Somebody's a REAL pessimist.
Without QE, the government will be unable to honor its obligations. Non-payment of Social Security or Medicare or federal payroll or welfare checks or retirement checks, or military payroll, etc., etc., would show up almost immediately. That would jeopardize foreign (and domestic) purchases of additional federal debt, exacerbating the problem.
Bernanke's second option enables the government to continue operating irresponsibly until market forces eventually stop the profligate behavior. Market discipline would likely be imposed in the form of a collapse of the dollar or raging inflation (or both.)
Under either scenario, the Obama presidency is destroyed. Obama probably prefers the second option, because it might extend the period before sovereign bankruptcy. However, it might not extend it very much.
"QE"--quantitative easing, or Fed purchase of T-bills and stinko bank assets--is supposed to end by the end of March--the Ides plus 2 weeks.
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This is not news to anyone (including Keynesians). This guy is not re-inventing the wheel here. QE is buying time. In a fiscal sense, so is stimulus. Time for the private sector to deleverage and search for a means to produce another surge in productivity through innovation.
Will this happen? Hopefully it will for the sake of all of us. But whether you take the more Keynesian approach to this crisis that the Fed. Chairman and Administration have taken or advocate the complete oppposite, it makes no difference in terms of fixing this country's looming long-term sovereign debt crisis.
QE is the best we can do at this point.
J. Strupp says: “time for the private sector to deleverage”. I agree.
The economy can be reduced to real assets and promises to pay. Our elected government is going to find itself unable to honor its promises to pay and will make an attempt to confiscate real assets. Government promises to pay with confiscated wealth should have been made with respect and restraint, but they have been neither. Good people should prepare themselves by minimizing their promises to pay other people. They should minimize their personal debt in preparation for the coming consequences of our irresponsible political behavior.
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