Some might say I have a sociopathological hatred for quantitative easing, an atavistic reaction that compels me to find reasons, sensible sounding or otherwise, for detesting and opposing QE. But I have many reasons for opposing QE, and more are popping up on the Internet every day:
- QE is inflationary and, soon (as in any minute), hyperinflationary.
- Worse, QE is inert and thus a waste of time. The Fed swaps interest paying reserves for bonds, and banks sit on the reserves.
- QE is inert and hyperinflationary, but in the meantime will do nothing to stimulate the general economy, but will cause bubbles in specific sectors (efficient market theory notwithstanding).
- The Fed ends up with a big balance sheet. You might say, “So what?” But have you thought about it? The world might be ravenous for safe assets, but you think the Fed can sell safe assets?
- QE causes “unquantifiable financial risks.” This one is an ace, carte blanche to stop QE. I just keep hoping someone somewhere says QE causes “unforeseeable but potentially catastrophic financial imbalances and dangers.”
- QE is actually contractionary, locking up cash in bank reserves, where the banks sit on it when it could be out there working in the economy. By this measure, QE fights inflation. (But wait—I am supposed to be against inflation…also does this mean we can pay off national debt and reduce inflation at the same time? Is this why inflation has drifted down while the Fed has deployed QE?)
- QE causes jobless recoveries, because labor does not lower its price, but capital costs go down, and this leads to business buying labor-saving equipment and throwing workers out on to the street.
You might think I would be daunted in my quest for the ultimate anti-QE story, a bit like Don Quixote. After all, I seem to be going down a rabbit hole, while QE seems to have stabilized and even improved the US economy and especially property and equities markets. And Japan is doing better too, an in aggressive QE regime.
But I have examples to guide me. John Cochrane, University of Chicago, is a reputable economist, and he writes in a recent blog post, “I’m collecting interesting stories by which it might be the case that current monetary policy has the opposite of the intended sign or other unexpected effects.”
You might ask why someone would “collect” such stories. Even if such stories contradict other anti-QE stories, or suggest that QE can be used to fight inflation (while paying off the national debt.)
Cochrane even sasses the ghost of Chicago icon Milton Friedman, and writes, “In this case, two trillion dollars of QE with nothing to show for it pretty much dooms MV=PY, at least while interest rates are zero. Sorry, Milton, it just ain’t so.” Milton Friedman is thus tossed under the bus, as he was a wholehearted advocate of the use QE in Japan, as was John Taylor, Allan Meltzer, Ben Bernanke, and Fredric Mishkin. But what do they know?
Well, surely I do not know John Cochrane. People say he is a nice guy.
But I do know myself. I have a sociopathological hatred for QE. It causes hyperinflation and economic contractions, turns workers out into the street while fomenting unsustainable bubbles, and also poses unquantifiable financial risks.
Let me add on: QE poses unforeseeable but potentially catastrophic financial dangers. I am collecting stories about QE. Please send them my way.