The Fed has put itself and us in a QE Trap

At first we were in a liquidity trap as Paul Krugman so eloquently and repeatedly explained, but now the unintended consequence of Federal Reserve Quantitative Easing (to get us out of the "liquidity trap") has put us in perpetual slow-growth as the Fed cannot stop QE without fear of another recession --

"As soon as the economy picks up a bit, the authorities begin to talk about tapering, which sends long-term rates sharply higher and nips the recovery and inflation in the bud, effectively preventing them from winding down the policy. In this kind of world the economy never fully recovers because businesses and households live in constant fear of a sharp rise in long-term rates."(source infra)

Fed Faces Cost Of Quantitative Easing - Business Insider: ". . .Had the Fed not implemented QE, long-term rates would not have risen so early in the rebound, and the economic recovery would have proceeded smoothly. Now, any talk of ending QE pushes long-term rates higher and throws cold water on the economy, making it more difficult to discontinue the policy. That raises the possibility that by buying longer-term securities the central banks of the US, the UK and Japan have placed themselves in a QE “trap” of their own making and will be unable to escape for many years to come. I have previously described QE as a policy that is easy to begin and hard—even scary— to end. The recent drama over tapering signals the start of the less-pleasant second part. . . ."

Proof of this is the recent snafu over tapering --

It's Time For A Nonhuman Fed Chairman - Business Insider: ""Why bother with transparency when you can and do change your minds?" asked ED&F Man Capital managing director and bond market veteran Tom di Galoma, saying what it seemed like everyone was thinking following last week's FOMC decision."

And I wonder if anyone in the White House or Congress understands any of this?

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Income Inequality, Inflation, The Fed

Mish's Global Economic Trend Analysis: Income Inequality Explained: Why Wages Don't, Won't, and Can't Keep Up With Productivity: "....The Fed and its inflationary policies are directly responsible for the massive rise in income inequality, yet numerous economists promote more inflation and taxation of robots as the solution."

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The Fed, Stimulus Effects

At a Fed Conference, Views Differ Sharply on Stimulus’s Effect - NYTimes.com: "Policy makers from developing countries urged the Fed to clarify its plans so they can prepare for potential disruptions. Low interest rates in the developed world have sent vast quantities of money sloshing into those countries. Ms. Lagarde said that net flows to those countries had risen by $1.1 trillion since 2008, about $470 billion above expectations based on long-term trends. As rates rise, history suggests that some of the money may come sloshing back, with hugely disruptive consequences. Investors already are selling foreign currencies and buying dollars in the expectation that the Fed will begin to decelerate its stimulus campaign, allowing the dollar to strengthen. The Indian rupee lost 4 percent of its exchange value in about a week, prompting the Reserve Bank of India to impose restrictions last week on the outflow of money. Agustín Carstens, governor of the Bank of Mexico, said, “Advanced country central banks should mind the spillover effects of their actions.” He added, “Otherwise the crisis will be reactivated with new actors.”"

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Freud, Gold, the Fed, and the Dollar

Freud and the Fed - The New York Sun: " . . . Mr. Krugman would have his readers believe that the Sun and the Journal have objections to a woman chairman the Fed. That’s because he dasn’t open up the question of the value of the dollar in the terms the framers of our constitutional system intended. The fact is that the founders of America would be appalled at the monetary system that obtains in America today . . . So would the creators of the greenback and the founders of the Federal Reserve itself. One hundred years ago Congress established the Fed on the express condition that, as it was put by the Fed’s leading congressional supporter, Carter Glass, nothing in the bill should be construed as a repeal of the law “providing a gold parity for all forms of money.” We have our doubts about what Keynes himself would have made of a dollar valued at but a 1,300th of an ounce of gold. . . ." read more at link above

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