Over the past two years, the Federal Reserve has purchased a lot of our public debt. The theory goes that by the Fed soaking up some of the massive federal spending that has gone on for the last two years, it would spur economic activity.
To virtually no one's surprise - except dyed in the wool monetarists - it isn't working. The New York Times:
The Federal Reserve's experimental effort to spur a recovery by purchasing vast quantities of federal debt has pumped up the stock market, reduced the cost of American exports and allowed companies to borrow money at lower interest rates.
But most Americans are not feeling the difference, in part because those benefits have been surprisingly small. The latest estimates from economists, in fact, suggest that the pace of recovery from the global financial crisis has flagged since November, when the Fed started buying $600 billion in Treasury securities to push private dollars into investments that create jobs.
As the Fed's policy-making board prepares to meet Tuesday and Wednesday - after which the Fed chairman, Ben S. Bernanke, will hold a news conference for the first time to explain its decisions to the public - a broad range of economists say that the disappointing results show the limits of the central bank's ability to lift the nation from its economic malaise.
"It's good for stopping the fall, but for actually turning things around and driving the recovery, I just don't think monetary policy has that power," said Mark Thoma, a professor of economics at the University of Oregon, referring specifically to the bond-buying program.
What is Bernanke thinking?
"These actions had the expected effects on markets and are thereby providing significant support to job creation and the economy," Mr. Bernanke said in a February speech, an argument he has repeated frequently.
But growth remains slow, jobs remain scarce, and with the debt purchases scheduled to end in June, the Fed must now decide what comes next.
In other words, Bernanke blew it:
The Fed limited the program to $600 billion under considerable political pressure. While that sounds like a lot of money, the purchases have not even kept pace with the government's issuance of new debt, so in a sense the effort has amounted to treading water. And a growing body of research suggests that the Fed could have had a larger impact by spending more money on a broader range of debt, like mortgage bonds, as it did initially.
I think it's time that someone took the keys to the Treasury's printing press away from this guy and put an adult in charge of our money supply.