New York Times: Benefits of Fed's QE2 Program "surprisingly small"

Last November, the Fed decided to generate about $600 billion in cash "essentially out of thin air," as The Washington Post explained at the time, and, through a complicated process known as quantitative easing, use that money to buy bonds and thus pack the coffers of 18 of the world's largest banks. The idea, according to Fed boss-man Ben Bernanke, was to support the economy by lowering mortgage and corporate bond rates and thereby encouraging investment. So: Fed gives money to banks, something else happens, then: Jobs! Not surprisingly, the banks seem to have come out of this OK. Everyone else? Not so much, reports The New York Times

Most Americans are not feeling the difference, in part because those benefits have been surprisingly small. The latest estimates from economists, in fact, suggest that the pace of recovery from the global financial crisis has flagged since November, when the Fed started buying $600 billion in Treasury securities to push private dollars into investments that create jobs.

As the Fed’s policy-making board prepares to meet Tuesday and Wednesday — after which the Fed chairman, Ben S. Bernanke, will hold a news conference for the first time to explain its decisions to the public — a broad range of economists say that the disappointing results show the limits of the central bank’s ability to lift the nation from its economic malaise.

Is anyone really surprised? Paul Krugman isn't: As with the stimulus, he thinks this round of quantitative easing might have worked better if it had been bigger, badder, more sure of itself. If only our current administration had just had a little more confidence in rolling out big-dollar, untested economic programs. 

I'm not surprised either, though. This was a risky policy from the beginning, and never likely to have a substantial stimulative effect, if only because it ends up as a sort of game of stimulus-telephone: Give truckloads of money to big banks and hope they pass it along to the next guy, who passes it along to the next guy who, if things go well, eventually uses at least some of that money in a productive way that filters out into the larger economy. But it turns out that, as with most games of telephone, by the time you get to the end of the line, the signal's weak and garbled. 

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • ||

    She did this back in November in a speech at Phoenix, which the Wall Street Journal, in a laudatory editorial at the time, characterized as zeroing in on the connection between a weak dollar and rising prices for oil and food. “We don’t want temporary, artificial economic growth brought at the expense of permanently higher inflation which will erode the value of our incomes and our savings,” the Journal quoted Mrs. Palin as saying. “We want a stable dollar combined with real economic reform. It's the only way we can get our economy back on the right track.” Now here is the New York Times quoting a raft of economists who have reached the conclusion that Mrs. Palin’s warning was right down the line.

    http://www.nysun.com/editorial.....fed/87317/

    Remember Palin is the dumb one and Bernarke and Krugman are the geniuses. Bernarke ought to be in jail for criminal negligence.

  • ||

    Helicopter Ben is not guilty of negligence.

  • DJF||

    No he is not, he is the chairman of the Federal Reserve Board and the Federal Reserve is a private/government banking cartel whose job it is to protect the big bankers which control the cartel and that is what Bernake did. If he has to sacrifice, small banks, non-politically connected businesses, US taxpayers, and the general economy to accomplish this job then that is what needs to happen

  • Sudden||

    In which case he's still guilty of negligence. When inflation really hits the dubious levels of the late 70's, it is debt-holders like banks that really feel the sting. Debtors ultimately benefit, hence the US Govt is still the Ben Bernank's client #1.

  • Scooby||

    "Negligence" would imply that it wasn't intentional.

  • ||

    Exactly. Liberal economics can be summed up in one overarching statement:

    At the end of the day, creditors must loose.

    Whether its through 'devaluation,' a re-reckoning of benefits paid after the premiums were collected, default, whatever. That is the end-game for every liberal scheme economically. Just as Keynes admitted, in the long run we're all dead so if you can dodge the creditor until then, you 'win.'

    Of course this assumes you are a raging homosexual like Keynes or otherwise not one with children, and therefore maybe you give a shit about the day after you die.

  • Victoria||

    Helicopter Ben is not guilty of negligence.

    Sorry, I thought you said négligées.

  • yonemoto||

    A broken analog clock is more accurate than a digital clock slaved to a random number generator.

  • mr simple||

    " The instant this random number generator reaches zero, you'll be executed."

