Federal Reserve Chairman Ben S. Bernanke backed sustained stimulus for the foreseeable future even as the minutes of policy makers’ June meeting showed them debating whether to halt bond buying by the Fed this year.
“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said today in response to a question after a speech in Cambridge, Massachusetts.
Here’s the problem — his “QE” program is ~$1 trillion annualized in a $16 trillion economy. That’s 6.25% of the economy.
Therefore, simply on the premise that every dollar “stimulated” is spent GDP ought to be expanding at least 6.25% — and that’s if he’s getting nothing out of his program in terms of actual positive effects at all!
But it’s not.
GDP growth has been well under half that much.
In other words the economy is going backward, and the more Bernanke “steps on the gas” the faster it goes backward.
How does this impact you? Simple — your purchasing power is being destroyed. You may not see this as “inflation” but you can lose purchasing power through destruction in the job base — such as by being forced into part-time work rather than full-time, or by losing benefits, or by losing pay directly.
All that matters to you is what you take home and can spend on discretionary items after the necessities of life are bought. Not in dollars, but in things like gallons of gasoline, pounds of steak (or hamburger), treatment for some disease or education for yourself or your kids. That’s the old bug-a-boo calledeconomic surplus and it forms not only the basis to buy the things you want it also is what powers economic expansion by forming the capital base upon which new businesses are started.
We’ve not only made zero progress in this regard since 2008 we are continuing to go in reverse and today Bernanke effectively said he’s going to keep doing it until he either gets the result he wants or something forces him to stop.
Since he can’t get the results he wants — five years have failed to produce them and there is thus no reason to believe it will magically start working in the future — there is only “force” left.
Once you tell the market you’re not in control — and that’s exactly what Ben did this evening — you’re asking for it. Not instantly — witness August 2007, when Bernanke told the market he was not in control by making a ‘surprise’ discount rate cut immediately in front of Options Expiration.
He “bought” another few months with that maneuver, but it came with a disastrous cost later in 2007 and 2008.
Here we go again.