The Fed Resumes Printing Money

Posted by Michael A. Kamperman on August 10, 2010

Well that was quick.  The Fed looked for an exit strategy in April and returned to printing money by August.  Make no mistake the Fed just adopted St. Louis Fed President James Bullard’s strategy of targeting the balance sheet and rasing or lowering the quantity of quantitative easing based on the forthcoming data.  Bullard is an economic hero.  He provided a plan.  Like a lion willing to lay down with a lamb he walked to the other side of the aisle and and said I am a self-avowed inflation hawk , but I see deflation as the risk and I am willing to do the un-thinkable and monetize the debt.  Now, the ball is in the politicians court.  How many Democrats are willing to step up and say we should not only not raise taxes, but during a major economic downturn we should lower them.  How many Republicans are willing to stand up and say we should not only not cut spending, but during a major economic downturn we should raise spending to create jobs.  It is time for President Obama to step forward and lead.  We need another stimulus plan and the progressive liberals need to back off letting the Bush tax cuts expire.

The Fed effectively has said the TARP wasn’t enough.  The Stimulus Plan wasn’t enough.  Our previous quantitative easing program of $1.5 trillion wasn’t enough.  The tax credit for homes and clunkers wasn’t enough.  The economy remains in the ditch and it will take heavy lifting to get it out.  The Fed has signalled they have the will.  But the Fed cannot do it alone.  We must have permanent fiscal stimulus to create an environment of confidence.  The best ideas are to lower the eligibility for Social Security and Medicare to 60 and to have the Federal Government take over all Medicaid spending from the states.

What the Fed has done is they have said don’t worry about the deficit or the debt, because we can monetize it and control it.  That is the advantage of owing all of your debt in your own currency.  Japan owes its debt in yen.  Will the Bank of Japan follow the Fed?  Probably not until the policy proves successful.  Great Britain owes its debt in pounds.  Will the Bank of England follow the Fed.  Yes, in a heart beat.  The countries in the euro owe all of their debts in euros.  Will the ECB follow the Fed.  Eventually, once there is a massive mutiny against the austerity crowd and they run Trichet out of town on a rail.  We have a global problem and we need a global solution.  The Bullard led Fed is showing the way.