But the notion of this as a partisan decision is simply wrong. Normally, the Fed can use the lowering of interest rates to stimulate economic growth. But Alan Greenspan had to use it to keep the country afloat while we poured billions into making war. This, in part, triggered the housing collapse, and did nothing to stop the massive transfers of wealth upward through gasoline prices whose movement had almost nothing to do with either supply or demand. The rates have never risen back to where cutting them can be effective.

Bernake is caught in the quandary stated best by former Fed chairman Paul Vlocker: the Fed has the economy on a leash, but it’s hard to push on a leash. The most stagnating thing at the moment is the intractable levels of private debt (NOT government debt) that have resulted from the housing collapse and the use of the public as a passive cash cow for investors in energy stocks. This has depressed consumption.

By buying bank debt rather than US debt, Bernake is trying to stimulate consumption through more bank lending. But the banks are actually pumping the money straight back into stocks which, combined with the companies who have been holding enormous amounts of cash to reinvest in stocks rather than capitalizing the company’s business, is pushing the Stock Market to insane levels while the rest of the economy goes begging.

I frankly don’t think it likely to work, but the Fed really has very little else left to try.

And as for the Libyan situation I defy Romney or anybody else to come up with a serious policy proposal to do more than we are doing.

What should we do? Start a war with every country where this turmoil has spread? It is an article of conservative faith that “striking back” cows terrorists into inaction. But this is balderdash.

Nothing in the history of the past 40 years lends any support to the notion that terrorists can be frightened into not acting like terrorists by anything. The most that can be done is to inhibit terrorist leadership by killing the leaders. But there is no point in shooting at random until you find a target, and the current administration has a pretty good track record of taking out terrorist leadership. Far better than the last one, actually, for all its bellicosity and all the money it spent on making war.

Now if either Mr. Romney or, you, Mr. Ceaser have anything to suggest about how to do this better, I have yet to hear it. If you do, I’m all ears.

http://dailywitness.com/stand-by-your-man-bernanke-pledges-40-billion-per-month-to-obamas-campaign/

Nothing happens to the circulating money supply as a result of QE1-3. In fact QE-3 is largely “partisan” rhetoric and expectations game. But in reality since QE-3 just puts money into the banks “excess reserves” there is no real effect.

Technically of course all the banks can loan these “excess reserves”, so you can have your partisan AH HA moment.

But notice what you are saying… Banks can loan reserves in the federal funds market. Yes, but they always could… and in reality they are not the limiting factor, that is the QE-3 which provides money to the “excess reserves” so that this money can be lent in the federal funds market is really not going to do anything…. this is because the price one can get in the federal funds market is the interest rate target of the Fed! And the Fed will always lend enough money to meet the target rate of the Fed, and would have done so in the absence of QE-1-3!

So the money isn’t printed… Personally I think the Fed and Bernanke are just trying to give cover to Washington, by obfuscating the mechanics. In my opinion the monetary base mostly increases as a result of deficit spending. In any case I am sure that the mechanics of taxation destroy money, and that the mechanics of spending create it, ergo the government spending more money than it destroys(takes in), is the chief means by which the actual monetary base increases.

If you look at M-2 it is going to track deficit spending a lot more closely than it is going to track QE-3.

Technically QE-3 is very very marginally inflationary, because if the banks are the ones lending in the federal funds market, they receive the interest payment. If the banks receive the payment instead of the Fed, then the Fed ends up sending less of its “profit” back to congress…less profit from the Fed redirected to congress results on the margin in an increase in the budget deficit. An increase in the budget deficit increases the money supply.