The Federal Reserve is contemplating another quantitative ease. This would be the third one since August of 2009. Like the other’s it won’t make a difference-except because they are artificially devaluing the US dollar, it will make asset prices go up so people will “feel” richer.
The idea is that if they act, they can decrease interest rates. Lower interest rates supposedly create demand so business and people borrow more, creating more economic activity. However, rates are already close to zero. I just had an adjustable rate mortgage drop to 3.1%.
Companies and individuals don’t act on macro. They behave on microeconomic principles. That means, while they look at the big picture, it’s marginal things that cause them to act. Another QE from the Fed isn’t going to move the needle enough to get any economic fires started.
The problem right now is the money that gets created sits. There is no economic velocity with regard to money. It’s not turning over because economic activity is stalled at virtually every level, and in every industry.
Companies see the macro, a decline with continuing problems in Europe; a slow down in China, and a fiscal cliff in the US, and then look at the micro in their own backyard. It’s not any better. Retail sales and consumer spending are flat. There just aren’t as many customers coming through the door.
If we want to change the game, we have to think micro, not macro. There is little the Fed can do on a micro level given the state of the economy. The only one that can release the dam that’s creating a reservoir of despair is the President by agreeing to tax cuts for corporations and individuals at all income levels. Then, at the margin, behavior will change.
The Democrats cannot win on the facts. They tried to bend the facts, but the data keeps exploding in their face. What’s left in their playbook? Character assassination.
Here are two examples.
First, the recent Newsweek cover.