Welcome to QE4!
The actions of the Federal Reserve over the past 4 years exemplify insanity more than anything else in politics. They continue implementing one monetary stimulus policy after another in an attempt to jumpstart the economy, even though they keep failing in that goal. We had QE1,2,3 and Operations Twist 1 and 2. Now the Fed’s Open Market Committee has announced a new monetary stimulus package that can only be described as QE4.
Evidently, the economy was recovering enough for Obama to win reelection, but not enough to end the market distorting, dollar-destroying stimulus from the unelected governors at the Fed. So not only will the Fed continue purchasing $40 billion in mortgage-backed securities per month, they will engage in another round of buying long-term treasuries:
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
Wait, haven’t we already tried this stuff before, and it failed to spawn a stronger economic recovery?
In addition to the bond purchasing, the Fed announced that it would keep the federal funds rate near zero….until unemployment dips below 6.5%! Unless the labor market shrinks to oblivion, the unemployment rate will never dip that low as long as Obama is president. And as long as we suffer from Obama’s taxation, regulation, and subsidization, thereby mitigating economic growth, his unelected acolytes will continue their monetary stimulus. So we will continue devaluing the dollar and depleting saving as far as the eye can see.
Something is fundamentally wrong when a completely unelected branch of government has such unilateral power to affect our savings, purchases, and currency without any recourse. Milton Friedman used to call it taxation without legislation. The sad thing is that they obdurately refuse to learn the lessons from previous failures to tinker with the economy. Nothing will change until we repeal the Fed’s dual mandate of destruction.
Cross-posted from The Madison Project