The Fed's QE3 Creates Inflation and No Long Term Job Creation

Pinnacle DIgest writes: In Axel Merk’s latest report he discusses central bankers objectives with recent liquidity programs (such as QE from the Fed and the BOJ injecting liquidity as well as the ECB). Given that the economy has yet to truly benefit from a quantitative easing program, specifically in regard to the US employment rate, one must question the motives behind this loose monetary policy. For example, with the quantitative easing programs, the only consistent beneficiary has been the stock market. Could it be the Fed’s belief that a rising stock market leads to lower unemployment?


Axel merk stated “Bernanke’s Federal Reserve (Fed) appears to specifically target equity market appreciation as part of its offensive in bringing down the unemployment rate; expectations are high: every time the market sells off, the Fed might simply print more money.”


Bernanke has declared that the latest QE program will continue even after the recovery has taken shape. Simply put, he wants the stock market to know that it will be awash with liquidity for a long time to come. His plan, we assume, is that somehow this will lead to more hiring. It is our strong belief that a fear driven rally in the stock market will never lead to long-term job creation. Simply put, the pros of long-term fake liquidity do not outweigh the cons of a collapsing currency. Sure, savers may be forced to take more risk, but it won’t do anything for the job market.

Axel Merk believes that “Ultimately, the Fed may have reached too far, bringing risks to economic stability and elevated levels of volatility; the full implications of its actions may be somewhat dire down the road.”


Merk goes on to state that “From the Bank of Japan and the People’s Bank of China to the European Central Bank (ECB), the Bank of England (BoE) and the Fed, central bankers are either putting their money where their mouth is (quite literally) or strongly insinuating that continued, ongoing easing policies are needed to prevent another significant downturn in global economic activity. While all the excess printed money may or may not have the desired effect of stimulating the global economy, the money does find its way somewhere; unfortunately, most central bankers appear to fail to realize that they simply cannot control where that money ends up.”


This is an argument we’ve ben making for months now about the QE programs. It has virtually no way of making it into the every day person’s life. Sure, anyone who is rich or holds a significant amount of hard assets stands to benefit greatly from it if inflation kicks in to high gear like many expect; but what about the middle-income households who have a member looking for a job, or minimal savings and two kids? What will happen when the price of produce increases 30% in a few months? Or fuel prices rise next year? How will middle-income families be able to off-set the inflationary pressures if the program does very little to get them a job? Even if all members of the household have jobs, what’s the likelihood they will see a sufficient pay raise to keep up with inflation?


Merk states “One of the things we believe such actions do stimulate are inflation expectations. Indeed, the jump in market-implied future inflationary expectations in reaction to the Fed’s QE3 decision was quite remarkable:”



Click here to read Axel Merk’s entire report on the subject of QE3 and its beneficiaries.