Same Old Song and Dance
Today the FED started the process of Quantitative Easing 2.0 (QE2) as they downgraded their forecasts for the economy. There has been plenty of ink spilled on just what QE is and what it does and EconomicDisconnect has high hopes that a real break through is going to come soon on this front. Just today Kid Dynamite asks:
So, here's the question: Gross acknowledged "printing money" for quantitative easing, and advocates it heartily. We already know from our prior discussions of Modern Monetary Theory (MMT) the government need not tax in order to spend - they can just spend - they can just print money (of course, there may be consequences if they do this). Why then, is it a problem to cut taxes by $2T, but not a problem to just print $2T for QE? Said differently, we don't need taxes to "pay" for the budget - we can just print money for that too/instead. Said a third way, why not get rid of QE, and use the $2 Trillion for tax cuts instead?Great question indeed.
I guess it's possible that what Bill Gross really meant is that we can print $2T for QE, but we can't print another $2T in the form of tax cuts, because THAT would be too much for the dollar to handle...
I need to fully write out my view on this core issue, it is one that took me some time to get to, but I feel pretty good about where I arrived. I want to see how things sort out on KD's post and see what else is written later in the week. This is important to understand.
The FED is looking to play the "lower interest rates across all time frames" game once again. I wonder if Bernanke and company would love to include in their statement something like "if you Congress fools would do something we could get a break!" but that will never happen. I think it is dangerous for the FED to do something large right at the mid term elections. I have to wonder why they would risk such a thing unless they think the economic data will improve so much by then that they will not have to move. Precarious game they are playing indeed.
Sorry I do not have more! I am off to try and finish Stephen King's "Under the Dome" and get to bed by 10pm to catch up.
Have a good night.