Does the U.S. Need More QE?

This is a complicated question. There is a paradox of what should have been done before versus where the world is now. The first part of the equation is the extent to which poorly thought out policy has made things worse thus prolonging what the natural duration of the financial crisis would have otherwise been.

There is no way to know what would have happened if they’d have let banks fail and only bailed out depositors. What if the I-banks had been forced to take realistic haircuts on AIG instead of being made whole. What if the Fed had not lent so much to the banks? What if they had not executed all the various acronym programs.

I’m generally of the opinion there should have been less protection for the institutions (but again total protection for depositors), fewer desperate measures enacted by the government. My thoughts could easily be incorrect but regardless what anyone’s version of should have is, we have only one reality which is what happened and what happened, among other things, is that the Fed bought a lot of US treasury debt which has become to be known as quantitative easing. They’ve actually done this under two different QE programs and both times it has come up short.Regardless of whether QE should have been done, it was done at some expense and has not had the desired end result. This raises the question for which I have no answer; if there is no QE3 then were the first two simply a waste of time and money. Put another way, do we have to do QE3 (by that or any other name)? Then do we have to do another one until it finally sticks? Of course what then is the ultimate consequence?

The answer is not about anyone’s philosophy it is about the fact that this is what has occurred up to this point (whether we like it or not) so based on what has been done, what makes the most sense. I was much closer to the tear the band aid off camp before but that was not our reality. Our reality was intrusion on markets on what appears to be an unprecedented scale. This intrusion cannot be undone, so in the face of that intrusion should there be more?

You may conclude no but the process that takes you to that answer must be different than how you would have answered the question three years ago.

About Roger Nusbaum 169 Articles

Roger Nusbaum is an Arizona-based financial advisor who builds and manages client portfolios using a mix of individual stocks and ETFs. Roger writes a popular blog, which focuses on risk management, foreign stocks, exchange traded funds, options etc.

Roger has been recognized by many in the investment management industry for his expertise in portfolio management. Roger has been regularly interviewed by the financial press, trade journals, and television news shows. He has also had numerous technical articles published and has been quoted in a number of professional trade journals, newspapers, and consumer finance magazines. He appears frequently on CNBC Asia as a market commentator.

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