What?!!! Oh for goodness sake. It’s difficult to be shocked by idiotic positions out of Washington, but sometimes the after the fact admissions can be a little amusing. Well, they would be if the policy itself wasn’t so…well…idiotic. Anyway, an Ex-Federal Reserve official, Andrew Huszar, has come out against the endless Quantitative Easing programs. The cynical might wonder where this genius was when he could actually do something, but then again, it is Washington. It can only mean that some rebuilding of damaged reputations is underway. Despite all of the usual frustration one can get reading about any rehabilitated official, there are plenty of interesting nuggets in his “apology”. For example, the Fed was doing what it appeared to be doing, namely flying by the seat of its pants:
In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing.
Yeah, it didn’t work buddy. Anyway, if this Huszar’s views are even remotely indicative of what current Fed officials are thinking, there may be cause for a lot of concern. It seems that at least some of the Fed quickly realized that their plans were not exactly going as planned:
More insidiously, whatever credit they were extending wasn’t getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.
Yes, well, to believe that that was a concern requires one to believe that The Fed rally thought that was not going to happen. But even if you do believe this result falls into the unintended consequences department, it doesn’t explain its continuation, let alone ramping up of the program. Huszak goes on to write that he couldn’t take it anymore, and that he warned them to no avail and at last felt that he had to resign. That story requires some skepticism as it makes him look like the hero, of course. But, there does seem to be some recognition that this policy is not working, even if it is only by “ex” employees. And make no mistake the QE programs are not working, or to be a bit more generous, they are not working as well as planned:
And the impact? Even by the Fed’s sunniest calculations, aggressive QE over five years has generated only a few percentage points of U.S. growth. By contrast, experts outside the Fed, such as Mohammed El Erian at the Pimco investment firm, suggest that the Fed may have created and spent over $4 trillion for a total return of as little as 0.25% of GDP (i.e., a mere $40 billion bump in U.S. economic output). Both of those estimates indicate that QE isn’t really working.
Yes, well, isn’t that what a lot of non-genius, non-Fed officials have been saying all along? Ah, there is that frustration again. As with almost any of these high profile apologies, one has to wonder what is in it for him or her. On the other hand, it’s always helpful to have someone on the side of sanity no matter how they arrived there. It’s doubtful that much good will come of Huszak’s apology, but who knows. Maybe there are some Fed guys there right now that will feel more emboldened to do the right thing. Regardless of where you stand on the QE programs, Huszak’s article makes for some interesting reading. His version of the Fed’s thinking is in the piece as well, as he was there from the beginning. It will be intriguing to see where The Fed goes from here.