The Federal Reserve’s decision to launch a massive new effort for economic stimulus sent the stock market soaring Sept. 13.
Many investors clearly still welcome the central bank’s efforts to help revive our long-struggling economy.
But the timing of the Fed’s announcement – less than eight weeks until Election Day – inevitably triggers debate on not just its political effects but its political motivations. Assorted critics have even branded it a huge “campaign contribution” from Fed Chairman Ben Bernanke to President Barack Obama.
We prefer to believe that the Fed has again taken this extraordinary step for economic, not partisan, reasons.
Bernanke has expressed justified concerns about high unemployment that has persisted for nearly four years. When he deems the economic mess dire enough to warrant his drastic action, that hardly sounds like a re-election endorsement for the president.
This will be the third round of “quantitative easing” (hence the moniker “QE3”) since the economic meltdown of late 2008.
Yes, the first one was needed. But if these QEs work so well, why do we already need another one?
How many jobs will that nearly half a trillion a year in mortgage securities buy?
And how many more times can the Fed pump out vast amounts of new money without risking serious inflation?
It’s true that by federal measures, prices remained relatively stable through and after QE1 and QE2. It’s also true, however, that those measures don’t include fuel and food costs, which have been sharply increasing.
At least Bernanke, despite his latest attempt to boost the jobs market, offered this reminder of an enduring economic truth:
“Monetary policy, as I’ve said many times, is not a panacea. It’s not by itself able to solve these problems. We’re looking for policymakers in other areas to do their part.”
In other words, our elected officials in Washington must still deal with the onrushing threat of a “fiscal cliff” before year’s end.
Then whoever wins the presidential and congressional races on Nov. 6 must finally deal with our record – and rapidly climbing – national debt.
And spending more money that we don’t have isn’t the solution to that growing, bottom-line crisis.
It’s the reason for it.
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