The bottom line is that the Fed panicked. It is extraordinary that
the Fed would announce an open-ended “we’ll print as much as it takes,
as long as it takes” policy. Chairman Bernanke is sending a signal to
the markets and to government that the economy is bad and getting worse
and that the Fed will do its part as everyone expects them to do. This
is a clear signal to the markets and the world that the Fed stands for
monetary inflation. They don’t know what else to do.
As we have long been telling readers, unemployment is the key to Fed policy and they have formally made it their policy linchpin. As far back as May, 2011, on Fox Business News I
said that Mr. Bernanke has no other real alternatives other than QE and
that with rising unemployment, he would be pressured to “do something.”
One may ask why none of these policies have led to economic recovery.
Why didn’t QE1 work? After all they told us then that it would promote
“sustainable economic growth”. By the time QE2 was released we heard
much of the same thing: it would “promote a stronger pace of economic
recovery”. Had QE1 worked as they said, why did they need QE2? Now the
Fed tells us again that another round will “support a stronger economic
That begs this question: If QE1 and QE2 and Operation Twist didn’t work, why would QE3 work?