Clause 61: The Pushback Blog

Because ideas have consequences

Questions for Ben Bernanke

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The American Enterprise Institute published a list of ten questions that they believe Congress should ask Ben Bernanke: http://www.aei-ideas.org/2013/07/10-questions-congress-should-ask-bernanke/. The questions center on whether the Federal Reserve should adjust its rate of quantitative easing (QE), which is less euphemistically known as inflating the monetary base.

An interesting entry among the questions is:

Mr. Chairman, what does success for QE look like? First quarter GDP growth was revised downward to 1.8%. Only modest growth is expected for the next half of the year. What is your proof that QE continues to work?

This begs the question: What is QE meant to do? What is the definition of “continues to work”?

If QE is meant to stimulate the economy, it hasn’t succeeded. There has been growth in the monetary base, but because lending is constrained, there has not been the multiplier effect that would have resulted in economic expansion. This is a mixed result, as the resulting inflation would have choked off any recovery in its crib.

If QE is meant to clear the books of US lenders of toxic assets, it is a tremendous backdoor transfer of wealth from the public to the banks.

If QE is meant to monetize the public debt, it appears to be losing a race with the creation of public debt.

What is the success model here?

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Written by srojak

September 30, 2013 at 12:09 pm

Posted in Economics

Tagged with ,

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