On September 20th, the first day of the two day FOMC meeting by the Federal Reserve, Congressional Republicans sent a letter to Chairman Ben Bernanke calling for the central bank to refrain from implementing a new quantitative easing (QE3) program, and believe that any new monetary policies of this nature will do more harm than good to the weak economy.
It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals. We write to express our reservations about any such measures. Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.
We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers. To date, we have seen no evidence that further monetary stimulus will create jobs or provide a sustainable path towards economic recovery. – Sen. Mitch McConnell, Rep. John Boehner, Sen. Jon Kyl, Rep. Eric Cantor
On Wednesday, the Fed is expected to report on a direction the central bank intends to pursue, and with the ongoing distress taking place in the European banks and the ECB, that decision could entail anything from a bank bailout overseas, to a new quantitative easing program here in the US, to doing nothing and allowing the markets to plunge further on lower liquidity.
The Federal Reserves last Quantitative Easing program did little to stimulate the economy, and simply led to the stock market moving higher over the course of nine months. Once that program ended, equities, GDP, housing sales, employment, and inflation all moved to the downside of economic growth. The QE program by Chairman Bernanke proved that the system no longer responds to additional liquidity, and will require even more than before just to remain at the status quo.
Several economists over the past week have stated that the Keynesian policies over the past decade of free money have failed, and that the destruction looming for the US monetary system is now far worse than in 2008. Over the past three years, it appears that the only arrows in the Fed’s quiver have been to increase the money supply, and the nation is now at the point where no amount of easing will change the course of the economy.
Congressional Republicans are relying upon the system and future policies of spending and tax cuts to stimulate the economy more than adding more money, as has been the policy for nearly two decades. With inflation rising at a much higher and faster rate since 2008, the threat to Americans of a new program of QE3 will bring dire effects to main street consumers, even if it brings a temporary respite to banks and Wall Street.