As most Americans, if not the financial media, are aware, Quantitative Easing (a euphemism for printing money) has failed to bring back the US economy. So why has Japan adopted the policy?
Since the heavy duty money printing began in 2013, the Japanese yen has fallen 35% against the US dollar, a big cost for a country dependent on energy imports. Moreover, the Japanese economy has shown no growth in response to the QE stimulus to justify the rising price of imports.
The US economy is on the road to recovery, right? That’s what all the economists and financial analysts say. Unemployment has dropped down to 8.3%, unemployment claims are now at a level last seen in 2008 before the economy fell off a cliff, almost all the TBTF banks have just passed the recent Fed stress tests and are now allowed to use their excess capital to pay dividends and buy back their stocks, inflation is tame if you go by official government statistics (especially core inflation that the Fed loves to look at because it removes the effects of food and oil price increases), and finally all major economic indicators are flashing green lights.
So why is Ben Bernanke saying that zero interest rates and his endless stream of quantitative easing programs are still essential? You would think the Fed would grab at any opportunity to pare back its balance sheet and restore interest rates to a more normal level. Several Fed officials have asked that same question. When Ben Bernanke was giving his speech yesterday in defense of his policies, Philadelphia Fed President Charles Plosser was giving an entirely different speech arguing that central banks should not have unlimited authority to expand their balance sheets, because all that does is enable their governments to rack up larger deficits. Another Fed President, Richard Fisher of Dallas, has said QE3 is unnecessary and is simply not going to happen, no matter what Wall Street wants.
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