Doesn't Anyone Here Know How To Run An Economy? Part 1, The Federal Reserve Board

We have extensively reviewed the many failed attempts by the Obama administration to fix what ails the economy. By almost any benchmark you can imagine and track, every program failed to deliver on its objectives. The list is impressive in its breadth and its degree of failure:

1. Cash For Clunkers
2. Cash For Caulkers
3. Cash For Appliances
4. Economic Stimulus Program ($830 billion worth of  non-stimulus)
5. Small Business Incentive Progam
6. First Time Home Buyer Rebate Program
7. HAMP Mortgage Adjustment Program

All failures. Which raises an interesting question: is there anyone in government or the political realm who knows how to fix an economy since the people currently in the American political class wings of the U.S. Congress and The White House are at least 0 for 7 in their attempts to do so.

One would have thought the Federal Reserve Board might be able to launch some sort of a successful economic recovery plan. The Fed is staffed by highly educated and experienced economic-types. The Fed itself has been around for decades so one would hope they have some institutional memory and experience to draw on to help the economy.

Unfortunately, it does not appear that the Fed is much better than, Obama, Reid, Pelosi, and the rest of the DC denizens. Fed Chairman Ben Bernanke has been busy trying to do some economic repair via his Quantitative Easing (QE) programs. The latest interation of  of his QE program involved the Fed creating about $600 billion out of thin air to buy back Treasury bonds. According to an article in Moneynews on June 30, 2011 by Forrest Jones, the intent of QE was to spur on the economic recovery that is currently slogging along very slowly.

Mr. Jones noted that the latest QE round did have some limited success:

• It probably pumped up stock prices since the S&P is up 25% since the program started in August of 2010. However, it is impossible to know how much of that increase was due to QE since other economic factors were also changed during the past eleven months (e.g. suspension of some Social Security payments to put more cash in the hands of consumers).
• QE may also have diverted the economy from deflation which would have further crimped any economic recovery. However, it remains to be seen if deflation was a real threat, given it has never before been a real threat to the U.S. economy.

Two possible, but shaky positives from the process. However, there were some definite negatives to arise from QE:

• The value of the dollar is down 10% over the past 11 months, not surprising since the latest versions of QE put an additional $600 billion into the economy to compete with the existing wealth and dollars already in the economy.
• Gasoline, food, and other products are more expensive since the weakened dollar means it takes more dollars to buy the same products and services than it did a year ago.
• Consumer spending was basically unchanged during the QE buyback period.
• Jobless rates have been virtually unchanged since the program started.

Thus, if QE was supposed to spur the economy it has done a pretty poor job, not increasing spending, not decreasing joblessness, and quite possibly igniting inflation in the process of accomplishing nothing.

Don't believe these results? Consider the opinions of some so-called experts quoted in the article:

• Michael Gapen, senior U.S. economist at Barclay's Capital: "If you look at it from the point of view that you wanted to make the recovery stronger and more durable, you would have a lingering bad taste in your mouth."
• John Ryding, chief economist of RDQ Economics: "QE2 was a terrible mistake, and I think it has been counterproductive for economic growth."
• Guido Mantega, Brazilian Finance Minister: "It serves no purpose to go throwing money from a helicopter."
• Lou Crandall, Wrightson ICAP: " The damage to the Fed's reputation as a bastion of financial stability is irreparable."
• Ethan Harris, Bank Of America: QE2 was "merely better than for the Fed to announce 'we are giving up.'"
• Vladimir Putin, former Prime Minister of Russia, denounced QE2 as "hooliganism."
• Sean Snaith, University of Central Florida: This was like Vick's Vapor Rub for markets. No cure, but it eased the symptoms."

Wow, a two-for-one deal. Your economic program did very little good but in the process you destroyed your organization's reputation. Thus, add Mr. Bernanke's name to the others in Washington who cannot find a way to fix an ailing economy.

Maybe it is time to simplify life and get back to basics. No more massive government intrusion into the economy. Let the economy work the kinks out on its own as people create products and services that others want to purchase and consume. At the most basic level, isn't that only what an economy is?

No more massive government interference, managed by people that we now have confirmed have no idea what they are doing in the economic realm.

No more $600 billion currency manipulations by the Fed, who we now also know has no idea how to fix things.

No more uncertainty in the marketplace created by politicians who do not know how to put any kind of long term plan together and stick to it, whether it is taxes, depreciation, energy, infrastructure, health care, etc.

Let us just get back to basics, working people and businesses creating wealth to be shared with other working people and businesses. In the process, we may find that the economy heals itself, better and quicker, than Cash For Clunkers and QE could ever do. Because if Cash For Clunkers and QE are your benchmarks, it is obviously a pretty low bar to get over.



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