Among the myriad other disputes between Barack Obama and Mitt Romney is a deep disagreement about Fed head Ben Bernanke. Obama loves Helicopter Ben, who is as prodigiously profligate monetarily as Obama is fiscally. Romney has already said publicly that (if elected) he would look to someone else when Bernanke’s term expires.
I have no doubt that’s a big reason why Bernanke announced a massive and open-ended new “QE3.” The Fed will pump $40 billion into the economy (buying mortgage-backed securities) every month until jobs are finally created. Given that the past massive injections of fed cash into the economy — you know, QE1 and QE2 — have not exactly created an employment explosion, the Fed may be buying those securities forever.
Short-term, the Fed’s announcement has resulted in a boost to the stock market. When you keep interest rates near zero, you basically drive capital into stocks. Raising the stock market higher is Bernanke’s gift to Obama, a big, wet, sloppy monetary kiss he hopes will get Obama reelected (and guarantee himself another term as well).
The bad thing, for everyone else, is that the value of the dollar will plummet downward. Both gold and oil prices therefore went up on the news.
The ratings agency Egan-Jones responded by dropping America’s credit rating from “AA” to “AA-“. In April, the agency had cut the rating from “AA+” to “AA.” In both downgrades, the agency cited concern about the rapidly growing deficit and declining dollar.
Egan-Jones VP Bill Hassiepen has said that the Fed’s “massive monetization” of debt is causing “sluggish to stagnant economic growth.” Hassiepen expects a rapid increase in the prices of energy and food, but, he wryly noted, “Unfortunately, we have a Federal Reserve that simply does not recognize the inflationary impact of food and energy prices any longer.”
No, what the Fed recognizes is that if Obama isn’t reelected, heads will roll, starting at the top. It will spend as much of our money as it feels it needs to do the job.