No Runny Eggs

In remarks today to CNBC, Federal Reserve Governor, Alan Greenspan said that the quantitative easing (stimulus) undertaken by the current Fed Chairman hasn’t done squat!

“There is no evidence that huge inflow of money into the system basically worked,” Greenspan said in a live interview.

This current criticism is not to be confused with Greenspan’s admission last September, that the Porkulus bill had no where near (if at all) the effect that was promised (remember that unemployment was never going over 8% if we did porkulus and now can’t seem to get under 9%!)  No, today’s revelation is focused on Brenanke’s attempt to revive the economy by printing billions and billions (hello Rod Serling) of additional greenbacks and shoving them into the economy.

Since late 2008, the Fed has pushed nearly $2B of additional paper money into the economy.This during a time when the economy was somewhere between marking time and shrinking.  the Fed’s basic theory was that by putting those dollars into the economy, various asset prices would increase and this would cause businesses and consumers to feel more “wealthy” which would let them feel like they could spend more, thus moving economic growth along.

Brenanke was right about increasing asset prices.  Since QE1 and 2, the stock markets have all increased and commodity prices have all increased, some of them dramatically.  However, none of this has seemed to convince businesses or consumers that it’s now OK to spend like the federal government.  Why?  What did Brenanke miss?

I told you here that Obama’s election chances would hinge on the 3Gs; Gas, Groceries and GDP.  Equally, Brenanke’s ability to get people to believe they had more wealth and therefore to spend it, also was driven by the 3Gs.  Through the entire time of QE1 and QE2, gas and groceries (made up from commodities that Brenanke wanted to increase the price of) increased in price.  At the same time, net home values (the place where much of the “wealth” from about 2004 to 2008 came from) continued to decline.  Add to all of this the fact that unemployment has increased or stayed relatively flat during the money influx and what do you know…..consumers have acted rationally and decided to save and pay down debt rather than buy new stuff with the bucks that Uncle Ben has been air dropping into the economy.

The real question is what will happen to the economy now that the stimulus has ceased?  One theory would suggest that if the economy doesn’t pick up, commodities have been artificially run up and have the potential to be the next asset bubble to pop.  If the economy does pick up, the additional dollars available could take an inflation rate that has been recently increasing to an accelerated level and bring us back to the days of Jimmy Carter.

Obama and his administration acolytes continue to operate with the belief that if they say it is so, it is.  While “repeatedly says” that he focused on jobs and the economy and that things are improving, anyone outside of the Washington belt way can easily see that none of that is true.  When Alan Greenspan says that the stimulus had no effect, as if it is some kind of an oracle insight, the rest of America says “No shit Sherlock!”