Economists disagree, sometimes passionately, on the benefits of QE, but virtually all of them agree that nothing like this has ever been seen before. "These are quite unprecedented policies," says Michael Woodford, a professor at Columbia University, widely considered one of the world's leading experts on monetary issues. Woodford points out that the Fed would defend these actions by saying it is trying to avoid repeating the mistakes made after the Great Depression. "But certainly," he added, "they don't have prior experience on the basis of which to judge the effects of the policies being tried."
"We are living in a time of experiment," says Christian Menegatti at Roubini Global Economics, the independent research firm led by Nouriel Roubini, famous for predicting the housing crash.
If you don't work in the financial sector and you're wondering why you haven't seen $85 billion a month in stimulus show up on the job market or any other place where most ordinary people can see it – well, that's another serious issue with QE. The program is designed to stimulate employment, but after many years and trillions of dollars, there's been little growth in the economy. On the other hand, housing prices are up and the stock market has soared to an all-time high. "Anyone who has owned stocks in the past few years has fed at the trough of Bernanke," the financial website YCharts wrote. QE carries a natural risk for financial bubbles because it artificially depresses the values of the long-term "assets" the Fed buys, like treasuries, which forces banks and other investors that hold those instruments to move into other investments that yield more – like the counterintuitively giddy stock market.
What has the global financial community in a fever is widespread uncertainty over when QE will end. The central bank programs are a high-wire act of extraordinary difficulty. If you yank on the leash and stop them too abruptly or too soon, the economy might crater or plunge into a new recession or depression. If you keep the giant money hose on full blast for too long, you risk overheating the economy and creating financial bubbles. And everywhere in between, there's the twin risk that the policies won't work and the banks and businesses will become a little bit too used to central bank largesse. What if Bernanke miscalculated his ability to stimulate lending and job creation, and all of this intervention not only doesn't create jobs but just reheats a financial sector that exploded under the weight of its own stupidity and greed just a few years ago?
"It all works if it's followed by growth," says Menegatti. "If people buy [stocks] but banks are worried about lending, to small businesses, for instance . . . then you have QE1, and then QE2, and then QE3, and then you have to continue to do it because the markets are addicted to it. But if you don't have growth, you have another correction."
Ironically, by gumming up the federal budget with this moronic debate over the debt ceiling, anti-government stalwarts may have inadvertently helped trigger this unprecedented experiment. After all, part of the rationale behind programs like QE is that central banks say they have to stimulate the economy because our idiot politics have blocked the more traditional path of regular government stimulus.
"The only other solution is the fiscal solution," says economist Michael Klein, a professor at Tufts University's Fletcher School of international affairs. "And that's off the table now."
What a crazy time we live in. Domestic politics have devolved into an ongoing hostage crisis in which the opposition party threatens to blow up the financial universe every six months or so, and the leading political minds in the country can't figure out how to keep this from being a permanent feature of our budgetary process. Meanwhile, global monetary policy is drifting in the direction of semipermanent stimulus, and no one has any idea how it all ends. It's two different runaway-freight-train action movies going on at the same time. God help us.
This story is from the June 6th, 2013 issue of Rolling Stone.
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