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Recovery: The media have busied themselves with touting the big economic rebound they see brewing in the U.S. We hope they're right. But if they are, why is the Federal Reserve getting ready to print even more money?
The media argument goes like this: After years of struggling, the economy is finally churning out jobs. Last month alone there were 200,000 new ones, with unemployment falling to 8.5% — its lowest since Obama entered office.
This comes as a variety of U.S. economic sectors begin to show signs of life. And as they report this, the mainstream media can barely conceal their glee at the idea that Republican candidates might have to run against President Obama during an economic boom.
Boom? Well, the Fed doesn't see it that way.
Alarmed at the economy's slow pace, the ongoing slump in housing and the threat of European debt defaults, the central bank is preparing a third round of "quantitative easing" — the monetary equivalent of a defibrillator paddle placed on the economy's chest.
This is rather strange, given that the previous two attempts — QE1 and QE2— did little to help the economy. Indeed, those efforts may have so distorted markets and interest rates that they held back the recovery.
But say this for the Fed: It didn't sit on its hands. In those first two QE efforts, it bought $2 trillion of government-backed mortgage securities and federal bonds.
The Fed's idea behind this was to hold down interest rates and boost housing — a necessary prelude to reviving the entire economy. Only problem is, it didn't work.
Even with interest rates today below 4%, housing experts expect prices to continue to soften in 2012, and see mortgage lending falling to its lowest level since the '90s. Mortgage defaults are up, and housing's share of the economy has already dropped nearly 20% since 2005 to about 15% of GDP, according to industry data.
Worse, just-released minutes from 2006 Fed meetings show central bankers had no clue the U.S. was about to be hit by a housing tsunami of epic proportions. If they couldn't predict the future then, why should we have faith they can now?
Given its past failures, the Fed should resist the temptation to print more money. Stand pat. As the joke goes, "don't just do something, stand there."
As we've noted before, our slow growth is now a fiscal problem, not a monetary one. It's a function of too much government and surging debt, which have destroyed business and consumer confidence.
Just Thursday, Obama sought another $1.2 trillion in debt, pushing his total since 2009 to $6.2 trillion. Big government is out of control, and the people know it.
More Fed meddling and Obama stimulus won't help. Rather than another round of quantitative easing, the Fed and the White House should heed the physician's credo — First, do no harm. That's the best policy of all.
Politics: The day after the president announces he would reward businesses that bring jobs into the U.S., the Chamber of Commerce asks: What about the pipeline from Canada that would bring both jobs and energy? The irony was mind-boggling when President Obama addressed a group of business leaders ...
Trade: While claiming to hate banks, Occupy protestors have a creepy penchant for disrupting sea traffic. Their new plan is to halt ships in Washington state. Now Coast Guard escorts are being called in. It's not enough. This is piracy. It's time elected leaders interested in a functioning economy ...
Business: After pushing through one of the largest expansions of government in history, the president now claims he wants to streamline it on behalf of struggling businesses. Pardon us if we're skeptical about his sincerity. On Friday, Obama pushed Congress to give him the authority to reorganize ...
There's a very troubled company out there called U.S. Government Inc. It's teetering on the edge of bankruptcy. And it badly needs to be taken over and turned around. It probably even needs the services of a good private-equity firm, with plenty of experience and a reasonably good track record in ...
For Mitt Romney, it's the best of times and the worst of times. While his New Hampshire win brings him closer to the nomination, his campaign narrative against President Obama may be unraveling. The plotline is simple: With a comatose economy and stubbornly high unemployment, Romney's ...
Posted By: ActrFshr(160) on 1/16/2012 | 11:15 PM ET
The real QE1 was lowering of the fed funds rate from 6.50% to 1.25% between Jan. 2001 and June 2003, holding it there until June 2004, helping to create the housing bubble. In September 2007 that rate dropped from 5.25% to 4.75%, falling to near-0% in December, 2008. The FOMC was long accused of "keeping rates too low for too long" when they held the rate at 1.25% for 1 year. How much worse will we be after 3 years of ZIRP? 3 years and counting...
Posted By: niteski(2780) on 1/16/2012 | 4:55 PM ET
I agree, except QE1 did put in a floor and stopped the freefall.
Posted By: bobbygordon(8735) on 1/16/2012 | 1:10 AM ET
If the FED can manufacture a faux economic recovery and help Obama get reelected it will insure its continued existence for at least four years. The FED is hedging against the very real possibility that Ron Paul will be elected, audit the FED and end its existence. However unlikely you think this is it could happen especially when the country figures out that Romney is just a stuffed shirt, kept man of Wall Street who has no real accomplishments or conservative credentials.
Posted By: BradO(5970) on 1/15/2012 | 8:08 PM ET
The Fed will do everything they can to save the TBTF banks and the government power they were granted. They will destroy the dollar and all the purchasing power of your money so that it can be redistributed to the government and ultimately back to the big banks via income taxes. The Fed controls our money supply and is owned by the New York (& foreign) banks, not the US government. Filter everything in DC by how it benefits the big banks and you begin to understand it.
Posted By: ErikTheRed(185) on 1/15/2012 | 11:44 AM ET
Sadly, there's only one GOP candidate left that 1) even understands what this editorial is talking about and 2) realizes that having the Fed print money to finance deficits is *the exact same thing* as the "quantitative easing" described here. So you can either cower at the fearsome military might and prowess of Iran, a country with 0.7% of the military budget of the US, or take on the real threat - economic collapse here at home - and vote Ron Paul 2012.
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