Quantitative Easting 2.0 that is. I really found Jeremy Grantham’s letter this month particularly insightful in exploring the ways that cheap money does little to advance the economy, while creating asset bubbles all over the places that must eventually be deflated. He also makes the good point that a housing bubble is much more damaging and persistent than a stock asset bubble. And, finally, he exposes the Federal Reserve for all of its foolishness and inability to do very much useful, other than kick the can down the road. His bottom line: ” In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment.”
Of course, the Austrians knew this a long time ago. And, it should never be forgotten, the Federal Reserve was put in place in 1913, had much to do with the housing asset bubble of the 1920s, and in spite of its promises to prevent the business cycle, auguered the Great Depression, which, like our current depression, was made worse by various hair-brained fiscal stimulus projects under FDR.