Why change?
It’s been more than five years since The Federal Reserve Board began its quantitative easing program. We’ve had QE, QE 2, Operation Twist and the never-ending QE 3. The Fed’s portfolio of bonds exceeds $4 trillion and it now owns more than a third of all bonds issued by the U.S. government.
The net result of this never-before attempted experiment in easy money policy has been a still slumping job market, growth around 2% vs. a non-QE average of 3.3% and a drop in personal income of 4.7% since the “recovery” began. At least there hasn’t been any deflation.
Yet new Fed Chair Janet Yellen announced this week that she’s “staying the course,” continuing QE maybe forever. Although she said she plans to continue tapering, too, she added that the bond buying program is “not on a preset course,” so perhaps The Fed may taper its tapering, creating an untapering by buying even more bonds.
After all, $65 billion a month doesn’t buy what it used to, even with today’s low rate of inflation.
The market reacted positively, with the Dow Jones Industrial Average jumping nearly 200 points. Once again, just as it looked like the market was reacting to real business conditions, the Queen of QE proved that the market is still firmly under the Fed’s control.
What Ceiling?
Remember “The Neverending Story?” The book, which was made into a movie, takes place in a fantasyland, in which a dark entity called “The Nothing” threatens to consume everything. In the neverending story of QE, “The Nothing” could be The Fed itself, consuming every bond in sight, or the federal government, consuming everything and casting a pall of new regulations that threaten job growth and recovery.
Does this version of “The Neverending Story” have a happy ending? We don’t know, but recent chapters show that “The Nothing” is gaining on us. Its presence can be seen not only in The Fed’s actions, but in the actions of Congress and the White House, too.
With the federal debt now more than $17.62 trillion, the U.S. House of Representatives voted this week 221 to 201 to lift the debt ceiling. The U.S. Senate joined in by a vote of 55-43.
The American Heritage dictionary defines “ceiling” as “an upper limit.” The debt ceiling, though, has no upper limit; it is a mirage that disappears as it is approached. Rather than set a monetary limit Congress set up an all-you-can-eat buffet, authorizing the government to spend whatever it takes through March 15, 2015.
Last year, when President Obama and the Democrats in Congress refused to negotiate, Republicans shut down the government and were criticized. This year, when President Obama and the Democrats in Congress refused to negotiate, Republicans went along with the Democrats and were criticized. Either way, the neverending story of the ever-growing federal budget and out-of-control debt will continue.
Employer Mandate Lifted Again
Meanwhile, the White House must have also picked up on Ms. Yellen’s “continuity” theme, as President Obama elected to postpone the Affordable Care Act’s employer mandate for yet another year. That makes 22 changes so far by executive order to a law passed by Congress and supported by the President.
Why issue another illegal executive order to delay implementation of the law that is the most important part of your legacy?
One reason may be that an estimated 80 million Americans would find that their health insurance plans are not compliant with Obamacare requirements.
Recall that this year, when ObamaCare’s individual mandate took effect, 4.7 million Americans had their health insurance canceled. Many are still trying to replace their insurance, so the net effect of a law designed to ensure that all Americans have health insurance has been to increase the number of uninsured Americans.
Massachusetts, which led the country with its universal healthcare mandate, has the highest percentage of residents covered by health insurance in the country, but is not exempt from the Obamacare mandate.
The American Action Forum estimates that it will cost the commonwealth $521 million to conform to the ACA and become a fully accepted health insurance exchange. Anyone who has purchased insurance through Commonwealth Choice will have their policy expire on March 31, 2014, at which time a new fully compliant insurance policy must be purchased.
Will Massachusetts residents be able to purchase new insurance in time to meet the deadline? Will the employer mandate take effect in 2016? Will QE ever end? Will federal debt continue to grow? These questions eventually will be answered. In the meantime, “The Nothing” is getting closer.