    "10, 3, 12, 3 again..."

  • Montani Semper Liberi||

    When we finally reach Zimbabwe levels of inflation, I nominate that the new currency be called a Krugman in honor of our nation's greatest economic mind.

  • ||

    I have stopped believing that these people are just stupid. I think they are malevolent. I think they got themselves into a lot of trouble with the real estate bubble and qualitative easing and the stimulus is their way to get out of trouble at everyone else's expense.

  • Brett L||

    Not malevolent, just selfish. The only way to fix the problem is to crash the economy for about 8 months and have a contraction while all the bad money gets driven out. Greenspan could have done it in 2003 or so, when he should have started raising the interest rates according to all monetary theory. At this point, they'd rather rearrange deck chairs and captain the Titanic for another couple of years until they can get back to the private sector.

  • Red Rocks Rockin||

    The only way to fix the problem is to crash the economy for about 8 months and have a contraction while all the bad money gets driven out.

    That's the real Ogre's choice--die fast or die slow. Politicians and their media enablers didn't want to undergo an extremely sharp Harding-style recession after dotbomb blew up, because they were too afraid there would be no real recovery. So they've been papering it over and making the long-term problems worse for the last 11 years.

    The next crash has the potential to break things down completely, because there's no actual mechanism to restore the real economy in this country on a scale that will employ 150 million people at the kind of wages the left thinks we should get paid. We've essentially run a shopping-mall economy since Ford was president, based on ever-increasing credit ramps, because our overseas competitors finally caught up with us and offered a more amenable climate for manufacturing than the US could provide. It's been a decades-long game of "kick the can" ever since.

  • ||

    Since 1972, actually.

  • yonemoto||

    I don't think they are selfish so much as not knowing when to stop saving face . It's like they are trying to be chinese or something.

  • Fappy McFee||

    Japanese, actually.

  • ||

    I agree. The only way to keep this shit from happening again and again is for the perpetrators to be finacially destroyed. I don't care if it harms me indirectly. I'll be a lot better off without a bunch of plutocrats constantly printing themselves fresh money at my expense.

    FIRST the Fed buys their crappy MBS, and then it buys their bonds. This is outright theft. The banks are private entities. The government is simply printing dollars and handing them over to private parties. It is absolutely fucking immoral and a violation of the most basic precepts of a free market. The government cannot simply print money and GIVE IT to rich people.

  • ||

    Hey! They have to pay it back! Interest not so much, but it's only fair because the banks stopped charging interest on loans and credit cards. Right?

    This is the time to simultaneously open a bank and 'friend' key government officials. Even I could make money borrowing at 0% and lending at 5% with collatoral or 10% without. And if I go bust who cares? I'll just borrow more.

  • cynical||

    How long did it take to figure that out? I would have thought TARP made it blatantly obvious.

  • Rrabbit||

    I agree that they are malevolent, but I disagree with the rest. They are robbing the taxpayer because they are getting away with it. Whether they got themselves into trouble with the real estate bubble is immaterial.

  • ||

    qualitative easing

    I know this is a typo but it's actually a much more apt description of QE.

  • ||

    Yeah, that's not bad actually.

  • ||

    Krugbucks.

  • Restoras||

    A+++

    May as well indulge in grade inflation as well.

  • Daddy Krugbucks||

    Stoodant Lones 4 Everiwon!!!!1!!1!11!!

  • Trespassers W||

    Krugerrand.

  • ||

    Krugbucks.

    Just go all the way and call it a Krugnut.

  • Bill||

    They won't allow that to happen. They can simply redefine inflation to say that we don't really have any.

  • Restoras||

    I can see it now, the revised basket of goods in the CPI excluding everything people need (food, fuel, clothing) to reduce the messy variance that inflation-sensitive, staple commodities are susceptible too, and only include stuff that people don't need but always go down in price, like iPads, cell phones, HD televisions.

    Does Baghdad Bob need a job?

  • Gilbert Martin||

    "They can simply redefine inflation to say that we don't really have any."

    They've been doing that for years already.

