The Other McCain

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Of Course, There Will Be No QE3

Posted on | July 13, 2011 | 8 Comments

by Smitty

Ed Morrissey at Hot Air seems to think that there will be another round of quantitative easing, but then explains why it won’t happen:

The “era of easy money” will have to come to an end at some point. As QE2 demonstrated, Fed monetary policy at the extreme of “easiness” has almost no impact any longer on investment or growth. It serves only as a backstop against deflation. Because the cost of money is now as close to zero as possible, the Fed can no longer provide short-term boosts through temporary reduction of interest rates. That makes them all but powerless, especially with an administration that has pursued anti-growth strategies for the last two-plus years in regulatory expansion and signaling of higher taxes.
If the Fed starts to pull cash out of the economy, interests rates will rise, which will make investment even more costly. It won’t bring us back to the stagflation of the Carter years, when inflation and interest rates skyrocketed, but the stagnation and unemployment will start to calcify in the absence of a reversal of economic policy from Washington.

By the time inflating the currency can no longer be avoided, there will be a new term. It will still be theft, you understand, but it will probably not be called ‘Quantitative Easing’. The problem is not the money supply; rather, giving vast power to a small number of un-elected officials. All we have to do is have those un-elected officials break out a new term, say, ‘Measured Flexibility’, and it’s all good.
Even less likely than QE3: political candidates with the courage to reform this over-centralized system. In my perfect world, the 49 states other than North Dakota would form their own banks, take responsibility for the housing and education loans connected to citizens residing in them, and the century of federal over-reach marked by the Federal Reserve would begin to wind down.
But no, we’ll just continue to stumble from verbal magic wand to magic wand, frantically expending charges like we’re in some lousy game of Economic Dungeons & Dragons. Or maybe World of Economic Warcraft.
What a pile of hooey.

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