Thursday, November 11, 2010

Can You Overkill a Recession?

Once something is dead you can't kill it again.  But you can "overkill" anything - by definition a waste of time and resources.  As a student of the Great Depression, Ben Bernanke is committed to preventing another one with all of its attendant stagflationary/deflationary sequelae.  But many in the punditariat (including yours truly) are wondering if the second round of quantitative easing (QE2) isn't a case of economic overkill.  The day after QE2 was confirmed as official Federal Reserve policy the unemployment data again improved marginally - and unemployment data is not a leading indicator but rather a lagging indicator.  That is, it shows what has happened rather than what is going to happen, ie. job growth had improved slightly the month before the announcement.  And yesterday it happened again, an improvement in jobs data before the QE2 announcement.  It makes one wonder if QE2 - besides angering almost everyone outside of the U.S. - is a potentially dangerous treatment for a patient that is already recovering, albeit slowly.  I believe a gradual, real recovery is better than a risky, steroidal one anyway, but if QE2 is overkill then we may be in for real, steroidal trouble.  QE2 is an economic experiment, sanctioned only by impatience.  Let's hope it doesn't have unintended consequences, as almost everything initiated by government seems to.