Fed Says Spending Cuts Hurt Economy; QE-Infinity Will Continue

By:  Thomas R. Eddlem
Fed Says Spending Cuts Hurt Economy; QE-Infinity Will Continue

In an October 30 press release, the Federal Reserve Bank's Open Market Committee blamed the soft economy on a lack of government spending and announced it would continue the purchase of long-term federal debt and mortgage-backed securities indefinitely.

“Fiscal policy is restraining economic growth,” the Fed's Open Market Committee (FOMC) concluded. The Federal Reserve support for “fiscal policy” as an economic cure — i.e., more government spending in an attempt to spur the economy through programs such as 2009's “Cash for Clunkers” — may prove the FOMC to be the last bastion of the hard-core Keynesian economic school still on the U.S. political spectrum.

The statement came just one day before even the liberal Brookings Institution admitted that Obama's Cash for Clunkers was an abysmal failure, where each “job-year” cost taxpayers $1.4 million. But the FOMC is still blaming the lackluster economy on the slight decreases in federal government spending over the past couple of years, and claimed that all economic growth has been a result of their monetary creation policy:

Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy.

The purchase of long-term debt and home mortgages has been termed “quantitative easing,” the third such attempt by the Federal Reserve Bank since the financial crisis shook the nation in 2007-08, and the indefinite time of the program has led to the label “QE-infinity.” The purchase of these debt instruments constitute a literal creation of money out of thin air, with just a few keystrokes of a computer. As such, they are by definition inflationary, though the upward pressure on prices in the U.S. market has been temporarily relieved by the foreign purchase of U.S. debt.

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Photo of a television screen at the New York Stock Exchange depicting the Fed's decision to continue QE: AP Images

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