Concerning the letter from economists protesting the Fed’s QE2, perhaps the details of monetary policy have been the subject of this level of public debate before, but I don’t recall it personally. At the same time, I’ve never heard of a Fed governor who was so open about his plan to inflate the money supply. It was almost as if he wanted to generate inflation expectations and play off market psychology to drive down the dollar.
What’s best about the letter is the implicit recognition that there is more going on here than mere price effects; there are also market distortions to consider: “another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets.”
I’m presuming that the signers don’t mind another printing of it.
We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
We subscribe to your statement in the Washington Post on November 4 that “the Federal Reserve cannot solve all the economy’s problems on its own.” In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.
We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.
The Fed’s purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.
Cliff Asness
AQR CapitalMichael J. Boskin
Stanford University
Former Chairman, President’s Council of Economic Advisors (George H.W. Bush Administration)Richard X. Bove
Rochdale SecuritiesCharles W. Calomiris
Columbia University Graduate School of BusinessJim Chanos
Kynikos AssociatesJohn F. Cogan
Stanford University
Former Associate Director, U.S. Office of Management and Budget (Reagan Administration)Niall Ferguson
Harvard University
Author, The Ascent of Money: A Financial History of the WorldNicole Gelinas
Manhattan Institute & e21
Author, After the Fall: Saving Capitalism from Wall Street—and WashingtonJames Grant
Grant’s Interest Rate ObserverKevin A. Hassett
American Enterprise Institute
Former Senior Economist, Board of Governors of the Federal ReserveRoger Hertog
The Hertog FoundationGregory Hess
Claremont McKenna CollegeDouglas Holtz-Eakin
Former Director, Congressional Budget OfficeSeth Klarman
Baupost GroupWilliam Kristol
Editor, The Weekly StandardDavid Malpass
GroPac
Former Deputy Assistant Treasury Secretary (Reagan Administration)Ronald I. McKinnon
Stanford UniversityDan Senor
Council on Foreign Relations
Co-Author, Start-Up Nation: The Story of Israel’s Economic MiracleAmity Shlaes
Council on Foreign Relations
Author, The Forgotten Man: A New History of the Great DepressionPaul E. Singer
Elliott AssociatesJohn B. Taylor
Stanford University
Former Undersecretary of Treasury for International Affairs (George W. Bush Administration)Peter J. Wallison
American Enterprise Institute
Former Treasury and White House Counsel (Reagan Administration)Geoffrey Wood
Cass Business School at City University London
