DALLAS, TX: While reports today indicate the Fed will spend $40 billion per month on bond purchases to boost the weak economy, with no end date set, Dr. Merrill Matthews of the Institute for Policy Innovation (IPI) says it’s not quantitative easing that the economy needs but regulatory easing.
“The slow economy cannot be fixed by Fed policies, it can only be fixed when the White House changes its economic policies by easing regulatory uncertainty and through tax reform,” said Matthews.
Matthews said the first two attempts at quantitative easing, plus Operation Twist, have had little to no impact, and the Fed has decided to try again in the hope of a different outcome. The Fed has abandoned the notion of trying to keep interest rates low for a “long time,” and now is trying to keep them low for a “REALLY long time,” he said.
“An indefinite easy-money policy would likely also spur inflation and create bubbles in the economy in which people or companies borrow money they have no real hope of repaying simply because it's cheap—like, oh, buying a house,” said Matthews.
To date, the Fed has defended its easy-money policies because the Obama economy has been so slow, said Matthews. If it decides to embrace cheap money as a long-term strategy, it is likely to open the door for even more congressional criticism, and maybe even shackles, he said.
September 13, 2012