Was QE3 Too Much Too Soon?
By Staff News & Analysis - September 19, 2012

Fed's Bullard says QE3 was launched too soon … The Federal Reserve should have waited for clearer signs of a flagging economy before launching its new bond-buying program, the head of the St. Louis regional Fed bank said on Tuesday, adding that he would have voted against it. James Bullard, president of the St. Louis Fed, also told Reuters that he is sufficiently concerned about the risk of future inflation that he backs a controversial proposal by congressional Republicans for the Fed to return to having only a single mandate: preventing inflation. – Reuters

Dominant Social Theme: It may be necessary … just not yet.

Free-Market Analysis: Once again, the mainstream sets the debate when it comes to central banking.

Here is Reuters configuring the conversation in terms of the desired dialectic. The question is not whether central banks have the right morally or even legally to print trillions of dollars at will but only when such events shall take place.

There are other dialectical approaches used by the power elite to control the argument regarding the purpose of central banks. The biggest one is the battle between hawks and doves.

We are always led to believe that there are two camps within central banking: those who believe in easy credit and those who are in favor of tightening. By portraying central banking this way, the powers-that-be are essentially trying to co-opt the way people think about money production.

We are to consider that there can be too much money or too little money produced by monopoly fiat central banking. But we are not to consider whether a man-made mercantilistic facility should be involved in manufacturing money in the first place.

Here's some more from the Reuters' article:

In discussing his views on more monetary stimulus, Bullard said, "We should take a little bit more (of a) wait-and-see posture." His comments, in an interview with Reuters Insider, highlight potential dissent on the Fed's policy committee next year when he will be a voting member.

The U.S. central bank launched a potentially massive policy-easing effort last week to try to help the struggling U.S. economy. Under the program, dubbed QE3 by Wall Street, the Fed will purchase $40 billion a month in mortgage-backed debt until the outlook for the labor market improves substantially.

Bullard said the state of the U.S. economy was not dire enough for such a program. Financial stress is pretty low and measures of inflation are right about on target, he said.

Equity markets also seemed to indicate a lot of faith in the U.S. economy, he said, saying he would have waited to see what actions were taken in Europe in the fall to fight the region's debt crisis.

These statements are fairly incredible, from our point of view. Bullard seems quite content with a state of affairs that allows a handful of good, gray men to issue US$40 billion into the marketplace (per month!) with the express intent of advantaging a specific group of consumers (house-owners).

More than this, Bullard never mentions the need for QE3 is based on a previous Fed distortion involving low interest rates that caused an explosion in housing purchases.

He claims financial stress is "pretty low" but we wonder how he can make this statement about a country where approximately 50 percent of all citizens are on some sort of government assistance program and some 20-30 percent of workers are unemployed.

Perhaps the oddest statement Bullard makes is that "equity markets seem to indicate a lot of faith in the US economy." Bullard is surely referring to a doubling in US equity markets in a period of about three years.

But he must also be aware that this occurred while the Fed was dumping trillions into banks around the world and then embarking on some US$3 trillion in two previous rounds of quantitative stimulation. US markets are almost certainly not responding to "faith" in the US economy – they are responding to money printing.

Bullard's comments have an almost ritualistic quality about them, as if he were an actor in a play. In fact, the power elite that apparently wants to run the world needs people like Bullard in positions of power. They support the institutions that the elites have built to control society.

It would be surprising if Bullard was not quoted as saying something along the lines that he said. But in this era of what we call the Internet Reformation, we wonder if these sorts of elite memes are so effective anymore. We've pointed out that when people are educated about elite manipulations those themes begin to become ineffective.

People are gradually losing faith in a whole slew of elite promotions that were once intended to shape the way people worked and behaved. Global warming, the war on terror and certainly central banking itself have all increasingly come under attack. People, informed by the 'Net, just don't believe anymore.

The elites themselves are in increasing disarray as knowledge of elite manipulations permeate throughout society. Leaders who might have been tempted to go along with elite machinations are now finding in some cases the apparent courage to speak up.

Just today we read in the UK Telegraph about a criticism of central banking from no less than a top German banker! Here's how the article begins:

Debt crisis: central bank action is work of the devil, says Germany's Jens Weidmann … The head of Germany's Bundesbank has raised eyebrows across Europe after he appeared to compare Mario Draghi's bond buying programme with the "devil's work".

Jens Weidmann said that efforts by central banks to pump money into the economy reminded him of the scene in Faust, when the devil Mephistopheles, "disguised as a fool", convinces an emperor to issue large amounts of paper money. In Goethe's classic, the money printing solves the kingdom's financial problems but the tale ends badly with rampant inflation.

Without specifically mentioning Mario Draghi's bond-buying programme, he said: "If a central bank can potentially create unlimited money from nothing, how can it ensure that money is sufficiently scarce to retain its value?" He added: "Yes, this temptation certainly exists, and many in monetary history have succumbed to it," Mr Weidmann warned.

Although the remarks were in context – Frankfurt is currently marking the 180th anniversary of the death of Goethe – they defy calls by leaders for Mr Weidmann to tone down his criticism of the ECB, particularly at a febrile moment in the crisis.

In the later 20th century, you'd never have read such comments from a senior official. If one had actually stated something like this the remarks surely would have been suppressed.

After Thoughts

They are indicative of changing times… Bullard's rhetoric notwithstanding.