Submitted by Gonzalo Lira
QE2 Will Sink Us
rationale is that the United States’ economy is circling the
deflationary drain—something Bernanke and the Fed are absolutely
terrified of. Certainly deflation is hitting the U.S. economy full bore,
but it’s yet to be proven that this deflationary trough has twisted
itself into a self-reinforcing vicious cycle. I would argue that the
chances of the U.S. economy twisting into a deflationary death spiral
has yet to be made. But be that as it may, it doesn’t matter if the
economy is in a deflationary death spiral—Bernanke and Co. think that that’s the imminent danger. And they're the ones with their finger on The Big Red Money-Making Button.
Some people are claiming that the first version of QE was not enough. Like Paul Krugman whining that the stimulus package wasn’t big enough to restart aggregate demand, the aggregate asset crowd—the monetarists—are bitching that Bernanke didn’t really open the monetary flood gates with the first version of QE.
These people conveniently forget that the Fed more than doubled its balance sheet, in order to carry out QE v.1.0. This interactive chart tells that story better than words can—from less than a trillion dollars, to $2.2 trillion in under 60 days. Clearly, Bernanke now owns the land speed record for monetary expansion. And to any talk that Bernanke is contracting the Fed balance sheet too quickly, let’s just say that a shrinkage of less than $30 billion from a peak of $2.333 trillion is not exactly “drastically reducing” the balance sheet.