By Tim Cavanaugh
Federal Reserve Chairman Ben Bernanke’s rollout of $600 billion in quantitative easing was a public relations disaster that deserves to be studied in college communications classes. And he could have avoided it by giving up a shiny monetary tool he got in 2008—one that may be at the root of the extended recession.
The Federal Reserve Bank’s shopping spree of distressed debt will, Bernanke claims, create 700,000 jobs over the next two years. But if one of its immediate goals was to inspire market confidence, Quantitative Easing II (QE2) could hardly have gone worse.
In the three months since Bernanke floated the idea of a second round of large-scale asset purchases, the U.S. dollar index has declined by about 5 percent. With household net worth at $54.6 trillion, according to the Fed’s most recent Flow of Funds data, this means about $2.73 trillion of domestic wealth may have vanished in three months.
While much of that fall took place during the period between Bernanke’s QE2 trial balloon in late August and the rollout of the actual program two weeks ago, events since QE2 actually hit the streets have not been encouraging. German Finance Minister Wolfgang Schaeuble called the move “clueless,” and China’s Dagong Global Credit Rating Co. downgraded long-term U.S. debt. The Anglophone financial press tends to dismiss such criticisms as nationalist trash talk, but QE2 cast a glare over President Barack Obama’s Asia junket and made what would ordinarily be considered an average performance—the president failed to close a trade agreement with South Korea and came home with few solid results—into a demonstration of U.S. powerlessness.
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