The Fed’s PR campaign on QE2 is on full blast. This time the SF Fed is again defending the program. Unfortunately, their argument lacks any real facts as it is entirely based around the idea that QE reduces the cost of credit. The real evidence shows that QE is not having nearly the impact that Fed officials expected. Someone should probably inform these economists that mortgage rates, corporate debt and the general cost of credit is higher than it was before the program was initiated. Not surprisingly, the impact has been a continued decline in home prices, collapsing refinancings, a continued decline in total borrowing and higher corporate debt costs.
In fact, the only net positive is the stock market’s appreciation and they have not been shy about taking credit for it. Unfortunately, there is no evidence that QE is the actual cause of the stock market rally and there is certainly no evidence that its impacts are due to anything other than the Bernanke Put – a psychological safety net underneath the market that fuels speculation and causes disequilibrium as fundamentals stray from reality. If the market were to decline substantially in the next few years I have little doubt that the Fed will not be publishing research papers that take credit for it.
Not surprisingly, they make no mention of the fact that total borrowing and home prices have continued to decline despite their “significant” impact on credit markets. Despite this PR campaign there is almost zero substantiated evidence that QE is having a positive impact on the economy. Nonetheless, the arguments are always interesting: ... [..]
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