QE2 ain’t a cruise ship

By November 12, 2010

Although commodities ended the week down after China announced it was raising interest rates to counter inflation, they are still in the high range. Gold bullion came down from more than $1,400 an ounce to $1,364. Oil is hovering around $85 a barrel. Don’t expect prices to drop at the pump. Regular gas is holding at $3.20 a gallon around here and Sacramento. Winter didn’t bring the prices down and that’s not a good sign.

The last time the Federal Reserve had an easy money policy Alan Greenspan was in charge. The ultimate result was a runup in gas prices as oil topped $100 a barrel and headed in the direction of $150. When gas at the pump passed $4 and headed for $4.50 a gallon people stopped driving. Tourism fell off a cliff. It’s a good bet church attendance fell. When people stopped driving, except for work, they stopped buying things. Even grocery sales declined.

As people spent more of their disposable income filling their gas tanks to get to work they started falling behind on their mortgages, especially the ones who had taken on mortgages with introductory offers that were due to reset to a higher percentage after a couple of  years. And especially those who had bought houses more costly than they could afford.

The consequences of this were the housing bubble popped and it all started with easy money from the Fed and then a rise in gas prices.

Did Ben Bernake learn nothing, or is he pandering to President Obama? The chairman of the Federal Reserve who took over when Greenspan retired is doing “quantitative easing.” This is, in fact, the second round of quantitative easing and hence it is called QE2.

What is QE2? it darned sure ain’t the transatlantic cruise ship retired in 2008 and waiting to become a luxury hotel in Dubai. QE2, when talking about the Federal Reserve, is a second round of buying government bonds, Fannie Mae and Freddie Mac debt, mortgage backed securities and corporate bonds to the tune of $600 billion. It essentially creates money out of thin air. The hope is with billions and billions of extra money the economy will restart as the banks tap into the zero interest money from the Fed and have more money to loan.

That’s the theory. But as one of our letter writers pointed out, how the Consumer Price Index is calculated has been changed twice already. The rest of us can plainly see that grocery prices haven’t eased our quantitative purchases. And gas, as previously mentioned, is not doing any winteritative easing.

The $800 billion stimulus passed by the Democratic majority in Congress, sought by and signed by President Obama didn’t help the economy. Obama recently admitted it did not fund one “shovel-ready job.” It did send $111 million to Los Angeles to “‘save or create” fund 55 jobs for a cost of $2 million each. El Dorado County and the rest of Congressional District 4 only spent $300,000 per “saved or created job.”

What crappy mortgage backed securities is the Fed soaking up from Fannie Mae and Freddie Mac? And just how is a devalued dollar good for us? After the Democrats and the Obama administration funded Obamacare by taking $500 billion from the seniors on Medicare now Bernake’s going to finish off the seniors by making their savings accounts worthless through QE2.

The ultimate outcome of QE2 is going to be inflation that will impoverish us all, while in the meantime it is extending the recession. We’ll all be looking for jobs on the other QE2 when Dubai opens it as a hotel. Thanks Uncle Ben.

Mountain Democrat

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