To QE, or Not to QE…

Just a couple of days ago, I made the case that QE3 is coming — even if it is unannounced tomorrow . Indeed, it seems increasingly unlikely — in spite of Goldman’s pleas for a $1 trillion injection — that QE3 will be announced by Bernanke tomorrow. There are a multitude of reasons: the unseasonable austerity climate in Washington, the protestations of Wen Jiabao, inflation fears, and a number of positive economic signs in a national survey from the Chicago Fed.

Bernanke’s academic record suggests more easing. Here he is in 1999 on Japan’s monetary woes:

Franklin D. Roosevelt was elected President of the United States in 1932 with the mandate to get the country out of the Depression. In the end, the most effective actions he took were the same that Japan needs to take—-namely, rehabilitation of the banking system and devaluation of the currency to promote monetary easing. But Roosevelt’s specific policy actions were, I think, less important than his willingness to be aggressive and to experiment—-in short, to do whatever was necessary to get the country moving again. Many of his policies did not work as intended, but in the end FDR deserves great credit for having the courage to abandon failed paradigms and
to do what needed to be done.

Japan is not in a Great Depression by any means, but its economy has operated below potential for nearly a decade. Nor is it by any means clear that recovery is imminent. Policy options exist that could greatly reduce these losses. Why isn’t more happening? To this outsider, at least, Japanese monetary policy seems paralyzed, with a paralysis that is largely self-induced. Most striking is the apparent unwillingness of the monetary 26 authorities to experiment, to try anything that isn’t absolutely guaranteed to work. Perhaps it’s time for some Rooseveltian resolve in Japan.

By all means that would suggest that QE3 is very much on. So we have conflicted signals. It’s at times like these when I bring out Shakespeare:

To be, or not to be, that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them? To die, to sleep,
No more; and by a sleep to say we end
The heart-ache, and the thousand natural shocks
That flesh is heir to: ’tis a consummation
Devoutly to be wished. To die, to sleep;
To sleep, perchance to dream – ay, there’s the rub:
For in that sleep of death what dreams may come,
When we have shuffled off this mortal coil,
Must give us pause – there’s the respect
That makes calamity of so long life.

– Hamlet

We all know that Bernanke will not stand and watch as markets, asset prices and confidence tanks. Yet in my view that no amount of quantitative easing alone can get America out of the troubles she is in. Those troubles are non-monetary — they are systemic and infrastructural: military overspending, political corruption, public indebtedness, withering infrastructure, oil dependence, deindustrialisation, the withered remains of multiple bubbles, bailout culture, systemic fragility, and so forth. The real question is when will America tire of the slings and arrows of fortune? When will America take arms against her sea of troubles? And how long will she last on this mortal coil? To die? To sleep? For in that sleep of death what dreams may come…

20 thoughts on “To QE, or Not to QE…

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