The Federal Reserve's historic monetary binge is finally approaching an end, and when it does Americans will get a refresher on the meaning of "no free lunch," according to an editorial in
Investor's Business Daily.
In Senate testimony this week, Fed Chair Janet Yellen defended keeping interest rates low, but left open the possibility of raising them if the labor market continues to improve. The newspaper said it’s not buying into Yellen’s vision of moderate economic growth that is successfully boosting employment and price stability.
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“Indeed, we think the Fed's extraordinary interventions over the past 5-1/2 years have distorted markets and prices, and have held the economy back.”
IBD predicted economic truths will emerge as the Fed finishes tapering its massive quantitative easing program and ends its artificial zero-interest-rate policy.
“A strategy of holding interest rates at zero and pumping nearly $4 trillion into financial markets may seem wise, but it's not. It's like putting a patient on life support for years, then expecting him to function normally.”
The bottomless pit of the Fed’s easy money allowed President Obama and Congress to keep spending and ring up a national debt that stands at $18 trillion, IBD said. But it said that when interest rates go up, the $250 billion the nation spends each year now on servicing its massive debt will multiply.
“Taxpayers will soon learn the meaning of ‘no free lunch,’ because taxes will have to soar to pay for Obama's failed Keynesian spending binge, whose ill effects were disguised by Fed monetary manipulation."
According to IBD, Fed policy has done untold damage to retirees and pension funds, as GDP has risen only 10 percent versus a 21 percent average in other recoveries, and labor force participation has fallen to a modern low.
“It'll be years before all the damage to our economy is fully known. But it should be clear by now if it wasn't before: The Fed's radical intervention has not been a success, and the costs are only now becoming apparent.”
In an opinion piece in The Wall Street Journal, Stamford University economics professor
John B. Taylor said history shows that economic crises arise when central banks do not follow a game plan.
“When monetary policy became more rules-based during the 1980s, 1990s and until recently, the economy improved and we got what economists call the Great Moderation of strong economic growth with declining unemployment and inflation during those same years,” Taylor noted. “When policy became more ad hoc, interventionist and discretionary during the past decade, the economy deteriorated and we got a financial crisis, a Great Recession, and a not-so-great recovery.”
Taylor said in the Journal that he backs a current House bill that would require the Fed to submit to Congress and the American people a rule or strategy for how Fed policy would change in a systematic way in response to changes in inflation, real GDP or other inputs. There is no such oversight now.
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