T-minus 18 hours until the moment we have been waiting for. It seems like the only thing people have been talking about for the past month is Jackson Hole. (Can you believe that people actually care about something that is going on in Wyoming?) Everybody is hoping and praying that Mr. Bernanke will announce another round of quantitative easing. I have a few concerns.
1. If Quantitative easing 1 and 2 were so effective why do we need a third round.
2. If we get a third round of quantitative easing are we admitting that we are in/dangerously close to a recession?
3. With CPI (Consumer Price Index) and PPI (Producer Price Index) numbers increasing over the recent months can we afford any additional commodity inflation
4. Does anybody care that we are going to need to bring a a wheelbarrow's worth of one dollar bills to the supermarket to buy a loaf of bread? (I guess you could just bring some $100 bills but the wheelbarrow image is more amusing)
5. If countries all over the world are devaluing their currency at the same time doesn't it defeat the purpose of devaluing the currency?
I understand the argument that is made for quantitative easing. By lowering interest rates and putting more money in circulation people will borrow money to fund their business operations and people will be less likely to save their money (at least in a bank) because they are getting a negative real return (return % - inflation %). Banks will also have more money to loan out at a presumably higher spread. My problem is that the federal reserve might be insane (If you believe that insanity is doing the same thing multiple times and expecting a different result). QE1 didn't work so they tried QE2 and look where we are now. Can we reasonably assume that by doing the same thing again we will get a different result?
So what do I recommend? People much smarter than I am are grappling with this question and cannot seem to figure out what to do. I wonder what would happen if we left the economy alone. What if we went back to the days of laissez-faire capitalism and efficient markets. Before the days of "too big to fail" it was "the bigger they are the harder they fall". Instead of saving people from their own stupidity we should let them stew in it. We would have to go through some pain as country, but it would be a one time pain rather than a lingering injury. If banks take on too much risk and become insolvent let them fail. If automobile manufacturers can't turn a profit because they are paying the majority of their revenue to past and present workers as benefits then let them fail as well. (I know this is a union issue but we can save that for another rant...) Just please stop throwing good money after bad trying to save companies from themselves. Who knows if you let the behemoths fail you just might find a more efficient marketplace. Smaller companies will have to compete for the large influx of customers thus driving the prices down. The downside is that investors could lose a whole bunch of money and people will lose their jobs leading us into the depths of a recession. Oh wait, how is that different than were we are right now?