After a long and well-deserved absence, FT columnist Martin Wolf is back. Today’s column is on political reaction to the decision of the US Federal Reserve, lead by chairman Ben Bernanke, to continue its purchase of mortgage-backed securities and other financial assets. This policy, known as “quantitative easing”, or QE, seeks to increase the money supply in an effort to stimulate the economy.
Predictably, the Republican party is outraged. Mitt Romney, the Republican presidential candidate, reacted at once by stating that the third iteration of “quantitative easing” would merely provide a “sugar high”. This response is no surprise: Republicans have consistently opposed any and all attempts to use fiscal or monetary policies to ameliorate the recession. I do not know whether they believe in their liquidationist views or have sought to deny Barack Obama’s administration any success in reviving the economy. A part of me wishes they had enjoyed the chance to apply their liquidationist philosophy. The results would surely have matched those of the early 1930s: an economic catastrophe with long-lasting political results. So the wiser part of me is grateful that the people in charge were far more responsible. Quite properly, the Fed has sought to mitigate the results of the financial collapse of 2008 and the subsequent private deleveraging.
Martin Wolf, “Bernanke makes an historic choice“, Financial Times, 19 September 2012.
The liquidationist view was best expressed long ago by Andrew Mellon, US Treasury Secretary from 1921-1931, who famously said: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. …. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
