Fed Decision An Election Issue
Can QE3 Succeed Where QE3 Failed?

Fed. Reserve Chairman's decision to inject "qualitative easement" has become a campaign issue.

Amiel Ungar ,

Ben Bernanke
Ben Bernanke
US Federal Reserve

The decision by the Chairman of the Federal Reserve Board, Ben Bernanke, to inject another stimulus has become a campaign issue.

The Democrats basically approve of QE3 - that does not stand for a new ocean liner - but for qualitative easement, or in simple terms, cheap, low-interest money.

If the Federal Reserve chairman is right and jobs, rather than inflation, are the main concern of the economy, then Bernanke merits support.

Of course, given practically nonexistent interest rates, investors will be lured to place their bets on the stock market as a vehicle for securing a return on their savings. As stock prices go up and correspondingly pension assets, it will increase economic optimism and consumer eagerness to spend money, giving a positive jolt to the economy. Democrats can see the political benefit in creating a feel-good factor going into November's election.

The Federal Reserve Chairman was not the beloved of the Republicans even before the decision to buy indefinitely $40 billion a month of mortgage-backed bonds, meaning a huge injection of borrowed money into the economy. During the Republican primaries, one of the contenders, Texas Governor Rick Perry, nearly accused Bernanke of treason.

Some Republicans believe that the Federal Reserve Chairman has knuckled under to the pressures of Democratic politicians, such as New York Democratic Senator Chuck Schumer.

Economic spokespersons for the party, such as vice presidential candidate Paul Ryan, reject the decision on economic grounds. Campaigning in Tampa, Ryan claimed that the sole beneficiaries will be the banks and Wall Street, but not the people and this was the equivalent of "sugar-high economics".

Republicans charge that by effectively printing money, the Fed is generating inflation and is penalizing savers, particularly senior citizens by cheapening the dollar.

There is a 3rd school of Republicans, who while decrying the move, believe that it contains a political silver lining in demonstrating that the administration's economic policies have failed. If the country needed a third stimulus, it means that little has been accomplished and to paraphrase the old coalminer's folksong "16 Tons and whaddya get, Another day older and deeper in debt," what America has gotten is 4 years older and deeper in debt with little to show for it.