Thursday, November 25, 2010

What QE2 Hath Wrought

Chicago Boyz explains economics 101 in a post titled Bleeding and Purging to Balance the Humors of the Economy:
Peter Suderman at Reason [h/t Instapundit] observes in his article on “Quantitative Easing” that:
There’s a similar sentiment behind arguments for the Fed’s new policy, a simplified version of which goes something like this: Quantitative easing is probably a good idea. Why? Because we need to do something to increase economic activity. Fiscal stimulus is off the table for political reasons (at least). Inflation has been running a little low, which makes it an obvious policy lever. Expanding the monetary supply—and thus spurring on inflation— may not do much, but it’s what can be done. And that means that, well, quantitative easing is a good idea. QE2, motherfucker!
The old saying, “when the only tool you have is a hammer, all problems look like nails,” doesn’t really give the entire picture. More comprehensively, we should say that when the only tool policy makers have is a hammer, they developed incredible baroque theories to rationalize why hammering is the solution to every problem.
This has led to the bizarre world in which Fed Chairman, Ben Bernanke, is "unusually critical of China for its currency manipulation", while pounding the table for manipulating our own currency via another round of quantitative easing. So is it any wonder that Russia And China Drop Dollar For All Bilateral Trade?
St. Petersburg, Russia (AP) – China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

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