Quantitative Easing Has Consequecnes : Unintended? Maybe Not? Just Politics

This is all about politics and the federal reserve propping up the economy to make the Democrats look good as the midterm election are coming in 2014. Also, if Republicans get into office in 2014 and  2016, watch what happens to the markets when the federal reserve decides it's time to pull back on the monetary easing, QE's.

The fed will no longer need to prop up the financial markets to make the government look like it is doing the right things to save the economy. With the Republicans in office it will be time to make the government look bad to the people by pulling back on buying the $85 billion dollars worth of bonds every month and there by allowing the markets to crash, losing trillions of dollars of citizens savings.

The media will have a field day showing how inapt the Republicans are and how the voters made such a huge mistake by voting them into office. This is as sure thing as the federal reserve is so misunderstood by just about everyone. And of course the fed chair person is a progressive Democrat.

"See what happens when you decide that Democrats can't save the economy. Everything was going just fine until the Republicans got into office. Now the market is crashing and you are loosing  everything".

This is right from the progressive's play book. It worked wonders against Bush for 8 years with the media screaming daily how bad an unemployment rate of 4.6% was which proved the economy was tanking. It really wasn't but it didn't matter, it's the seriousness of the charge that mattered. People bought it hook, line and sinker. Now look where we are. An unemployment of 7.3% and a U6 unemployment rate of 14% or worse and nearly 47% of the population still think Mr Obama is the "One". Go figure.

 Remember how this was done by the media and how well it worked? Elections do have consequences.

Unorthodox Monetary Policies: Watch Out for Unintended Effects
Source: Desmond Lachman, "Global Effects of Unorthodox Monetary Policies," American Enterprise Institute, November 13, 2013.
November 27, 2013

In the aftermath of the Great Recession, major central banks have scrambled to support economic recovery and to avoid deflation through highly accommodative and unorthodox monetary policy stances. Going forward, these central banks need to be much more mindful than they have been to date of the longer term unintended consequences of their policy actions, says Desmond Lachman, a resident fellow at the American Enterprise Institute.

Over the past five years, in the aftermath of the Great Recession, the Federal Reserve, European Central Bank (ECB), Bank of Japan (BOJ) and Bank of England (BOE) have pursued unorthodox monetary policies on an unprecedented scale. This has led to a massive expansion in these central banks' balance sheets and has taken monetary policy into entirely uncharted waters. These effects raise basic concerns as to how these central banks can successfully exit from these policies.

• Since September 2012, the Fed has been engaged in an open-ended third round of quantitative easing (QE).
• This has involved the purchase of U.S. Treasury bonds and mortgage-backed securities at a rate of $85 billion a month.
• In addition, the Fed is providing forward guidance to the markets by indicating that it will not raise its policy rate so long as unemployment remains above 6.5 percent and inflation expectations remain well anchored.

It would seem that these policies have succeeded in providing welcome support to these economies' recoveries by substantially lowering long-term interest rates and by increasing asset prices. However, they have come with a host of unintended consequences, including incipient asset- and credit-market bubbles. They have also had important spillover effects on other economies in general and on the emerging-market economies. Recent capital flows and currency movements have been particularly disruptive to the emerging-market economies, which have been the main engine of global economic growth.

One has to hope that the world's major central banks strike the right balance between the short-run gains to be obtained from further QE and the longer-run adverse costs of those policies. In particular, one must hope that these banks refrain from repeating their past mistakes of unduly fueling asset- and credit-market bubbles and of contributing to undue exchange-market volatility.