Suggesting quantitative easing has cost the US money is a bit disingenuous. True, the Fed is spending dollars, but they are getting assets in return; generally bonds backed by the US government. So, as far as principle goes, the investment is very safe. According to this article on forbes.com (which draws an incorrect conclusion), the Fed should transfer $110 billion in profits to the Treasury in 2011. Not a bad day at the track!
To prove that QEII didn’t work, you need to have some metric with which you can gauge success. Or at least prove there was a better alternative. The MarketWatch article does neither. By pointing to the correlation, in time only, between relatively poor economic performance and the QEII program, the author falls prey to a typical blunder regarding causation. Economic performance over the given time-frame was only a partial function of QEII. Many other factors played a roll, all of which need to be factored out before proving QEII failed.
In fact, the massive liquidly infusion is performing exactly “as advertised” according to the economic textbook I used in school. The IS-LM model (or at least one version of it) suggests an increase in liquidity will result in lower real growth and a higher price level; exactly where we are. This is, perhaps, better than a massive economic contraction and disinflation; a perfectly possible (if not probably) result if the Fed didn’t implement QEII. It’s really hard to know one way or the other.
One thing we can say is that observed inflation has been heading higher, but the unemployment rate has been remained stubbornly high. This might put the FED in a very unpleasant situation; the Fed might have to fight inflation in a high unemployment environment.
http://www.bls.gov/cpi/cpid1104.pdf
By the way, I took the “Murder” picture Monday night at a hot-dog joint on the Upper West Side of Manhattan.
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