By 
Federal Reserve Chairman Ben Bernanke meant well but his Sept. 13 announcement of a new economic stimulus program for the country fell flat, just like President Barack Obama's nomination speech did on Sept. 5 at the Democratic National Convention in Charlotte, NC.See related Election Channel news story:
Bernanke's newest program to get the economy moving since it spiraled into a recession in 2008 is called QE3. That is a fancy, three-dollar term for quantitative easing. Quantitative easing is another fancy two-dollar term for money-printing.
So far, QE1 in 2009 and QE2 in 2010 haven't worked. QE3 comes six weeks before the Nov. 6 presidential election. Bernanke says the announcement isn't a political handout to Obama but there is no doubt it will seem that way by many voters.
Bernanke is helping Obama by stoking the stock market. According to historic election data, when stock prices are rising at election time, the incumbent president is re-elected every time. When those same stock prices are down at election time, the incumbent president loses - every time.
Here is basically what QE3 is expected do:
- Fuel stock prices by making people feel their rise is a signal the economy is beginning to improve and thereby induce them to spend more on consumer goods.
- Lower interest rates still further, hurting millions of retirees with continued low growth of their certificates of deposit, money market and other fixed investment accounts.
- Help homeowners saddled with unpayable mortgage loans by possibly allowing them to 'forgive' part of the debt and refinance their loans at a new lower interest rate without the usual red-tape set up by conventional lenders.
- Increase oil prices internationally, possibly triggering another round of gasoline price hikes in the U.S.
- Keep the federal funds rate at 0 to ¼ percent. This is the rate at which banks loan overnight money to each other.
- Put downward pressure on longer-term interest rates.
QE3 is not immediately expected to help private businesses create more jobs or to lower the unemployment rate from its current 8.1 percent level. In fact, Bernanke says the Fed doesn't expect the unemployment rate to dip below 7 percent until 2015.
The Federal Reserve is doing all this by increasing its holdings of long-term certificates by buying $40 billion of U.S. agency mortgage-backed securities. The Fed says it will do this every month until the economy begins to turn around. In previous stimulus-related purchases, the Fed has purchased Treasury notes, not mortgage-backed securities.
What Bernanke didn't include in his announcement was that the Fed is buying those mortgage-backed securities from Fannie Mae and Freddie Mac, the largest insurers of home mortgage loans in the nation -- two agencies owned by the U.S. government.
So it's obviously another scenario of smoke and mirrors. The Fed also plans to continue another program called Operation Twist. That program involves the government trading short-term bonds for longer-term bonds.
Along with another program to reinvest income from bonds it already holds into buying more mortgage-backed securities, the Fed expects to add $85 billion each month to its balance sheet until the end of the year.
Oh, yes, another "benefit" from QE3 - the inflation rate. Bernanke says the new stimulus program should keep inflation at the current 2% a year. He maintains inflation is in check.
Is he serious? Has he ever tried to buy a gallon of milk or a pound of steak at the supermarket recently?
The medical profession tells us it's not healthy to remain pessimistic over matters we can't control. QE3 is one of those matters. Don't expect to see the roses sprouting before 2015 - seven long years after the Great Recession kicked in.
Bernanke has chaired the Federal Reserve since taking over from Alan Greenspan in 2006. His term as chairman ends Jan. 31, 2014. His term as a board member ends Jan. 31, 2020. Bernanke's base annual salary is $180,000. He has told interviewers recently he looks forward to reaching the end of his term as chairman..
Can you blame him?
