More QE2 Doubts

The hits just keep coming. It seems that Ben Bernanke and the 10 other members of the FOMC who voted for it are the only people on Earth who think QE2 is a good idea.

David Einhorn at Greenlight Capital called it “perverse” and inflationary in his latest investment letter to clients, and holds a fair amount of gold to protect against dollar diminishment. He wrote that QE “is a euphemism for monetization of government debt or simply the electronic equivalent of ‘printing money.’ We have been expecting that eventually the Fed would be forced to monetize the debt (either during the next recession or if the Treasury ceased to be able to find buyers of its debt at acceptable rates) with dire consequences.” He doubts that the new injection of cash into the economy will lower unemployment, but thinks it will drive “speculation in financial instruments.”

Brian Westbury and Robert Stein at Forbes agree, writing that persistent unemployment is due to fiscal policy, not monetary policy. Not only that, but the fiscal problem looks about to be fixed. Thus, QE2 is not only ineffective but also “unnecessary” because “current tax rates will likely be extended for two (possibly three) years” and other job-boosting measures should arrive soon courtesy of the new GOP-dominated Congress.

Liam Halligan wrote in The Telegraph that QE2 has left America “isolated” and the rest of the world “furious,” and that the global economy may “lurch into 1930s-style protectionism.” He thinks the Fed may have finally gone too far because it’s so obvious that “QE has benefited some pretty formidable interest groups –- insolvent banks, public sector unions and cowardly politicians” but is now irking more than the usual crowd of opposition that’s always dismissed as “inflation nutters.” Brazil, China, and Germany “think the US has gone far too far.”

Not that the inflation nutters are off base this time around. Seen the price of cotton recently? How about oil, gold, or copper?

This entry was posted in Federal Reserve. Bookmark the permalink. Both comments and trackbacks are currently closed.
  • The Kelly Letter logo

    Included with Your Subscription:

Bestselling Financial Author