Robert J. Samuelson – Bernanke on the Brink

Even before [last week’s announcement by the Fed that it would initiate Quantitative Easing Strategy Number Three, or QE3], there was skepticism that it would do much to lower the unemployment rate, which has exceeded 8 percent for 43 months. The average response of 47 economists surveyed by The Wall Street Journal was that a similar program might cut the jobless rate 0.1 percentage point over a year.

Paper Tiger

Paper Tiger (Photo credit: cucchiaio)

Oh, boy! One tenth of one percent! Over an entire year! That’s worth debauching the currency over, isn’t it?

Samuelson has captured the entire fraudulent Keynesian in one pithy paragraph:

At a news conference, Fed Chairman Ben Bernanke explained what the Fed hopes will happen:

By buying mortgages, the Fed would push interest rates down. They’re already low (3.6 percent in August for a 30-year fixed-rate mortgage) and would fall further. Lower rates would stimulate more home buying and construction. Greater housing demand would raise home prices. Fewer homeowners would be “underwater” (homes worth less than mortgages). would refinance more existing mortgages at lower rates because the collateral — the homes — would be worth more.

Feeling wealthier, homeowners would spend more and cause businesses to hire more.

This is the mantra of Keynesianism. It’s also provably false. But that doesn’t matter. Part of the mantra is: If something doesn’t work, do more of it. That proves that it’s insane.

Samuelson is a Keynesian, Harvard-trained, with years of writing for establishment outlets like Newsweek and the Post. So he isn’t allowed, by training, or experience, to stray too far off the reservation. But he comes close to heresy here:

Explanations [as to why these Keynesian strategies aren’t working] abound. One is that the stimulus programs were still too timid…

Another…is that the trauma of the financial crisis and recession made households and businesses deeply cautious…

To these might be added a perverse possibility: the stimulus programs themselves. Intended to inspire optimism by demonstrating government’s commitment to recovery, they could do the opposite. If consumers and companies interpret them as signaling that the economy is in worse shape than they thought, they might retrench even more…

Close, Mr. Samuelson, but no cigar! I think people have figured out that the Fed is a toothless, paper tiger, all bluster and no power. Or my favorite: All hat and no cattle.

As Samuelson said, “There is a desperate air to Bernanke’s latest move…the Fed is on the brink of moving beyond what it understands and can control.”

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