Our superstition is especially odd given that we have just seen the rituals fail twice. In QE1 and QE2, the Fed printed about $2.3 trillion to buy the worthless subprime mortgage securities from bankrupt banks, and then to buy US government bonds when no one else would. Far from causing more real goods to magically appear, QE1 and QE2 have driven us into a permanent depression.
Now the Federal Reserve has danced around the fire once more and announced “QE3”. It will print $40 billion every month and buy mortgage backed securities, “until the labor market improves substantially”. This is like saying that “we will apply 40 leeches every day until the patient’s anemia improves”. Reuters released a poll showing that under QE3 the total purchases will total $600 billion, but the actual amount is more likely to be “to infinity and beyond”.
The underlying problem is that Bernanke isn’t creating any new cargo. All he is doing is moving real resources away from those who produced them, to banks and the government mortgage subsidizers at Fannie and Freddie. This is exactly what caused the mortgage-security crisis in the first place.
No country has ever hyperinflated itself into prosperity. No country can exist without a stable currency. Until we bring the inflation/bailout machinery under control, none of us can look our children in the eyes and tell them that they have a future.