Yesterday, Chairman of the Federal Rserve Ben Bernanke held a press conference in which he outlined the plans of the Federal Reserve for the coming year. This included the announcement that they would start tapering off Quantitative Easing — in which the federal government has bought stocks and assets in order to keep values high — this year and end by 2014, hoping that by then unemployment will have dropped below or equal to 7 percent.
Nobel economics prize winner Paul Krugman is blunt about his disapproval. “My reaction is, this is not good. They might get away with it, but there’s also a serious chance that this will end up looking like a historic mistake.” Krugamn — a staunch believer in Keynesian economics — doesn’t think that the markets or the job market is stable enough. As if to back him up, before the press conference had even started yesterday, stocks plummeted in anticipation that the feds would end QE.
Which is exactly why the fed should stop QE according to Rana Foroohar at TIME. “Over a year ago, savvy investors like PIMCO’s Mohamed El-Erian and Morgan Stanley head of macroeconomic research Ruchir Sharma began telling me that quantitative easing, although initially necessary, was distorting market fundamentals, pushing prices away from where they would naturally be and leading to bubbles in things like emerging market stocks and commodities.” If the fed keeps the flow of cash going, eventually the markets are going to demand that, which will simply create more bubbles, Foroohar believes.
QE has created lots of debate in its initial years, and it will be interesting to see if it proves to be a viable economic solution or intensifies problems.
Freeman Stevenson is a Snow College grad and is the DeseretNews.com opinion intern. Reach me at fstevenson@deseretdigital or @freemandesnews