QE3 Already?

This weekend the "chief" of the Federal Reserve Bank, Ben Bernanke, spoke of a possible round three to the quantitative easing program. I say "chief" as it is becoming more and more obvious that he is a one man team on a mission to prove a point regardless of the costs. He is an "expert" on the great depression and he "knows" that he has the right answer and he will pursue his policies with no regard of the costs should he fail. The world has never seen money creation on such a large scale before. All previous attempts have ended in failure and it is the contention of this blog that this one will end in a similar state, although this time the mess will be on a far grander scale than anything previously witnessed.

Let's explore what he has done in printing all this money to date. On the plus side he did stave off an almost certain collapse of the global financial system as we "still" know it today. This was required at the time but since then he has continued to print money in leaps and bounds but from that moment forward the results have been poor. I say "still" as it is my contention that after the next wave of financial problems the financial landscape will be changed beyond my lifetime.

The economy is still in a quagmire. Unemployment is stuck at elevated levels, price stability is non-existent (specifically if you look at the massive swings in the VIX index, a measure of market volatility) and his admittance to the requirement of a further round of easing shows that he has little faith that round two will work and this is stated before it has even really begun.

A well known Austrian economist, Ludwig Von Mises, stated that "The idea of government interference as a "solution" to economic problems leads, in ever country, to conditions which, at the least, are very unsatisfactory and often quite chaotic." In answer to the question of is there a solution he said, : "I would say, yes, there is a remedy. And this remedy is the power of the citizens, they have to prevent the establishment of such an autocratic regime that arrogates to itself a higher wisdom than that of the average citizen. This is the fundamental difference between freedom and serfdom."

Does Ben Bernanke know what he is doing? Absolutely not. Does he think he knows what he is doing? Yes. Will it work? No-one will know for sure until the economy is stable and the money that is printed is paid back in an orderly fashion. Will this happen? It never has before and so it is my take that this time, as in all the past times, it is not different and history will repeat itself.

That is not to say that this will occur in the short term (3 to 6 months) but it is my view that once the globe and the market realizes that this strategy has failed there will be a huge loss of confidence in the Federal Reserve, the US economy and the government. At that point it is too late to repair any damage and the market will collapse. For now enjoy the rally while it lasts but hedge yourself against the imminent failure as it will be swift and, if I am wrong, there will still be plenty of time to make money in the secular bull market that would ensue.