I shared some thoughts on QE3 on the day that the FOMC statement was released. Overall, it is bad for the economy. There may be some short-term excitement with gold and the stock market going up, but it is going to turn into a nightmare. It is misallocating more resources, it will lead to higher price inflation, and it will prolong the agony. In fact, it will make the inevitable correction that much more severe.
There was one bit of good news that I saw when reading an article on QE3 on the day it was announced. I read the first dozen comments or so at the bottom of the article, and every one, except one, was negative towards the Fed. Even the one exception was not in favor of QE3, but a simple comment from a naive (yet open-minded) reader asking where the Fed will get money to buy the mortgage debt.
Not only were the comments negative towards the Fed, they were mostly well thought out and articulated. Some people ridiculed Bernanke and the Fed, while others gave more serious input. But most everyone understood the negative consequences associated with more money creation. I thought it was encouraging just in the fact that the commenters understood that QE3 was simply more money created out of thin air.
The best news is that this article was on Yahoo Finance. I am not aware that it was linked by any popular libertarian website like LewRockwell.com. It was just a standard article talking about the FOMC meeting and statement.
I don’t think we would have seen comments like this 10 years ago, or even 5 years ago. There might have been a few, but it would not have been the vast majority. I credit Ron Paul to a large degree. He has educated millions of people on the subject of the Fed. I also give credit to all of the libertarians and their educational efforts who set the stage for two successful Ron Paul campaigns (in the sense that millions were educated from his campaigns).
The cat is out of the bag. Bernanke and the Fed cannot hide. It is funny that the term “quantitative easing” or “QE” was first used as a technical term for money creation. Now it seems that Bernanke and the Fed avoid using the term because of its negative connotation.
This is why I think hyperinflation is not only not inevitable, but actually unlikely. If we start to see any signs of serious price inflation, then there will be a lot of pressure on the Fed to stop. Perhaps we might see double digit price inflation like there was in the 1970’s, but I can’t imagine that it would get worse than that. Everyone and their brother who has any understanding of this would be posting messages on Facebook and spreading the word, explaining that the rising prices are due to Federal Reserve monetary policy. I think the Fed would be too embarrassed to go any further, or else people would start marching in Washington DC.
In conclusion, QE3 will cause more pain down the road for the economy and our overall standard of living. The good news is that I see some hope for the future. The Fed can no longer hide. It has a spotlight on it like never before and it is not going to be turned off until the Fed is no longer in existence.