QUANTITATIVE EASING
As the economy continues to produce dismal results, Board of Governors Chairman Ben Bernanke is considering implementing round three of quantitative easing (QE). Aside the fact that quantitative easing failed miserably in Japan, and failed two previous times in America, the Federal Reserve might try this tactic again to try to stimulate an economy that honestly, can no longer be stimulated. Other than the fact that this effort is going to fail, there are three reasons why this Congress needs to step in and regulate this independent government body called the Board of Governors.
Quantitative easing is the process where the Federal Reserve buys bonds from the market. These bonds are purchased ex nihilo, or out of nothing. This results in increasing the money supply. Any study of economics and the money supply shows that this policy will be inflationary. Other than continued government spending, this is the last thing our economy needs. With 9.2% unemployment and many more dropping out of the labor market, an inflationary policy is the last thing needed for our economy. Making consumer expenditures more expensive is the last thing this economy needs.
Inflation has the effect of weakening the dollar. This leads to another impact QE will have on the economy. Because inflation will devalue the dollar, the exchange rate for the dollar will become weaker. It will take more dollars to buy foreign currency which makes foreign products more expensive. At the same time, however, this will make American goods exported cheaper and more competitive abroad. However, because the U.S. imports the majority of petroleum, a weak dollar will result in an increase in gas prices, exacting additional budgetary pressures on Americans.
Lastly, QE is unconstitutional. Article I, Section 8 of the Constitution directs Congress to regulate the value of the money it creates. Essentially, because QE is inflationary by its very nature, the Federal Reserve’s policy is unconstitutional in that it subverts the ability of Congress to control the value of the dollar. The Constitution does not empower the Federal Reserve to affect the value of the dollar. In fact, from the Federal Reserve’s own website, the Federal Reserve Act mandates the Federal Reserve to maximize employment and to stabilize prices. Well, inflationary policies do not stabilize prices. We need to only look at South America to see how unstabilized prices become as result of reckless money printing.
In Conclusion, the Federal Reserve’s QE policy undermines a constitutionally explicit power of Congress. QE results in an increase of the money supply, which contributes to inflation. In a time when many Americans are out of work, and many American’s facing pressure on their budgets, an inflationary policy like QE cannot be good for our current economy. Additionally, inflation weakens the dollar, causing important imported commodities such as petroleum to be more expensive. The Board of Governors needs to seek a different approach.
Quantitative easing is the process where the Federal Reserve buys bonds from the market. These bonds are purchased ex nihilo, or out of nothing. This results in increasing the money supply. Any study of economics and the money supply shows that this policy will be inflationary. Other than continued government spending, this is the last thing our economy needs. With 9.2% unemployment and many more dropping out of the labor market, an inflationary policy is the last thing needed for our economy. Making consumer expenditures more expensive is the last thing this economy needs.
Inflation has the effect of weakening the dollar. This leads to another impact QE will have on the economy. Because inflation will devalue the dollar, the exchange rate for the dollar will become weaker. It will take more dollars to buy foreign currency which makes foreign products more expensive. At the same time, however, this will make American goods exported cheaper and more competitive abroad. However, because the U.S. imports the majority of petroleum, a weak dollar will result in an increase in gas prices, exacting additional budgetary pressures on Americans.
Lastly, QE is unconstitutional. Article I, Section 8 of the Constitution directs Congress to regulate the value of the money it creates. Essentially, because QE is inflationary by its very nature, the Federal Reserve’s policy is unconstitutional in that it subverts the ability of Congress to control the value of the dollar. The Constitution does not empower the Federal Reserve to affect the value of the dollar. In fact, from the Federal Reserve’s own website, the Federal Reserve Act mandates the Federal Reserve to maximize employment and to stabilize prices. Well, inflationary policies do not stabilize prices. We need to only look at South America to see how unstabilized prices become as result of reckless money printing.
In Conclusion, the Federal Reserve’s QE policy undermines a constitutionally explicit power of Congress. QE results in an increase of the money supply, which contributes to inflation. In a time when many Americans are out of work, and many American’s facing pressure on their budgets, an inflationary policy like QE cannot be good for our current economy. Additionally, inflation weakens the dollar, causing important imported commodities such as petroleum to be more expensive. The Board of Governors needs to seek a different approach.
posted by Rich at 7:19 AM
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