The Federal Reserve's effort to boost the economy with quantitative
easing (QE) has failed, says Harvard economist Martin Feldstein.
"[T]he evidence suggests that the program has done little to raise
economic growth while saddling the Fed with an enormous balance sheet,"
he writes in The Wall Street Journal.
The central bank has added more than $2 trillion to its balance sheet since 2007.
Video: Economist Predicts 'Unthinkable' for 2013
QE is supposed to help the economy by lifting stock prices, says
Feldstein, chairman of the Council of Economic Advisers under President
Reagan. The idea is that those higher share prices lead to greater
household wealth, which then sparks increased consumer spending.
Despite the Fed's action, "the economy is limping along with per capita
gross domestic product rising at less than 1 percent a year," Feldstein
says.
"Even if all of the rise in the value of household equities since
quantitative easing began could be attributed to the Fed policy, the
implied increase in consumer spending would be quite small," he adds.
"At best, the Fed's long-term asset purchases reduced the extent to
which the federal deficits crowded out equity purchases," Feldstein
suggests.
"Although it is impossible to know what would happen without the central
bank's asset purchases, the data imply that very little increase in
[gross domestic product] can be attributed" to the Fed's effort to juice
stock prices.
"The time has come for the Fed to recognize that it cannot stimulate
growth and that a stronger recovery must depend on fiscal actions and
tax reform by the White House and Congress," Feldstein writes.
Economist Gary Shilling says investors are so caught up with the
benefits to assets prices of the Fed's easing, that they aren't even
paying attention to economic problems.
“The reality is that investors are only enamored with what the Fed and other central banks are doing,” he tells Yahoo.
“Their attitude is don’t fight the Fed. As long as the money is there,
I’ve got to own stocks. They couldn’t care less about what’s happening
to economies on the ground."
Video: Economist Predicts 'Unthinkable' for 2013
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