Welcome to Bernankeville, the City of Jokernomics
Dr. Bill Chitwood
Thursday, September 27, 2012
“Where were you when the dollar died?”
That’s a question people will be asking you in the not-too-distant future. The past few weeks have seen several events transpire that spell the inevitable ruin of the dollar. As usual, only some of these events have been reported in the mainstream press, leaving most Americans blissfully clueless about the catastrophe roaring towards them.
Most people are aware that Federal Reserve Chairman Ben Bernanke recently announced the Fed would begin “purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.” Additionally, the Fed “will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.” Taken together, the Fed will “increase the Committee’s holdings” of long-term securities to the tune of $85 billion per month, at least through the end of the year. And then? The Fed “will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases”, use its “other policy tools” until such time as the labor market—read “unemployment rate”—improves “substantially”. How much is “substantially”? Mr. Bernanke didn’t say. For all practical purposes, this third round of Qualitative Easing (QE3, as it’s being called) will go on and on and on…until Mr. Bernanke says “enough”. So, at least in theory, QE3 will obviate the need for QE4, QE5, QE6 and so on…because it’s QE “Until”.
Of course, the markets and banks rejoiced! The Fed will save us! Viva le Fed! Viva le Keynes! Viva le Bernanke! Viva le…wait a minute! Did you say…QE THREE? Whatever happened to QEs 1 and 2?