QE3's Shortfalls: Everything
Even if Helicopter Ben thinks that this new, unlimited round of quantitative easing will be just what is needed to soothe the ailing economy, plenty of others disagree.
Last week, the Federal Reserve announced a plan to purchase $40 billion of mortgage-backed securities per month, with no clear end in sight. It will also keep interest rates near zero until mid-2015 at the earliest.
Now, the point of all of this is to stimulate the jobs market and to help housing get a boost. But is it really going to be helpful in the long run? Stephen Roach, a fellow at Yale University, and Donald Trump both say no.
“I hobnob with all these macro theorists at Yale, they don't see any evidence of a linkage between liquidity injections in the mortgage-backed securities industry and the labor market distress in the U.S.,” Roach told CNBC Asia's “Squawk Box”.
After all, this will be the third round of easing since the start of the recession. And even though the unemployment rate fell from 8.3 percent to 8.1 percent from July to August, it still hasn't dipped below 8 percent since 2009.
Donald Trump called the whole thing “artificial,” saying this sort of program could lead to inflation which will grow like a cancer in modern day American economics.
A dismayed Mr. Trump expresses his concerns:
“I should be very happy about [inflation] in theory...but I'm not happy because ultimately it will come home to roost, and it's going to be very unfortunate int eh form of [higher] interest rates and some very severe things happening later on with the economy,” said Trump.
Trump, a real estate mogul, said he's benefited from inflation before. It's always good for someone who owns real estate, but that doesn't mean it will help the rest of the country.
Actually, for the most part, the rich will be the only ones to benefit.
It's all so artificial, Trump said, that the real winners will be investors in stocks and real estate – since those are the things that will get the highest leg up.
Roach thinks that the problem for the rest of the U.S. is excessive debt more than anything. Yesterday's data from the Fed showed household debt rose to $13 trillion – an increase of close to $40 billion.
“We need debt forgiveness for consumers who have bet the ranch on collateral that is now under water,” Roach said, referring to households that owe the bank more than their home is worth.
“It's very contentious. And they need financial security that can only come from higher level of personal savings. And banks need to take write-downs,” he added.
If inflation does occur – and the central bank intends to curb it before it does, though we can't be certain – this could weigh quite heavily on the average consumer.
Nothing in life is free, especially not money.+22
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