QE3 is pointless as we head over the cliff
Commentary: Fed’s powerless about Europe or U.S. fiscal crisis
July 17, 2012
That’s the message Bernanke himself delivered to the Senate Banking Committee on Tuesday. The message wasn’t received by either politicians or markets. Read our full news coverage of Bernanke’s testimony.
In his twice-a-year official testimony on the state of the economy, Bernanke repeated the warning he’s delivered many times before: The economy is weak, threatened with a renewed recession because policy makers here and in Europe are hell-bent on disaster. Keep track of the latest on Bernanke on our live blog of his testimony.
The banking and fiscal crisis in Europe is creating huge headwinds for the U.S. economy. Global trade is slowing because of Europe, and America is not isolated from that global slowdown. Europe’s problems will be solved, or not, regardless of what we in the United States do. It’s out of our hands.
The second risk to the economy, however, could be solved easily. It’s the fiscal cliff that looms up ahead on Jan. 1, when current law mandates that almost everyone’s marginal tax rate will rise. At the same time, automatic spending cuts will begin to take effect.
The impact of these tax hikes and spending cuts would undoubtedly be another recession, with another million or two people losing their jobs. That’s a recession that the Fed can’t stop, or even cushion, with quantitative easing, or QE3.