Confusion at WSJ on Fed Activities

On the day the Federal Reserve is likely to announce huge money printing under the code name "Quantitative Easing 2", WSJ is doing its best to keep the public as confused as WSJ, itself, appears to be.

WSJ reporter Kelly Evans, who once declared that Peter Boettke was "emerging as the intellectual standard-bearer for the Austrian school of economics...", reveals, today, some of her economic understanding that likely helped her reach the conclusion on Boettke.

She writes:

The Federal Reserve is widely expected on Wednesday to announce another bout of bond buying meant to stimulate the U.S. economy

What Kelly misses here is that the Fed is going into a complete new type of bond buying. It appears the Fed will be buying Treasury securities with maturities of 10 years or more in the secondary market. This has never been done before by the Fed. It is not "another bout of bond buying". The Fed in the passed has only bought short-term Treasury securities. Their special asset buying during the financial crisis was, as far as the Fed has disclosed, pretty much about mortgage backed securities---although long term in nature only an amateur would refer to them as bonds. A knowing MBS trader would nod at such a naive use of the term and think, "Boy, do I have a live one here."

In other words, Kelly is missing the essence of mad scientist Bernanke introducing a new "tool" into QE2, i.e., for the first time ever, the Fed is going to be buying Treasury securities with maturities of 10 years or longer.

From there Kelly goes on to tell us:

Additional asset purchases, a process known as "quantitative easing," are costly, risky and unlikely to have an immediate or major effect on growth in gross domestic product.

Here, we have confusion on several fronts. I have never, ever seen the word "costly" used with regard to Fed money printing. The Fed just prints the damn money (technically issuing an electronic credit). It isn't as though the Fed has a limit as to what they can print, or has to find the money somewhere. Using the word "costly" here makes little sense. (It's possible she means there is an inflation cost, though unlikely because of what comes next)  She next tells us that  QE2 is "risky". I hope here she means that there is a huge inflationary threat because of this money printing. We don't know for sure because instead of writing, "inflationary threat" she uses the word "risky", which means we don't know what the hell kind of risk she is talking about.

Finally, she tells us that it is "unlikely to have an immediate or major effect on growth in gross domestic product."

How she reaches this conclusion, she does not tells us. She just drops it out there. In truth, if the Fed prints enough money, it will be very inflationary, but GDP will look good damn fast. And $500 billion over a few months might just be enough to do the trick.

There's more confusion in the short six column piece, but you should get the picture from here. You aren't going to learn anything from WSJ about how the Fed is operating. In fact, it is almost dangerous to read their stuff.