That hampers the Fed’s ability to push through its objectives, bolstering economic growth while keeping inflation in check. Rodriguez says the Fed’s all-in approach may be a good tactic for playing poker but is a mistaken approach for managing an economic recovery.
Rodriguez says these are different and untested waters. That keeping interest rates low for a sufficient period of time to let the economy gain traction is dangerous, misdirected, and untested.
Crook admits that QE3 took the Fed into new territory and that it may result in unintended consequences. He also says the technical issues raised by analysts and economists seem manageable.
And the risks of allowing subpar demand to continue are certain and way too large.
Demand is the goal of QE3. With so many people out of work and interest rates at zero, the economy needs a good shot of stimulus. But the devil is in the details and the Fed has left those details fuzzy, giving critics ample room for dissention.
Some say that the purchase of mortgage bonds is something investors will readily assimilate into their portfolios, making no difference in demand.
The second objection is that QE3 will have unintended consequences. Bernanke admits that if the Fed becomes the primary buyer in these markets, it could dry up trading among private agents, limiting liquidity and price discovery.
Rodriguez points to the disparity between the rallying markets and the lackluster economy, saying the discrepancy between market action and economic reality cannot be sustained.
He says continued focus on keeping rates low increases already huge pressures on fixed-income investors and financial organizations. He believes Bernanke should be replaced after the presidential election with a far less monetary-intrusive Fed chairman.
Crook says the biggest problem the Fed has is its inability to sufficiently explain its actions.
He says the most important question to ask is whether QE3 can deliver some level of stimulus. And the answer to that question is yes.
Debates are healthy things, however, and they help you see more than one side of an issue. Do you think QE3 will be effective? Why or why not?

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