Quantitative easing is the buying of various securities to increase the money supply. In a round about way, this increases liquidity at banks, stuffs them with capital, which theoretically banks are then supposed to turn around and increase lending to regular people.
The amount of text written on FOMC meeting minutes is astounding. This is a conversation from a meeting almost a month old where no action was taken. In a game of Where's Waldo, people pour over the words, hunting for even a trace of more quantitative easing. This time they found it and pounced.
Here is the latest FOMC meeting minutes phrase that has quantitative easing addicts salivating and foaming at the mouth.
Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.
The problem, with this is taking comments out of context from meeting minutes. Some economic indicators improved after July 31st for one and the Fed is concerned about deterioration. Right after the above sentence is this:
Several members noted the benefits of accumulating further information that could help clarify the contours of the outlook for economic activity and inflation as well as the need for further policy action. One member judged that additional accommodation would likely not be effective in improving the economic outlook and viewed the potential costs associated with such action as unacceptably high. At the conclusion of the discussion, members agreed that they would closely monitor economic and financial developments and carefully weigh the potential benefits and costs of various tools in assessing whether additional policy action would be warranted.
In other words, beyond giving commodities traders and Gold bugs a buzz, for quantitative easing increases commodities prices, what really were the effects of the previous two rounds?
Creating a commodities bubble may be good for Wall Street, but the problem is Main Street. Unemployment is the crisis of our time, quantitative easing so far hasn't made a dent. Quantitative easing simply isn't the right policy prescription for the ills of the U.S. economy.
From the FOMC meeting minutes we see questions on what good quantitative easing really does.
Participants also exchanged views on the likely benefits and costs of a new large-scale asset purchase program. Many participants expected that such a program could provide additional support for the economic recovery both by putting downward pressure on longer-term interest rates and by contributing to easier financial conditions more broadly. In addition, some participants noted that a new program might boost business and consumer confidence and reinforce the Committee's commitment to making sustained progress toward its mandated objectives. Participants also discussed the merits of purchases of Treasury securities relative to agency MBS. However,
others questioned the possible efficacy of such a program under present circumstances, and a couple suggested that the effects on economic activity might be transitory. In reviewing the costs that such a program might entail, some participants expressed concerns about the effects of additional asset purchases on trading conditions in markets related to Treasury securities and agency MBS, but others agreed with the staff's analysis showing substantial capacity for additional purchases without disrupting market functioning. Several worried that additional purchases might alter the process of normalizing the Federal Reserve's balance sheet when the time came to begin removing accommodation. A few participants were concerned that an extended period of accommodation or an additional large-scale asset purchase program could increase the risks to financial stability or lead to a rise in longer-term inflation expectations. Many participants indicated that any new purchase program should be sufficiently flexible to allow adjustments, as needed, in response to economic developments or to changes in the Committee's assessment of the efficacy and costs of the program.
The real problem here is Congress and this administration. Policy to get people back to work is what's needed and that is something Congress or this administration won't make their top priority or worse, claim policy which will actually cost jobs somehow would create them.
More quantitative easing will simply increase the value of assets, increase equity prices, devalue the dollar a tad, increase inflation and decrease real interest rates. That clearly doesn't do much for Main Street in terms of getting them a job. To wit, again from the FOMC meeting minutes:
A number of participants indicated that such rules have played a useful role in informing the Committee's monetary policy deliberations. However, several participants pointed to specific considerations--including the possible mismeasurement of unobservable variables, such as potential output, and uncertainty about the appropriate economic models to use in estimating the magnitude of those variables--that might limit the usefulness of simple rules both internally and in public communications. Several participants saw value in examining the performance of rules across a range of economic models. Participants discussed the case for making adjustments to the prescriptions of simple policy rules in the current circumstances to take into account various considerations such as the effective lower bound for the federal funds rate, the effects of the Committee's balance sheet policies, and potential shifts in the dynamics of the economy.
Most policy makers refuse to acknowledge globalization's negative impact on the U.S. worker, or that labor arbitrage is coming home to roost. Improving macro economic models to capture some of these events, consequences would be most welcome. The statistics are there, but few analysts bring those facts to light in order for policy makers to see how America's disposable worker syndrome is literally bringing down the globe's largest economy. The middle class has been squeezed, tapped out, sucked dry to the point it has negatively impacted the United States overall economy and future.
Bottom line, quantitative easing isn't doing anything to get Joe Blow a solid, good paying job with disposable income and benefits.