Yesterday's Herald-Whig splashed a story across the front page suggesting that "officials" thought the Federal Reserve's Quantitative Easing, or Q.E.--which will see $600 billion printed over the next half a year to buy Treasury bonds--was meant to weaken the dollar, and that this is why gas prices have seen a double digit rise.
The 'official' cited was the head of the Illinois AAA. Hmmm, sounds more like an orchestrated 'talking point'.
First, let's review why the Fed is engaging in Q.E. When our economy gets into a funk, it's as if everyone is waiting for everyone else to get out on the dance floor, but not wanting to be the only one out there. The federal government usually steps in and announces over the PA system that it will be offering refreshments in the middle of the dance floor. Usually, this gets people moving. Another option is for the Federal Reserve to likewise announce that it will be offering dance lessons--not nearly as welcome, but usually enough to get a few feet moving.
Critics of having the federal government involved through the 'stimulus' of refreshments say that Uncle Same offers overly expensive refreshments. Why not just let the dance happen? This is a curious argument. Surprisingly, it relies on an almost Communist altruism to do something for the greater good that no individual would otherwise do. Why be the first one to walk out on the dance floor when it's much easier to wait for others to head out there? It's simply not in your best interests to do the right thing.
The effect of no government involvement is for the economy to wait...and wait...and wait for a war or some other reason to get cranked up, meaning that we all sit on the sidelines when we could be out there dancing to full employment.
And what's the best way to have a strong economy when we're in a recession with high unemployment? Government stimulus. That's because business has no reason to hire and the unemployed can't afford to buy when money is scarce. So, the government, using the PA system, is the only one who can say "Ok, I'm counting to three, and everybody take a step out there." This can only happen, though, if there is a political consensus to do so. Unfortunately, Republicans are more interested in proving their economic theories are superior and so have time and again filibustered an adequate stimulus.
And the second best way for the government to respond? Have the Fed lower interest rates. In our current situation, though, that is of course not possible since rates are already up against 0%.
And the third best way? Print money. Normally, this could be a gateway to inflation, but in a time of low interest rates, the great danger from a recession is that deflation will occur, resulting in businesses sitting on the sidelines, waiting for prices to fall even further. Unemployment simply gets worse...and worse...and worse. When that happens, or if inflation falls to close to 0%, there's a need for more money in the economy, especially if the economic downturn was caused by a run on banks (failed banks are exhibit A in both the 1929 Great Depression and the 2008 Great Recession).
That then explains why the government is printing money. So, what's this about intentionally devaluing the dollar? It's true that a weaker dollar can be an effect of getting the economy going again, but it isn't what the Fed is trying to do. Whether the dollar is trading at 100 or 98 Chinese Yuan--or whatever the exchange rate is--is secondary to getting our economy functioning at near peak capacity.
Is the Herald-Whig intentionally harping on the increase in the price of gas? Is this a sign of it pandering to the no-doubt popular notion of government over-reach? I prefer to think it's a simple ignorance of macro-economic policy.
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