Academic

JOHN PODHORETZ: The real fear in QE2. I can?t write with any authority on the macroeconomic wisd?

By Glenn Reynolds

JOHN PODHORETZ: The real fear in QE2.

I can’t write with any authority on the macroeconomic wisdom of the decision to do a second round of “quantitative easing” — a move nautically dubbed QE2. (The first round came in March 2009.)

But whether you think it’s a sound or unwise action — and people I trust are inclined to think it’s a disaster — QE2 is a deeply disturbing sign: It suggests that we have reached the outer limit of what experts actually know about the condition of the American economy in the wake of the 2008 financial meltdown and how to repair it. . . .

Even the Fed and its chairman Ben Bernanke know they have undertaken something very risky.

The obvious risk is that, by suggesting that the United States may try to escape its economic doldrums via the monetary printing press, it will create an inflationary spiral and destroy confidence in the stability of US currency.

The less obvious risk is that QE2 will prove ineffectual. If it doesn’t move the needle on the economy at all, but rather seems simply to fall into a black hole, that will confirm the unnerving and growing sense that we are headed for an extraordinarily extended period of extraordinarily low growth and extraordinarily high unemployment.

Yes, it’s pretty clearly a sign of desperation. But nobody in government is desperate enough to try cutting taxes, government size, and regulation yet. When they’re willing to try that, we’ll know they’ve run through all the other alternatives . . . .

UPDATE: More thoughts here.

Full post as published by Instapundit.com on November 10, 2010 (boomark / email).