Wednesday, June 22, 2011

Hello Again!

To my loyal reader(s), I'm sorry that I've had no scintillating entries for you over the last six weeks, but, well, I've been busy with other stuff. Now that I have a bit of time I thought I'd just drop a line to say that it appears to me as if the next round of the financial crisis is upon us.

Why now, you may ask? The termination of the so called Quantitative Easing programs conducted by U.S. monetary authorities is not the proximate reason that things are heading south again in my view. Having said that, QE2 has likely contributed to the onset of the next go round of economic contraction since QE2 has been instrumental in causing the price of raw materials to ratchet higher to an extent that has eaten into the profit margins of all manner of business activity. In the meantime, the higher cost of everything from toothpaste, to gasoline, to lawn furniture, to pork cutlets has made just about everyone but the very wealthy feel less wealthy. It's all a recipe for another round of job losses, stock market woes, and general wobbliness in the economy. And as bollixed up as things have become at the hands of the monetary authorities, there is little doubt that they would be worse without the soon to be defunct Quantitative Easing programs.

Don't misunderstand me. I've never been an advocate of the kind of monetary nostrums that have been applied in response to the calamities of '08 and early '09. It's simply that I'm aware that the pain we've experienced to date would have been vastly more intense, albeit relatively short lived-or so I conjecture- had no QE programs been enacted. And because politicians in our governmental system are in it as a career, more precisely for life, they will always, in the main, without fail, opt for the sort of approaches that attenuate pain. To do otherwise would reduce career politician's chances of remaining career politicians. In short, kicking the can down the road is how the political class responds to all crises. It's why, in time, there will be more Quantitative Easing whatever new euphemistic moniker they may apply to actions that will be nothing less than buying debt outright for cash. So, while Quantitative Easing demonstrably creates all manner of painful economic distortions, to not engage in more money printing presents the bigger risk to the political class.

1 comment:

Johnny D. said...

Good to hear from you, Edwardo. I totally agree with your view here. I think that the Bernank is accomplishing a couple of things here. By not continuing to print, he and TPTB are going to see if the "system" can keep running without the POMO. They suspect it cannot, but they have to see for themselves. Once it starts going to seed and the screaming begins, they'll print more. Next meeting is in August. Folks ought to be screaming by then.