It’s been more than five years since The Federal Reserve Board began its quantitative easing program. We’ve had QE, QE 2, Operation Twist and the never-ending QE 3. The Fed’s portfolio of bonds exceeds $4 trillion and it now owns more than a third of all bonds issued by the U.S. government.
The net result of this never-before attempted experiment in easy money policy has been a still slumping job market, growth around 2% vs. a non-QE average of 3.3% and a drop in personal income of 4.7% since the “recovery” began. At least there hasn’t been any deflation.
Yet new Fed Chair Janet Yellen announced this week that she’s “staying the course,” continuing QE maybe forever. Although she said she plans to continue tapering, too, she added that the bond buying program is “not on a preset course,” so perhaps The Fed may taper its tapering, creating an untapering by buying even more bonds.
After all, $65 billion a month doesn’t buy what it used to, even with today’s low rate of inflation.
The market reacted positively, with the Dow Jones Industrial Average jumping nearly 200 points. Once again, just as it looked like the market was reacting to real business conditions, the Queen of QE proved that the market is still firmly under the Fed’s control.
Remember “The Neverending Story?” The book, which was made into a movie, takes place in a fantasyland, in which a dark entity called “The Nothing” threatens to consume everything. In the neverending story of QE, “The Nothing” could be The Fed itself, consuming every bond in sight, or the federal government, consuming everything and casting a pall of new regulations that threaten job growth and recovery.