    The "official" CPI is a bigger work of fantasy that "Game of Thrones"

  • Sniktpool||

    ^This

  • ||

    Is there anything in government more mysterious and terrifying than the opaque workings of the Fed? It's as if there were public health officials charged with adjusting the water supply with either Ecstasy or Xanax depending on the desired behavior of the populace...

  • Spoonman.||

    This is an excellent analogy and I will use it liberally.

  • yonemoto||

    another analogy (from my financial publication friend):

    "Maybe a better way to think about it is between Malaria and Syphilis. The Fed monitors the sexual economy by tracking the incidence of syphilis. When syphilis outbreaks get too high, the Fed infects the population with malaria, which quite effectively kills syphilis. Once syphilis gets to acceptable levels, the Fed gives out lube to everyone."

  • ||

    No, it's not like that at all. All that malaria, syphillis and lube stuff is just there so you'll thing there's a scientific rationale for having them fuck you in the ass.

  • ||

    It is not really that mysterious or opaque.

    In a nutshell, they are printing money and handing it over to private hands.

    Like if we're playing monopoly, and I'm the "bank", and I just decide to give my self a few extra $500 bills because I've just spent all my money building hotels on Ventner, so I can't afford to pay you.

  • Amakudari||

    Clearly this policy failed because government stimulus spending and expectations of such spending decreased. The solution is more stimulus.

  • squarooticus||

    Economic growth, stability, and jobs...

    ...
    ...
    ...

    Economic growth, stability, and jobs purple monkey dishwasher.

  • ||

    We'll show you, squarooticus. Especially for that purple monkey dishwasher remark.

  • Fluffy||

    QE2 was a smashing success.

    It was designed to devalue everyone's dollar holdings in order to prop up asset prices for existing asset holders.

    That's it.

    It only looks like a failure if you judge it by its stated goal, which was never really its goal.

  • ||

    I disagree, Fluffy. Asset price inflation is merely a secondary issue.

    The real purpose was to monetize the federal debt and to keep the carrying cost of the federal debt low.

    Clearly, injecting working capital into the economy was never a serious goal. Else why would they have cracked down on business lending by banks at the same time?

  • Mike M.||

    This. This stuff is the setup for what we're inevitably going to be hearing pretty soon, which is "it worked OK, but not quite as well as we hoped, which is why we've decided we need to launch QE3".

  • ||

    They can't stop now. If the Fed were to exit the Treasury markets, rates would spike, oh yes they would.

    Our current bottom-bouncing "recovery" would find a new bottom.

    Tens/Hundreds of billions of value would be lost as existing Treasury portfolios took the hit.

    A big new hole would get blown in the budget as carrying costs for our current debt goes up.

    Mark my words: The Fed cannot stop buying Treasuries, and certainly can't resell any of its current bloated Treasury portfolio. They won't call it QE3, but QE is here to stay.

    Fun fact: QE2 does not, actually, have a deadline. The supposed end of the QE2 program was actually a "no earlier than" date, meaning they promised to run QE2 until at least this summer, not to end it this summer.

  • Mike M.||

    Our insane government has run our deficits so damn high, I'm not certain that they could borrow all the money they needed without the Fed right now even if interest rates were in the double digits.

  • ||

    They got the hammer and know how to use it. Determining what's a nail and what's the top of your head, not so much.

  • ||

    I need to join a union. This ninety-hour workweek shit should be illegal.

  • ||

    The real purpose was to monetize the federal debt and to keep the carrying cost of the federal debt low.

    RC is correct!!

    It was designed to devalue everyone's dollar holdings in order to prop up asset prices for existing asset holders.

    Fluffy is correct as well as this is the reason why existing asset holders did not bitch about it.

  • Bill||

    In my local paper, this was a page 11 story. Of course when they implemented it, it was a page one story for weeks.

  • ||

    On some level, I do think the Fed actually believes the bullshit that they need to bail out the big banks, because otherwise there will be nobody to lend money to anyone else.

    I don't think they take seriously the idea of growing capital at the lowest level. They really think that without a small group of extremely rich people to lend money to everyone else - very specific rich people - that the economy could not function.

    The economy may be being run by capitalists, but not ones who actually believe in capitalism. We're being run by Ralph Nader's committee of super-rich people who think they can save the world.

