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Obamanomics Has Failed Dismally and Bernanke Can't Save ItYesterday, 11:19 pm






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Friday, 14 Sep 2012 07:58 PM

By Larry Kudlow





About 30 years ago, Paul Volcker launched a monumental monetary effort to bring down inflation. As Fed chairman, he sold bonds, removed cash from the economy, and cared not one whit about rising interest rates. And it worked. Gold plunged, King Dollar soared, and the drop-off in bank reserves and money extinguished high inflation — and actually launched a multi-decade period of very low inflation.
This week, current Fed Chairman Ben Bernanke embarked on an absolute reversal of Volcker’s policy. He is launching a monumental effort to buy bonds and inject new money into the economy in order to reignite economic growth and job creation. It’s like history is repeating itself, but in reverse. Gold is soaring, the dollar is falling. Something’s wrong with this picture.
Bernanke’s QE3 is an unlimited Fed effort to buy mortgage bonds with new cash. The plan — which starts immediately — envisions $40 billion of bond purchases and money-creation per month, coming to $480 billion over the next year. And there are no limits to these purchases. These operations are open-ended. This could last for years — maybe in perpetuity — until job creation shoots way up and unemployment comes way down.
Nothing like this has ever been used by our nation’s central bank. The Fed’s balance sheet, which has ballooned from around $800 billion to $2.5 trillion under Bernanke, will go to $3 trillion, or $4 trillion, or who knows how high.
But here’s the rub: More money doesn’t necessarily mean more growth. More Fed money won’t increase after-tax rewards for risk, entrepreneurship, business hiring, and hard work. Keeping more of what you earn after-tax is the true spark of economic growth. Not the Fed.
In the supply-side model, the combination of lower marginal tax rates, lighter regulation, and a downsized government in relation to the economy is the growth-igniter. Money, on the other hand, determines the value of the dollar exchange rate and subsequently the overall inflation rate. A falling dollar (1970s) generates higher inflation, a rising dollar (1980s and beyond) generates lower inflation.
This is the supply-side model as advanced by Nobelist Robert Mundell and his colleague Arthur Laffer. In summary, easier taxes and tighter money are the optimal growth solution. But what we have now are higher taxes and easier money. A bad combination.
The Fed has created all this money in the last couple of years. But it hasn’t worked: $1.6 trillion of excess bank reserves are still sitting idle at the Fed. No use. No risk. Virtually no loans. And the Fed is enabling massive deficit spending by the White House and Treasury.
Now, one key political point is that Bernanke’s desperate money-pumping plan to rescue the economy is a very blunt admission that Obamanomics has completely failed. The president is asking voters to give him more time, which is a very weak argument. But his Fed chairman is essentially saying we are running out of time and have to embark on this massive monetary action. Mitt Romney should use the Bernanke argument, but not the Fed solution.
Some argue that Bernanke so desperately wants a victorious Obama to reappoint him, that he’s printing money and driving up stock prices on the eve of the election. I prefer not to believe this cynical interpretation. As an old ex-Fed staffer, I would argue that it’s not a political agency. Although I have to admit, on the eve of the election, the question is going to be asked.
More to the point, the Achilles’ heel of the Bernanke plan is the collapse of King Dollar, the result of printing so many new ones for so long. That, in turn, will drive up commodity prices, especially energy and food, and will do great damage to the middle class, which is already suffering from income declines and rising living standards.
This is what happened in 2011, when QE2 did more harm than good to the economy. Middle-class savers and retirees will also get their heads handed to them because of rock-bottom interest rates. And bank lenders may withhold credit since the difference between short and longer rates is so narrow there’s no incentive to make loans.
So at the end of the day, Obama’s economic program of tax, spend, and regulate has been a dismal failure. And now his Fed chairman is acting dramatically to bail him out. Guess what? It won’t work.
To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.
© Creators Syndicate Inc.

Read more on Newsmax.com: Obamanomics Has Failed Dismally and Bernanke Can’t Save It Important: Do You Support Pres. Obama's Re-Election? Vote Here Now!


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Comment by CajunWin4 - Today, 12:55 am

US Credit Rating Cut by Egan-Jones ... Again
Published: Friday, 14 Sep 2012 | 3:43 PM ET Text Size By: CNBC.com With Reuters    Twitter
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Ratings firm Egan-Jones cut its credit rating on the U.S. government to "AA-" from "AA," citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country's credit quality.


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The Fed on Thursday said it would pump $40 billion into the U.S. economy each month until it saw a sustained upturn in the weak jobs market. (Read more: Fed's 'QE Infinity' — Four Things That Could Go Wrong)

In its downgrade, the firm said that issuing more currency and depressing interest rates through purchasing mortgage-backed securities does little to raise the U.S.'s real gross domestic product, but reduces the value of the dollar.

In turn, this increases the cost of commodities, which will pressure the profitability of businesses and increase the costs of consumers thereby reducing consumer purchasing power, the firm said.

In April, Egan-Jones cuts the U.S. credit rating to "AA" from "AA+" with a negative watch, citing a lack of progress in cutting the mounting federal debt.

Moody's Investors Service [MCO 43.82    0.07 (+0.16%)   ] currently rates the United States Aaa, Fitch rates the country AAA, and Standard & Poor's rates the country AA-plus. All three of those ratings have a negative outlook



2.

Comment by CajunWin4 - Today, 2:09 am


The Fed's Balance At The End Of 2013: $4 Trillion
September 14, 2012
Print Version




Source: ZeroHedge

What happens next:

•Imminently, the Fed's Open Markets Operations desk will commence buying $40 billion in MBS per month, or about $10 billion each week. Concurrently, the Fed which is continuing Operation Twist, will still purchase $45 billion in "longer-term" Treasurys, sterilized by the $45 billion or so in 1-3 years Bonds it will sell until the end of the year at which point it runs out of short-term paper to sell.
End result: every month through the end of 2012, the Fed's balance sheet expands by $40 billion in MBS.

•Beginning January 1, 2013 the Fed will continue monetizing $40 billion in MBS each month, and will continue Operation Twist, however it will adjust the program so that it continues t

History does not repeat itself.

Stupid people repeat history!

That's why Republicans should NEVER EVER be put in charge of the country again.
they define INSANITY by doing the same thing over and over again(Failures)while expecting a different result,(Success)!