11/6/10

QE2 Already Looks Leaky

"...Fiscal and monetary policy makers rarely allow mere data to discredit their often-dubious nostrums. If the result of their intervention looks paltry, count on them to argue that things would have looked far worse if they hadn't applied their medicine. The inability to rerun history without the intervention makes it hard to invalidate their self-serving claims.

...The argument that this new round of quantitative easing, QE2, will do more good than harm seems doubtful at best.

Will it improve access to credit by lowering interest rates and making more funds available? But interest rates are already low—and if credit has really been hard to get, why haven't we been hearing that from the National Federation of Independent Business' monthly survey of its members? The NFIB's "Small Business Optimism Index" was still in the doldrums at 89.0 in September. But on the issue of credit, 91% of respondents "reported that their credit needs were met."

Besides, as Stanford University economist John Taylor has pointed out, "the impact of quantitative easing on mortgage rates or other long-term borrowing rates has been quite small and statistically insignificant." And on the negative side, QE2 is sure to increase the volatility of money growth.

Can policy makers do more harm than good?

Their ideology generally makes such notions too outlandish to consider.

Hence the sobriquet QE2—rather than Titanic."

GENE EPSTEIN

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