  • ||

    "Who changes their game plan when they're only 40 points behind? Wake me when we're 60 points behind and all my players have fouled out."
    Ben B. overheard from outside the can at the NY Athletic Club.

  • Jerry||

    Isn't economics a great science. If $600 billion was not enough, you can always claim that $1500 billion would be enough. If $1500 billion was not enough, you can always claim that $2500 billion would be enough. Etc. Etc.

  • ||

    Well we know that Jerry at least has spent a semester at the "Paul Krugman School for the Proposal of Non-Falsifiable Solutions".

  • Bill||

    The other day Krugman was also saying "since when did patients become consumers". This alone tells you he has forgotten or never understood the most basic things about economics. He wants to treat medicine as an entity outside the price system and as if the "law" of unlimited wants does not apply. What a buffoon.

    If you read the NY Times article by Binyamin Appelbaum, while it does try to give an overall balanced report, is still full of unexamined assertions such as "inflation, which is beneficial in moderation", and "emulated Japan's central bank in 2001, which ..... to break a deflationary cycle".

  • Fluffy||

    It would really amuse me if in some future America they figure out that deflation is actually a great thing, that it's a critical part of the business cycle, and they look back to our fear of it and regard us the way we regard people who used to think anesthesia was a sin or that the Earth was flat.

  • ||

    We had steady deflation though most of the 19th century and it turned out okay. Mostly they point to the 1930s as an example of the horrors of deflation. But, our economy looks nothing like that now. We have way too many transfer programs and way too large of a government to ever fall into a liquidity trap like that.

  • roystgnr||

    More likely, deflation is a critical part of *damping* the business cycle. We want less demand during the boom times and more during the busts, right? But that could be happening *naturally*. People should have incentive to save up their dollars by avoiding overpriced boom-time products and investments, then spend those savings after waiting for the bust-time sales and market dips. Only one little catch: as long as we keep printing more dollars and inflating away the value of the ones you might save, there's never much sense in saving them.

  • ||

    But if people don't spend recklessly during the boom times, we'll never get to the projected growth rates that we need to avoid a fiscal apocalypse in Social Security and Medicare. Didn't you see those CBO charts? We were supposed to grow at 5% annually and everything would be fine! Spend! Spend!

  • Fluffy||

    I meant more in terms of raising the middle class standard of living, which is what all these guys claim to want to do.

    Is it a coincidence that after the 30's deflation, we had a huge increase in middle class living standards, but now that the cognoscenti have determined that deflation must never be allowed to occur again, those living standards have stalled at their 70's level?

    I think the mechanism here may be:

    Wages are stickier than prices.

    Widespread price deflation enhances the economic position of the middle class, because their wages decline less than prices decline.

    When the deflation ceases and normal growth resumes, the middle class resumes its ascent from a higher baseline.

    Those members of the middle class who get crushed by a deflation [read: debtors] clear the decks by bankruptcy or asset surrender, but still possess the education and skills to earn middle-class incomes when growth resumes.

  • robc||

    Where is Draco?

    Barro was right again, you moran.

  • ||

    Wow, this sounds like a pretty good plan dude.

    www.how-to-be-anon.at.tc

  • ||

    The sad fact is that, though deserving to swing from a lamp post, the Bernanke will probably quietly resign "to spend more time with his family" as the inflation continues to cut into The Obama's chances of re-election.

    Beans, Ammo and Gold.

  • ||

    This was about helping to recapitalize the banks more than anything else "pro-growth" for the rest of us commoners.

  • ||

    Else why would they have cracked down on business lending by banks at the same time?

    But there's plenty of money for "qualified" borrowers. I heard that on the teevee.

    And-

    I saw a truly weird and disconcerting commercial from the Board of Realtors Scumbags, about housing and its influence on the economy. I think they were saying, "We sort of believe in financial regulation reform, as long as it doesn't prevent another housing bubble."

    Anybody else?

  • Sudden||

    But there's plenty of money for "qualified" borrowers. I heard that on the teevee.

    Uncle Scam is getting money too... I don't think the money is restricted to "qualified" borrowers.

