(The following appeared on Planet Moron on September 19, 2012.)
If you were faced with a lackluster recovery following the bursting of a massive real estate bubble in which housing prices had been artificially inflated through government action, what would you do?
- To ensure that such an artificial real estate bubble never occurs again, take aggressive measures that would allow interest rates and real estate prices to adjust to their natural levels according to the laws of supply an demand and in so doing stabilize the economy, eliminate malinvestment and the misallocation of capital, and set the stage for stable, long-term growth.
- Create another artificial real estate bubble.
If you said, “Create another artificial real estate bubble,” you just might have what it takes to be the Chairman of the Federal Reserve!
While you might have missed it last week, given the media’s understandable focus on the despicable attacks made on Muslim sensibilities by a filmmaker/free speech terrorist, Federal Reserve Chairman Ben Bernanke announced a new round of “Quantitative Easing” known as, “QE3.”
No doubt, you have a lot of questions regarding this development, so we created the following FAQ:
Q: What, exactly, is “Quantitative Easing?”
A: It’s really very complicated, you probably wouldn’t understand.
Q: It can’t be that complicated.
A: Oh, yes, it’s all very complex involving advanced monetary theory, macroeconomics, and market equilibriums.
Q: Humor us. What is quantitative easing?
A: It’s printing up new money.
Q: Quantitative easing is just Ben Bernanke printing up new money? What’s it called if we were to do that?
Q: How is it different?
A: If you were to print up new money, you’d just go out and buy stuff.
Q: And if the Fed prints up new money?
A: They’ll use it to purchase financial assets thus driving down nominal long-term interest rates which will lead to lower mortgage rates, and thus higher home prices.
Q: Why do they want to do that?
A: So you’ll go out and buy stuff.
Q: Well, if they’re just going to print up new money and debase the currency, why not cut out the middleman and just give it to us directly so we can buy stuff?
A: Hey, someone has to buy all the debt the federal government is issuing!
Q: Okay, so why call it “QE3?”
A: Because there was already a “QE1” and a “QE2.”
Q: If they have to try it for a third time, it kind of suggests it doesn’t work, right?
A: No, not at all. It’s like if your car won’t start, and you decide that maybe you’ve run out of gas, so you add more gasoline. And when that doesn’t work, you add some more. And if that doesn’t work, well, it’s obvious what you do then, right?
Q: Check to see if the starter is bad instead?
A: No! You add more gas. And you keep adding gas until it’s spilling all over the floor.
Q: And what happens if you actually get the car to start?
Q: Okay, to sum up, Ben Bernanke wants to artificially create higher real estate prices using a mechanism that has already failed twice before even though it risks debasing the currency, creating inflation, and causing the same financial crisis we already had all over again. Why is that a good idea?
A: Because everyone else is doing it, too!