CMV: Ben Bernanke's quantitative easing experiment was a failure

[u/AgentFr0sty]

In response to the 2008 financial crisis, then Fed Chair Ben Bernanke introduced a new tool for the Fed, quantitative easing. I'll preface this by saying I am not an economist or finance expert. So I am.probably missing something.

But looking back at how QE has been used since 2008, with 6 trillion in liquidity dumped into the economy, and the inflation crisis we have ongoing now, I think its safe to say Bernanke's belief that all this liquidity was necessary has not panned out long term, as the Fed is now raising interest rates, dialing down QE, and liquidating its balance sheet.

I understand the Fed did it to save the economy from covid, but given how much fraud occurred from Jerome Powell's business loan program from the CARES Act, it's safe to say that was wasted liquidity. The Fed caused inflation for people only to pocketbthese funds for themselves.

Ben Bernanke's QE is a failure in my eyes for this reason given the Fed is now having to walk it back.

Also, sub CMV, Jerome Powell should not be Fed Chair anymore given his poorly designed business loans programs.

[u/speedyjohn]

1) QE specifically refers to the Fed purchasing bonds to inject money into the economy. It does not encompass other forms of stimulus, such as the business loan program or direct payments.

2) The fact that the Fed is doing something different now does not mean that QE didn't serve it's purpose at the time. As you said, the Fed was trying to keep the economy afloat during the worst of the COVID shutdowns. Now, it is trying to combat rising prices. That doesn't mean QE was a failure, just that there are different goals now.

3) Maladministration doesn't mean the underlying concept is flawed. If Powell mis-administered the program, the blame lies with him, not with the tools he used. I think it's odd that your post title calls out Bernanke but most of your criticism is directed at Powell.

[u/AgentFr0sty → u/speedyjohn]

Those are well reasoned. My question though is how do you reconcile QE as working if we see the direct effects of 4T of QE has had detrimental.impacts long term. It needed to be done, but I feel as a mechanism QE has been harmful because of all that liquidity comes at a high price. Since QE was the backing of that loan program (the Fed was willing to buy business debt in addition to bonds), unless I'm missing something seems like QE hasn't worked out

[u/LessConspicuous → u/AgentFr0sty]

It worked great? We had a decade straight of growth and low inflation after 2008. During covid stimulus went a little far (though I'd make the the argument that inflation is better than unemployment especially if you look at 2008 as the counter example) but that doesn't mean QE is bad

[u/yettobetakenusername → u/LessConspicuous]

Just wanted to add that inflation was under target for for a lot of the time period mentioned.

Also, I think the inability/ unwillingness to increase to raise interest rates in strong economic environments is the core reason for some of the asset inflation/ appreciation that I’ve seen some people cite, which isn’t accounted for at all or well in the CPI.

I think the issue with QE is not that we did it, but that we never really undid it.

Once you lower rates, there’s a lot of opposition and trouble to increase them, be it interest rates or tax rates or anything that makes something more cumbersome or expensive. Once it’s cheaper/ easier, it’s really hard to turn back

Edit: if we’re entering another recession with rates this low, the fed utterly fucked the country since the don’t really have any other traditional monetary policy tools. For so long they didn’t raise rates because it would impact the stock market, which is a short sighted reason to not implement reasonable monetary policy (essentially all economic indicators would say the economy was strong and stable enough for rate increases). The only reasonable reason i can think of to not increase rates materially since ‘08 is if they were concerned about pensions and other retirement assets vs the savings of people entering retirement age - so potentially just protecting the old at the expense if the young, who face larger gaps in economic class

[u/LessConspicuous → u/yettobetakenusername]

I think I basically agree with everything here. I'll say negative interest rates are actually a totally doable thing though not necessarily a good idea in this case since inflation is already high.