On QE 3 (August 2012)

In case you haven’t noticed, we’re starting to hear grumblings about a possible additional round of money printing, or in beltway parlance, “quantitative easing”, to stimulate our economy.  Now, the upside to such behavior is the eventual erosion of the real value of our debts through inflation, making the trillions we owe to China, Japan, and everyone else a little less painful in the long run.  The fact that less pain will likely encourage more profligacy in the future is another rant.

The downside to another round of quantitative easing (again, the inevitable result of which is inflation), is that the resulting rise in the cost of consumer goods will occur faster than adjustments to wages, thus harming middle class over the medium term.   I’m pretty sure the cost of a gallon of gas, food, clothes, and other durable goods and necessities will reflect inflationary price rises much faster than it takes any bureaucracy to approve wage hikes in their respective organizations.

But in our rush to “do something”, we risk overusing one of the few fiscal tools we have that should be (and historically has been) employed sparingly and compounding the problem.  Further, the difference in the economic “bump” between QE1 and QE2 was profound, i.e., QE1 produced a big “bump” and QE2 a much more negligible one.  Most economists have already agreed that QE3 would have marginal benefit, and thus more likely a net negative.

The depression lasted over a decade.  If our current troubles were the worst thing since that, it seems to reason we have a few more years of high unemployment, stagnant wages, and overall uncertainty before we get out of this mess.  Additionally, if previous levels of growth during the housing boom were artificial and unrealistic, then it seems the only way to get back those growth rates is another bubble.  If you want that fine, but with booms come busts; accept that and roll your dice.  Or you can have boring and flacid and less risk like you do now.  This is the “new normal” you may have read about.
I would apply logic and patience here and not do anything that could risk hurting us further for the sake of looking like we’re “helping.”  If two rounds of easing haven’t gotten us back to frothy, quarter-on-quarter GDP growth, why do we think a third would?  Have the Fed and/or the Administration foregone centuries of economic thought and substituted it with the “third time’s the charm” strategy?
A wise man once said, muddy water, let stand, becomes clear.  Just say no, Mr. Bernanke.