Why Quantitative Easing Is the Worst Possible Response to the Crisis…

…except maybe–and that’s a very, very tentative maybe–doing nothing; I’ll get to that later. Tyler Durden:

….what will be far more important to end consumers will be the push higher in food and energy costs. The problem, however, is that for the lowest 20% of Americans, as per the BLS, food and energy purchases represent over 50% of their after-tax income (a number which drops to 10% for the wealthiest twenty percentile). In other words should rampant liquidity end up pushing food and energy prices to double (something that is a distinct possibility currently), Ben Bernanke may have very well sentenced about 60 million Americans to a hungry and very cold winter, let alone having any resources to buy trinkets with the imaginary wealth effect which for over 80% of the US population will never come.


Decades from now, economists–who hopefully aren’t quite the fucking morons they are currently–will look back on this time and wonder why we didn’t create jobs instead. While inflation, as measured by CPI*, is very low, dropping money out of helicopters (ok, quantitative easing) is the worst possible way to create jobs via inflation. Instead of giving money to wealthy bond holders, we could give it to unemployed workers in exchange for working on things we need done–this is typically known as a jobs bill.
This is a complete failure by our elected officials to respond to the most severe economic crisis in seventy years.
Of course, if you don’t really care about the employment deficit, then I guess things aren’t so bad….
*Regarding the Consumer Price Index (CPI), JP Morgan (yes, those motherfuckers) makes this trenchant observation (italics mine):

When the Fed considers the possible consequences of a falling dollar resulting from QE2, it should perhaps focus on food and energy prices as much as on traditionally computed core inflation. First, the food/energy exposures of the lower 2 income quintiles are quite high (see chart). Second, the core CPI has a massive weight to “owner’s equivalent rent”, which suggests that the imputed cost of home occupancy has gone down. Unfortunately, this is not true for families living in homes that are underwater, and cannot move to take advantage of it (unless they choose to default and bear the consequences of doing so). Due to the housing mess, there has perhaps never been a time when traditionally computed core inflation as a way of measuring changes in the cost of things means less than it does right now.

More simply, people gotta eat.

This entry was posted in Economics. Bookmark the permalink.

7 Responses to Why Quantitative Easing Is the Worst Possible Response to the Crisis…

  1. Fred says:

    Why isn’t economics required of all students k-12? We put so much importance in money and spend no energy to try and teach our citizens about how it works.

  2. FrauTech says:

    Decades from now, economists–who hopefully aren’t quite the fucking morons they are currently–will look back on this time and wonder why we didn’t create jobs instead.
    I agree, and am tired of the “trickle down” crap, but how do you propose we “create jobs”? Seems like telling a fat person they should “just lose weight”. Everyone says it, but the path to get there is not clear.

  3. Min says:

    FrauTech: “I agree, and am tired of the “trickle down” crap, but how do you propose we “create jobs”? Seems like telling a fat person they should “just lose weight”. Everyone says it, but the path to get there is not clear.”
    It is not like we haven’t done it before. Remember those acronyms from the Great Depression? CCC? WPA? Also, local gov’ts create jobs. Not only directly, but by spending. Let every school afford a music teacher. 🙂

  4. Min says:

    No, the worst possible response would be to elect a do-nothing Congress that actually opposes labor. Oops!

  5. Eric Lund says:

    Why isn’t economics required of all students k-12?
    Because The Powers That Be are afraid (and justifiably so) that the kids would figure out how TPTB are swindling them and their parents: credit cards, payday loans, negatively amortizing mortgages, and a host of other methods. That would interfere with bankster profits, which would be <voice=”Vizzini”>inconceivable</voice>.
    Next question, please.

  6. Juice says:

    These John Birch society anti-semitic conspiracy theories against the Federal Reserve will get you nowhere.

  7. who Cares says:

    Doing nothing might be better if you take into account the international reaction to this second round of quantitative easing.
    Tomorrow a two day G20 summit starts. Guess what none of the other 19 participants are going to like and really want to talk about.
    China and Germany have already made public statements about how much they dislike the dumping of at least another 600 billion into a world already swamped with dollars.
    The Chinese through their sovereign debt rating agency have already done a form of preemptive strike by downgrading US debt.
    And I’ve never read a comment of a German minister as blunt as the one by their finance minister (Wolfgang Schäuble in Der Spiegel) about the fact that he thinks the US is trying to offload it’s financial problems on the rest of the world.

Comments are closed.