Monday, November 15, 2010

Waiting for QE3

A couple weeks ago, the Federal Reserve under Chairman Ben Bernanke announced plans for a second round of "quantitative easing," which quickly became known as "QE2" for short. The plan involved pumping $600 billion into the economy. The idea behind "quantitative easing," officially, is to lower interest rates for two purposes:
  1. To promote job growth, something that the United States desperately needs and that the Obama administration has continually failed to deliver;
  2. To avoid deflation
I won't argue with the concept of job growth. We need jobs here in the United States. Unemployment remains above 9%, and many unemployed will soon reach the end of extended unemployment benefits. However, the concept of avoiding deflation is absolutely absurd. Has anyone noticed any real deflation in this country? I constantly see prices going up. It costs more to travel, it costs more to eat, and it costs more to buy clothes. And just look at precious metals. The price of gold, silver, and platinum have skyrocketed. (On a stock / finance note -- if you're NOT invested in precious metals, you've been missing out.) For many, we are paying more than ever before in taxes. Sure, some products have come down in price, but this is limited to technology products which are introduced at high prices and then come down to more "mainstream" prices as newer technologies come out.

If you go out on the street (and I'm talking Main Street, not Wall Street) and ask people what "quantitative easing" is, most people don't know. The Federal Reserve is using complicated financial terminology in order to hide what "QE2" really is: the printing of more money, which devalues the U.S. dollar, and makes the money that Americans have worked hard to save worth less.

It seems that whenever times are tough, the government moves forward with plans that involve pumping in more money. If the $600B doesn't do the job, then their next idea will probably be to move forward with "QE3" and pump another $600B (or more) into the economy, devaluating the American people's savings even more.

You cannot solve all problems by simply throwing money at them. Zimbabwe tried this. They ended up with, according to their own government, over 230,000,000% inflation. (Forbes estimated the inflation to be so much that to express the figure, you need to use scientific notation - 6.5x10^108%.) Using the government's numbers, that means that a person with $2,300,000 ended up with their millions being worth just $1 in a matter of a few years. Do I think the Federal Reserve would be as irresponsible as Zimbabwe's Central Bank? No. Do I think President Obama is as foolish as Zimbabwe's Robert Mugabe? No. But simply printing money up isn't a long-term solution that can solve our country's economic problems.

1 comment:

  1. Quantitive easing was a bad idea.