As John Steele Gordon rightly points out, Ben Bernanke’s latest attempt to bail out a failing economy by manipulating interest rates isn’t likely to be met with any more success than his first two tries. Some Democrats may think the Federal Reserve’s decision to print more money will inflate the economy enough to get President Obama re-elected. The assumption is that it will cause a rise in the stock market that will be interpreted as a sign that the recovery has finally succeeded. However, the result of another dose of inflationary economics, compounded by growing debt, unemployment and less than 2 percent growth may be another recession that will come on the heels of the current anemic recovery.
The constant refrain coming from the administration and its defenders has been that a change of course away from the president’s reliance on trying to spend our way out of the economic ditch would be a return to the failed Republican policies of the past that created the problem in the first place. But as James Pethokoukis writes at the American Enterprise Institute blog, it is cheap money and too much debt that caused the so-called Great Recession that the president inherits. That recession ended in the summer of 2009. It was followed by a recovery for which the president once took credit. But the feeble nature of that revival is something he still blames on his predecessor. Thanks to the continuation of the spending and debt binge that took place over the last four years, the country may soon be faced with another Great Recession no matter who wins in November. But it is not likely that most Americans will be willing to blame that one on George W. Bush.
Bernanke’s third chorus of interest rate cuts is a last-ditch attempt to save Obama’s recovery. But we may look back on it next year as the moment when the next Great Recession became inevitable. In the long run, only a program that aims to reform our out-of-control spending, tax cuts to fuel real economic growth and to create wealth, and sound money policies from the Fed will create a genuine recovery.
But a steady diet of more spending, debt and cheap money has set the stage for a transition from a weak recovery to another collapse. Indeed, the bad employment numbers show that the recovery never reached some sectors of the economy or the army of unemployed Americans. That means that for many Americans the downturn we may have to face next year will feel more like the tail end of a double dip recession than a fresh downturn.
President Obama is hoping Bernanke’s latest stunt will give him the boost he needs to stay ahead of Mitt Romney in the final weeks of the campaign. But the long-term impact of the Fed chairman’s QE3 may merely pave the path for a poor economy that will make a second term a misery for both Obama and the American people.
I don't know how anyone can say that there is a recovery? Where?
You have to remember food stamps and unemploment insurane are the best form of stimulus, which says alot about this recovery. Like you said, Where?
So, buying toxic "assets" – mortgage-backed securities – to get them off the market is the key to stimulating private job growth. That and promising that easy money will continue to be available. n nWhat study of the Depression yielded that astounding insight? It certainly wasn't Friedman's or Rothbard's. n nDoes Bernanke know what a healthy economy actually looks like?
I believe the Fed has two competing priorities by legislation, one is to maintain a sound currency and monetary system, the other is to work towards full employment. The Humphrey–Hawkins Full Employment Act defined full employment as 3%. True, the Federal Reserve Board of Governors could opt for future full employment achieved by temporary austerity today from a focus on reining in debt bubbles. But this is an age of bread and circuses and so far inflation is hidden by selective statistics.
It is not a question of "if" anymore, only "when". There will be double digit inflation and a severe devaluation of the dollar. Best to get out of cash. Probably a great time to buy real estate. Our warnings are falling on deaf ears, but that is no excuse for not protecting oneself from what lies ahead.
How is this fairly labeled a recovery, even a feeble one? Housing prices are still flat at best. Gas, food, and clothing prices are up. Gold is way up (not a good sign if you care about inflation). The dollar has lost value and continues to slide. And that's not even talking yet about unemployment. n nThere has been, so far as I can tell (and I read a of economic stats), exactly NO improvement whatever in the past two years. People have simply adjusted, to a degree, to the 'new normal'.