IN BRIEF

Fed's Coffers Can't Provide Certainty

SEPTEMBER 17, 2012 by CHUCK GRIMMETT

“The central banks in the world’s two largest economies, Europe and the United States, took extraordinary actions this past week. They each promised an unlimited amount of money to help restore the economy.

By opening their money spigots indefinitely – essentially printing more dollars and euros – the banks are attacking one big problem: uncertainty. Too many investors and consumers still see too many unknowns to be confident about the future. …

The Federal Reserve chief, Ben Bernanke, happens to be one of the leading scholars on economic uncertainty. In a 1983 paper, he showed how small-business owners will delay hiring and spending if government policies on taxes and regulation are too fickle over time.

Now as Fed chief he’s promising to spend $40 billion a month to buy up bonds in order to push easy money into lending markets, especially housing. This latest round of “quantitative easing” (or “QE3”) includes another extraordinary move for the Fed. Its buying spree will end only when the job market is healthy, Mr. Bernanke says. The European Central Bank (ECB), meanwhile, promises unlimited bond-buying to stem a lack of confidence in the eurozone.” (Christian Science Monitor)

Opening up their coffers indefinitely will only lead to trouble, not certainty.

FEE Timely Classics

The Return of the Keynesians by Christopher Lingle

Does Government Spending Bring Prosperity? by Percy L. Greaves Jr.