Monday, September 24, 2012

Volcker weighs in on QE3

By, Chris Rossini
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Former Fed Chairman, Paul Volcker, who halted the price inflation spiral of the 1970's weighs in on Bernanke's QE3.

From The Telegraph:
Mr Volcker, addressing a conference at Gleneagles in Scotland, said the decision by the Fed to begin a third round of asset buying — nicknamed QE3 — amounted to the “most extreme easing of monetary policy” he could recall...

“Monetary policy is about as easy as it can get,” said Mr Volcker, who built a reputation for quelling inflation through the unpopular decision of raising interest rates during his tenure at the US central bank. “Another round of QE is understandable – but it will fail to fix the problem. There is so much liquidity in the market that adding more is not going to change the economy.” it's the "most extreme easing of monetary policy," and it "won't fix the problem", yet Volcker thinks that this is "understandable"?

Who is this understandable to? Alan Greenspan?

Do you know who vehemently stated that this course of action is not understandable?

Murray Rothbard, who said:
“It is clear that prolonging the boom by ever larger doses of credit expansion will have only one result: to make the inevitably ensuing depression longer and more grueling. The way to prevent a depression, then, is simple: avoid starting a boom.”
In other words, artificially low interest rates are the crisis! They are the disease.

Of course it doesn't appear that way. It appears that good things are happening. Jobs that shouldn't be created, are created...Investments that shouldn't be made, are made. All types of loans, that should never be made, are made.

To take an economy that was blocked from clearing previous malinvestments, and then piling more on, can only lead to more grueling pain in the future.

The markets will not be beaten. They will clear. The only question is, how much economic pain will be suffered once the correction becomes inevitable...

Unfortunately, the Fed has the power to decide - and they've made their decision: Massive economic pain.

Volcker then mentions the risks involved:
Mr Volcker stressed that although the risk of inflation was not imminent, central bankers had to be careful. “The risk is that central bankers are not able to tighten policy in time. Will they be able to pull back fast enough from loose monetary policy?” he said.
This is a risk to central bankers.

Who cares if they tighten "in time"? The damage the economy is being done now!

When they tighten, that damage will, of course, be felt. All the bad investments taking place now will be exposed. But it's already too late.

What Volcker is primarily concerned with is the preservation of The Fed. If they tighten "in time" it will only save them. That's exactly what Volcker did when he was Fed Chairman. He tightened "in time", and it saved The Fed for a few more decades.

During those decades, the Fed inflicted unimaginable damage.

The risk is not that the Fed doesn't save itself...The major risk is that it does.


  1. Understandable doesn't have to mean logical, preferred, or even correct. It is understandable as a political tactic to prevent economic collapse/recession/whatever and keep the current junta in charge.

  2. It's understandable to Volcker because he knows its true purpose is to prop up failed banking institutions, not fix the nation's economic problem.

  3. Here is the other thing that is going on: Pure housing market manipulation by the GSEs. My wife has a condo in Arizona that she owned before we met. After having a renter for 5 years and losing $500 a month, we finally decided enough was enough when the renter left. We have had not one, but two short-sale offers that the "investors" (Fannie Mae) will not approve in the past 4 months. Both offers were at $145k. Fannie wants $170k. Just an FYI that an independent appraiser said $145k was right on the money. Fannie summarily ignored that appraisal.

    All I can think is that GSEs are intentionally trying manipulate the market to tighten supply and increase prices at any cost. We're stuck, and I can't imagine that we're the only ones this is happening to. There's got to be a decent shadow inventory out there.

  4. "In the long term, we're all dead."

    In name of time-preference-mortality, the elites in general, and the economics profession in particular have shortened their time preference to such an extent that they are unable to apprehend cause and effect.

    No, it is worse than that. They have become unable to COMPREHEND cause and effect.

    They would say that the problem with driving is that sooner or later the guy going the other way won't swerve in time.

    Whereas a sane, reasonable person would say that driving doesn't require playing chicken.