Quantitative Easing is no longer just a palliative Federal Reserve policy—it has just become a political issue. Which is why it will get bigger—and worse.
If you’ve been following American political theater since the start of the Global Financial Crisis in 2008, you’ve probably noticed how many (but not all) Republicans line up on the side of fiscal austerity and tight-money policies so as to limit the fiscal deficit and reduce the government debt (at least when it comes to non-military spending. And non-law enforcement spending. And non-bank-saving spending.)—
—whereas the Democrats have insisted that the government needs to take on more debt, and spend its way back to prosperity. In the Dems’ worldview, deficits and debt don’t matter: What matters to them is how much is the government going to spend in order to “save the economy”. (“Paging Professor Krugman!”)
But last Thursday, during the testimony Federal Reserve Chairman Ben Bernanke gave to the Senate Banking committee, Democratic senators questioned why Bernanke was thinking of tapering off the bond purchasing programs of Quantitative Easing (QE). They wondered out loud if maybe QE should continue “until the economy further improves”.
(Listen to: Axel Merk: Treasuries No Longer the Place to Hide)
In other words, the Democrats have finally realized that not only does QE mean they don’t have to reign in the deficit—QE also means that they can expand the deficit, confident that additional debt will be bought and paid for by the Federal Reserve. Confident that additional debt will be monetized by the Federal Reserve—because after all, that’s what QE is: Debt monetization, and everybody knows it.
(What, you really think that the Fed is gonna one day unwind its QE position? Sterilize all that money printing and reign in its balance sheet to less than trillion, as per the status quo ante the Global Financial Crisis? Hue’ón, you buy that, then open your wallet, ‘cause I got a bridge to sell you.)
Which means that, with their calls for more QE, it’s clear that the Democrats have finally embraced flat-out money-printing.