QE2 Will Sink Us
Ben Bernanke and the Federal Reserve are preparing for QE2—a second round of Quantitative Easing.
The rationale is that the United States’ economy is circling the deflationary drain—something Bernanke and the Fed are absolutely terrified of. Certainly deflation is hitting the U.S. economy full bore, but it’s yet to be proven that this deflationary trough has twisted itself into a self-reinforcing vicious cycle. I would argue that the chances of the U.S. economy twisting into a deflationary death spiral has yet to be made. But be that as it may, it doesn’t matter if the economy is in a deflationary death spiral—Bernanke and Co. think that that’s the imminent danger. And they’re the ones with their finger on The Big Red Money-Making Button.
Some people are claiming that the first version of QE was not enough. Like Paul Krugman whining that the stimulus package wasn’t big enough to restart aggregate demand, the aggregate asset crowd—the monetarists—are bitching that Bernanke didn’t really open the monetary flood gates with the first version of QE.