  • ||

    Hmmm.... housing drive the economy ... but nobody can afford houses ... but we can't let asset prices fall ...

    What to do? What to do?

    Oh! I know! We'll just lossen lending standards, so when poorer people are getting bigger and bigger loans from the banks, we'll say that means housing is more "affordable". So people can keep building new houses, and the value of their houses can keep rising, and the economy can keep growing.

    What could go wrong?

  • ||

    You're just not hitting it hard enough!

  • dead horse||

    Fuck you!!!

  • Otto||

    Paul Krugman isn't: As with the stimulus, he thinks this round of quantitative easing might have worked better if it had been bigger, badder, more sure of itself.

    "MOAR DOLLERS! It'll work if you do it harder!!"

  • Sudden||

    When you break him down to his simplest proposition, Kruggy does sound just like a dirty porn star.

  • Otto||

    Crap. I need to refresh prior to posting.

  • robc||

  • Fiscal Meth||

    Here are a few things you can completely count on.

    1.The government will always offer Keynesian solutions when faced with economic problems caused by their last Keynesian solutions to the preceeding economic problems caused by the preceeding Keynesian solutions...all the way back to Keynes himself.

    2.They won't work

    3.The New York Times will be surprised that they didn't work.

  • Jersey Patriot||

    My thinking is this:

    1. QE2 is scheduled to end in June.
    2. The Fed will end in June.
    3. The economy immediately begins tanking.
    4. Treasury begs for more QE, as does a huge swath of Congress.
    5. The Fed restarts QE bigger than before, economy stabilizes at new, lower activity level.
    6. Commodity prices, which tank after QE ends, rocket to new highs. Stocks do the same but not as much.

    This is somewhat similar to what happened late last summer before QE2 started. The Fed is the only thing holding the economy together at this point, and they know it.

  • yonemoto||

    The Fed is the only thing holding the illusion of the economy together at this point, and they know it.

    FIFY.

  • ||

    If by "holding the economy together" you mean "shovelling money at rich people, so they can lend some of it to the poor".

  • ||

    The Fed is the only thing holding the economy together at this point

    We're DOOOOOOOOOOOOMED!

  • ||

    Tens/Hundreds of billions of value would be lost as existing Treasury portfolios took the hit.

    Hence PIMCO's exit (as they were busily cheering the Fed on).

    And I can't help laughing when the Shrieks of the world say, "The Fed is MAKING A PROFIT! They're geniuses."

  • Vermont Gun Owner||

    Let me mime what it's like to carry a very small child around.

    Good work. Sleep well. I'll most likely kill you in the morning.

  • ||

    You know, I could live with the devaluation of the currency, if the freshly printed money was being evenly distributed across society.

    But it's all going to the banks, who represent the richest people in the world.

    If they dropped it from helicopters over urban areas it would have the same effect without the fucking immoral consequence of redistributing wealth from the poor to the rich.

  • prolefeed||

    Oh, they ARE dropping it over urban areas.

    Well, area. Urban Manhattan.

  • ||

    The latest estimates from economists, in fact, suggest that the pace of recovery from the global financial crisis has flagged since November, when the Fed started buying $600 billion in Treasury securities to push private dollars into investments that create jobs.

    Investors responding to QE1...QEn by dumping dollars into fixed-amount commodities like silver, gold, and oil, rather than more macroeconomically productive investments might have something to do with that.

    And no, to clarify for outsiders, I'm not blaming the investors.

  • ||

    Dow measured in ounces of silver during the great recovery bull market the financial press is ballyhooing.

  • EscapedWestOfTheBigMuddy||

    I liked it better when QE2 was an old cruise ship.

  • ||

    If the NYT is claiming that there's any benefit at all to the economy as a whole from Helicopter Ben's latest euphemism for counterfeiting, they're lying through their teeth.

    -jcr

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Progressive Puritans: From e-cigs to sex classifieds, the once transgressive left wants to criminalize fun.
  • Port Authoritarians: Chris Christie’s Bridgegate scandal
  • The Menace of Secret Government: Obama’s proposed intelligence reforms don’t safeguard civil liberties

SUBSCRIBE

advertisement