys repeatedly show, businesses have stopped investing, expanding and hiring not because they can't get loans, but because they're tired of being targeted and demonized by the most anti-business administration and Congress in history.
They dread the fiscal and regulatory assaults that await them in coming years - including a badly designed financial reform law, President Obama's health care takeover, a looming entitlement crisis and the possible expiration of the Bush-era tax cuts.
What business would expand in such a policy environment?
Printing more money at the Fed won't change this. But it will cause prices to rise and create new bubbles. What we need is less government spending and lower taxes, not more funny money.
