It’s time again to play the game called “Guess What The Federal Reserve Will Do.” There will be, of course, wonderful prizes for the winners.
The last contest was quite exciting.
In December, with the US economy in its long-running slow-speed recovery and the Fed’s balance sheet as stretched to record levels, the Fed’s Open Market Committee decided to reduce its disastrous quantitative easing bond-buying program from $85 billion a month to a mere $75 billion.
The December guessing game was easy because, with the Fed’s balance sheet swelling to more than $4 trillion — and the economy showing barely any benefit — it was only a matter of time before QE was “tapered.”
And just so you understand what a crazy and dangerous game this is, it was newly created money — the kind that causes inflation and undermines the value of a currency — that was used for the purchase of that $4 trillion worth of government bonds and mortgage-backed securities.
Making December’s guessing game easy (except for this columnist) — but nonetheless thrilling — was that the tapering was supposed to begin three months earlier, in September.
But just as the taper started, December’s jobs report came out and it was surprisingly low.
So now what?
What are the odds that the Fed will cut back QE some more when its Open Market Committee meets next Tuesday and Wednesday?
Well, I’d have to think the chances are pretty good, since someone at the Fed seems to be molding expectations.
The lead story in Tuesday’s Wall Street Journal said “the Federal Reserve is on track to trim its bond-buying program for the second time in six weeks …” And the Journal in the past has been correct — except for all the times it has been wrong.
Will the Fed reduce its QE program to just $65 billion in securities purchases a month? Will outgoing Fed chief Ben Bernanke have the guts to reduce the dosage of Wall Street’s favorite narcotic even as the economy is showing some disappointing trends?
Remember that only 74,000 new jobs were created in December. The experts had been expecting more than twice that amount.
Yes, the unemployment rate dropped significantly, to 6.7 percent from 7 percent, but that was only because many more people, for whatever reason, had given up looking for a job.
And despite the fact that the government’s figures for sales in December seemed all right, the real experts on shopping — retailers — are telling a different story. Just ask Best Buy, which had “bleak holiday results,” according to one headline, if the nation’s economy is doing well.
So why do I agree with the Journal that another QE tapering will occur next week? First, because the benefits of QE stopped accruing in 2008-09. And because too much of a bad thing really is very, very bad.
But mainly because the Fed is in such a big bind that it might as well be wearing a straitjacket.
On Friday, Feb. 6, the Labor Department will announce its job creation figures for January. I’ve been predicting that number will be horrendous, as it almost always is this month.
January’s lack of job growth has very little to do with the weather, since seasonal adjustments are supposed to take care of that. But there are other statistical aberrations that occur during the month that bode poorly for an upbeat jobs report.
So if the Fed doesn’t taper next week, another bad job report would prevent it from cutting back QE for another few months.
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Isn’t it funny how vices suddenly become less-vicey whenever government is desperately in need of revenue.
For instance, it took a deep recession to make casino gambling epidemic throughout the country. And online gambling was unheard of until desperate states like New Jersey suddenly heard how much money they could make getting people to wager in their pajamas.
Now it’s marijuana.
I don’t snort the stuff myself. (That’s just my cute little way of proving how little I know about controlled substances.) But now even our president is not only admitting to using pot but also defending — ah, but not “encouraging” — its use by others.
President Obama this week said marijuana is not any more dangerous than alcohol “in terms of impact on the individual consumer.”
Notice the word “consumer,” as if it’s a marketing plan for a new product. I wonder what the commercials for pot will look like on some future Super Bowl.
Back in September I told you the sad story of how sick people, including my late wife, were denied the use of pain-relieving marijuana even though the US government had received a medical patent on pot back in 2003.
I guess all the cancer patients and MS sufferers had the wrong approach all these years. Rather than arguing for pot’s use on humanitarian purposes, they should have been looking at the financial angle. Silly them!
If this miserable economy continues, can legalized prostitution be far off?