Michael Papet

What happens when a tree falls and everyone hears it?

Three days into the first Bush (#43) administration  and Cheney was preparing a few countries for Iraqi regime change by force.

Nothing.

That’s about February 2002.  It seems to me the wanton death and destruction in a far-off land for no apparent reason other than “because the Administration wanted to” should violate any number of laws with real consequences.  Who drove this agenda?

Where is Congress on this?  The Courts?  A few more personalities from the Bush Administration need to get perp-walked for something having to do with the egregious lies used to fuel the revenge fantasy of invading Iraq.

The grossly simplified reasoning behind QE2 for those that don’t get it.

The Fed’s Role in an Economy

The Fed’s mission is to simultaneously encourage full employment and a robust, stable, economic environment. A robust economy has low inflation with stable prices and ideally, positive interest rates. Positive interest rates basically suggest an economy is still creating wealth. Note that “full employment” is not a requirement to have a robust economy.

Mission goal, “Full” employment

Full employment: without delving into a definition of “full” (semantic gymnastics) it’s obvious the country is nowhere near full employment.

Mission goal, Mild Inflation, Stable Prices

Inflation: the economic environment the Fed is trying to create has mild inflation across all asset classes and stable prices. The Fed has been enacting policies to preserve some inflation in asset prices.

For those of you wanting to go the direct route to deflating various pricing bubbles in Financial and Real Estate markets, I believe the consequences would set off too much economic pain in the form of deflation and even more unemployment. You don’t want deflation. It’s a very difficult cycle to break. Part of QEx’s goals will be to maintain the appearance of inflation.

Promote a healthy economy

Economic activity is the other thing QEx will attempt to stimulate by making money available at a lower cost. This is already being done, but they will dream up new ways of doing more of it in an attempt to fertilize the economy.

Consequences

I predict The Fed will be able to show positive results of doing QEx. Not exciting results, but something. Unemployment will still be generally awful. There will be the same amount of economic uncertainty in the bottom 80%.

The general consequences of QE2 be disinflation. Disinflation is declining inflation. I predict the measured inflation will continue to decline regardless of which quantitative easing version they are running. That is, until the formula used to calculate inflation is reworked.

The reason it won’t work is there’s a socio-political ideology at work that discourages the creation of new wealth and discourages an obviously liberal definition of “full” employment.