Monday, October 1, 2012

Bernanke Defends QE3 in Washington

Talking to reporters in Washington, Federal Reserve Chairman Ben Bernanke attempted to defend the latest round of stimulus, dubbed QE3, which will acquire $40 billion in mortgaged-backed securities on a monthly basis, until the Fed is satisfied the economy can sustain growth on its own.

Never mind that the economy got no help for QE1 and QE2, and it is highly unlikely QE3 will do anything but boost inflation over the long term.

Strangely, Bernanke asserted the Fed isn't an enabler of the government in allowing it to continue to operate gigantic budget deficits. It does all of that and more, and is part of the problem and not the solution.

Bernanke stated this as the goal of the latest stimulus: "... we would like to see as many Americans as possible who want jobs to have jobs, and that we aim to keep the rate of increase in consumer prices low and stable."

The Fed has also stated the other goal is to provide price stability in the markets, something that can't happen when pouring money created from nothing into it.

Concerning monetizing government debt, Bernanke said, "That's not what's happening, and that will not happen. We are acquiring Treasury securities on the open market and only on a temporary basis, with the goal of supporting the economic recovery through lower interest rates."

That's a bizarre statement targeting those who are clueless as to how the monetary system works. To buy Treasury securities is to monetize the government. That's why there are growing concerns over how much U.S. debt China owns, which have been propping up the U.S. government in order to sell inexpensive products to Americans.

To say that creating money out of thin air and acquiring Treasure securities isn't monetizing government debt, isn't even true. That's exactly Bernanke and the Federal Reserve are doing.

Where is the government getting its money from if that's not the case?

Also, incredibly, Bernanke claims the implementation of QE1, QE2 and QE3 hasn't hurt savers. You mean people not being able to buy into a money market fund or other safe investment because interest rates are almost zero hasn't hurt them? Does he actually think any of us believe that?

Even in an inflationary environment of about 2 percent people are losing money and buying power in low-risk accounts. How does that not hurt savers?

Part of the reason this is done is to pressure consumers to spend rather than save. At best, they may plow their money into much riskier assets; assets they don't understand and stand to lose a lot of money in as a result. That's not hurting savers?

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