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Econometer: Should the Fed have acted?

Jonathan Horn, U-T SAN DIEGO

Friday, August 3, 2012

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Kelly Cunningham, National University System
Answer: YES

After two rounds of quantitative easing and “Operation Twist” bond-buying by the Fed, hoped-for boosts in spending have not happened. Having long since pushed interest rates to near zero, another round of QE, effectively fabricating money to buy assets, is also questionable. Artificial stimulus may temporarily boost Wall Street, but is largely inconsequential for long-term real growth. Serious structural problems underlining the U.S. economy, caused by years of bad monetary policies, needs restructuring for genuine recovery and growth to be unleashed. Just as taking medicine to regain health may be distasteful, the economy needs to be allowed to reconstitute.