QE3 Will Not Solve Our Problems : New Leadership Will

If you ask people how QE3 will effect their lives, they will have no idea, most won't even know you are taking about. The same is true of the proponents to some degree, it's more about fixing the 'looks' of the economy just before an election, rather then doing something that will have long term effect but look bad now.

The general thought in the financial community is QE3 will do more harm then good by pushing off decisions that need to be made now to be made at some later date. The problem, of course, who will have the political power and the will to do the right thing later?

Our best chance to turn the country around is new leadership now. What we don't need right now is more of the same bad policy of the past four years that brought on the financial nightmare we currently in. Hard decisions need to be made with considerations for our future, not considerations to benefit a central government or a progressive socialist party agenda.

This November, think about what is important in your life and how your vote will make a difference. Think about how your vote will effect you and your families future.

How to Think About QE3
Source: Arnold Kling, "How to Think About QE3," The American, October 9, 2012.

October 19, 2012
In attempts to get the economy on track, the aftermath of the current recession has witnessed numerous intertwining interventions between the public and private spheres of society. The series of quantitative easing by the Federal Reserve are an illustration of this scenario. The Fed will implement the third installation of quantitative easing to stimulate the economy. However, economists are divided on the consequences of further measures, says Arnold Kling, a member of the Financial Markets Working Group at the Mercatus Center.

Quantitative easing is a relatively new experiment the Fed is embarking on; thus, Kling's examination draws from the intervention in central banks in the markets for foreign currency.

Foreign currency intervention can take three forms: Unsterilized intervention, sterilized intervention and sterilized intervention with a credibility kicker. The current attempt looks like sterilized intervention, which many deem ineffective.

•Unsterilized intervention means that the Fed will purchase foreign securities to increase the supply of money. This increase entails that more money is chasing the same goods, thereby deteriorating the value of local currency.
•Sterilized intervention is the attempt to decrease the value of the currency without having to change the money supply or price levels. The Fed can do this by selling some of its portfolio of U.S. Treasury securities, which will offset the purchase of foreign bonds. However, many economists have little confidence in this sterilization measure.

•Sterilized intervention with a credibility kicker. The distinction here is that the Fed will publically signal a serious commitment on its determination to see the dollar value decline.

It is important to note that the environment where these interventions are unfolding is domestic, whereas the interpretations up to this point have been made from foreign case studies. By extension, it follows then that there are several outcomes to the QE3 within domestic market. Overall there are three possible scenarios:

•If QE3 operates like sterilized intervention, there will be short-term reductions in the cost of specific long-term borrowing, but will soon dissipate. In the end, the economy will proceed along the same path as it would have without QE3. The probability for this is 20 percent.

•If QE3 operates like unsterilized intervention or like sterilized intervention with a credibility kicker, and the Phillipsians are correct (those who believe that additional inflation would help to reduce unemployment), then QE3 will put the United States on a slightly higher inflationary path with significantly lower unemployment. The probability for this is 30 percent.

•If QE3 operates like unsterilized intervention or like sterilized intervention with a credibility kicker, but the Phillipsians are incorrect, then QE3 will produce a significantly higher inflation with little effect on unemployment. The probability for this is 50 percent.