Tags: us | economy | fed | easing | Joseph Calhoun | Alhambra | oil

Investment Expert Calhoun: QE2 Hurt US by Pushing Inflation, Oil Price Higher

By    |   Thursday, 09 Jun 2011 02:56 PM

The end of the Federal Reserve’s second round of quantitative easing shouldn’t be feared because it only was detrimental to the economy and helped boost gasoline prices, says Joseph Calhoun III, a principal at Alhambra Investment Partners.

The end of quantitative easing, the Federal Reserve’s $600 billion government bond program designed to spark stock-market and economic growth known widely as QE2, will be a good thing, he told Newsmax.TV.

QE2 has pushed up both inflation rates and commodities prices and has also weakened the dollar.

Federal Reserve officials have said the program will end on schedule June 30.

“I don’t think we got anything from QE2,” he says. “QE2 was, if anything, detrimental to the economy – if nothing else just from the rise in oil prices, which I think can be traced directly to QE2.”

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He said the Fed easing “surely offset anything that might have been gained” from the stock market going up.

He said he doesn’t think anyone looking at the evidence — even Federal Reserve Chairman Ben Bernanke himself — can believe that easing was positive for the economy.

“Are we going to get QE3? Good Lord, I hope not,” he said.

But while recent economic indicators haven’t been that rosy, the jobs-fueled recovery the country so eagerly seeks eventually will take hold and better times will return, Calhoun says.

So the government reported recently that employers hired 54,000 workers in May, far below many analysts’ expectations. And the Institute for Supply Management (ISM) says its manufacturing index plunged to 53.5 in May from 60.4 in April.

Relax, Calhoun says.

An ISM index of 53.5 still signifies expansion.

The housing sector, meanwhile, is close to bottoming out but will eventually recover, and so will the labor market and the economy.

“I think that people have maybe gotten too negative here. The economy is still growing,” Calhoun tells Newmax.TV.

“Household formation is starting to rise again and the inventory of homes is starting to decline. And I think on the multifamily side, we are starting to see rents rising, vacancy rates falling and we are starting to see some building. I think we will get back to a jobs recovery.”

On the fiscal side, the Obama administration and Republicans in Congress are sparring over lifting the $14.3 trillion debt ceiling.

Republicans say they won’t vote to lift it without winning spending cuts in return, which is a good thing.

“I think cutting spending is exactly the right thing to do. It’s exactly what the economy needs. I do not believe that the stimulus spending has been effective. In fact it has been a detriment. I think we do need to cut spending,” Calhoun says.

That’s a tough sell for the president.

“President Obama has multiple constituencies to please here, and he can’t please them all, and so I’m not sure he can come to the table with a deal that Republicans will be willing to take because I don’t see him coming to the table without a tax hike, and I don’t think that’s going to be on the table as far as Republicans are concerned.”

Tax hikes won’t help the economy anyway.

Wealthy people get hit the hardest yet they just don’t have enough resources to fill fiscal coffers to the point of denting gaping deficits, Calhoun says.

Policymakers would be better off fueling real economic activity — nothing artificial like QE2 — if they want to report better numbers to the world.

“To me, the problem with the economy is on the investment side. Companies are not investing, individuals are not investing … we’ve got corporate cash at these very high levels, and I think you have to do something to spur investment,” Calhoun says.

To do that, officials should consider cutting capital gains taxes or reforming corporate taxes in order to get the economy moving.

Taxing the wealthy just won’t get the economy moving forward.

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The end of the Federal Reserve s second round of quantitative easing shouldn t be feared because it only was detrimental to the economy and helped boost gasoline prices, says Joseph Calhoun III, a principal at Alhambra Investment Partners. The end of quantitative easing,...
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Thursday, 09 Jun 2011 02:56 PM
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