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The Fed Is Not Printing Money, It's Doing Something Much Worse
Forbes | 03/09/2014 | John Tamny
The Federal Reserve’s seemingly endless program of quantitative easing (QE) begun under Ben Bernanke, and continuing at a slightly slower pace under Janet Yellen, has some of the punditry and much of the electorate up in arms. With good reason.
Implicit in quantitative easing is the horribly obtuse notion that central banks can produce real economic growth through their monetary machinations. If only life were so simple.
Back in the world of the reasonable, the sole purpose of money is as a stable measure of value that facilitates the exchange of goods and investment. Quantitative easing, by its very name, involves the corruption of money’s sole purpose as a stable medium of exchange.
In that case it must be stressed that QE has in no way boosted growth. The latter results from investment in new and existing commercial concepts, and for destabilizing the value of money, QE works against the very investment that would drive economic growth.
Worse, the imposition of QE can only take place when the White House and Treasury support such a move, the latter support speaks to a desire on the part of the White House and Treasury to devalue the unit of account (the dollar), and as investors are buying future dollar income streams when they invest, QE acts as an investment deterrent.
Looked at in terms of financial markets, QE similarly has not been good for stocks. Indeed, stocks have been rallying ever since word emerged from the Fed two years ago about an eventual end to the program, and as markets always price in the future, it’s apparent that investors would logically prefer an end to what which logically does not, and cannot, work.