Someone Tell the Federal Reserve - This Time It Really IS Different

The Fed is planning to phase out purchases of U.S. Treasuries. In doing so, it is taking its foot off of the pedal much too soon. It is making the same mistake that was made in the 30's. I guess it is human nature to be overly cautious even when times call for continuous and aggressive action.

Perhaps the Federal Reserve needed to announce an end to Quantitative Easing for "moral hazard" or "dollar protection" reasons. Clearly it cannot be based on fundamental economic strength.

The Fed did not foresee the severity of the housing collapse back in 2007 and today they are not seeing the severity of the consumption collapse.

Consumer behavior coming out of previous recessions cannot be used as a guide. We are truly in different times as bank credit tightens, consumers reduce their credit card and auto payment debt, demographics (aging) kick in, incomes diminish, income disparities grow more obvious, wealth dissipates, state and local governments downsize, bankruptcies and foreclosures curtail future credit access, oversupply brings new construction essentially to a stop, etc. etc. Heck, even illegal immigrants are returning to their homelands. Florida lost population for the first time in 60 years.

A fundamentally profound transition in under way. It is one that does not show up in the case studies of prior recessions. The American consumer is no longer. An economy that was built around this animal must now undergo a major and substantial overhaul. We are somewhere along the continuum of shock, disbelief, denial, anger, ...... but we have yet to reach the point of acceptance and moving forward.

If the consumer cannot bring us out of this recession, then what or who will? It cannot be the Government. Government deficits of the current magnitude can only be temporary fixes - to bridge the gap until new economic growth takes form.

Growth will have to come in the form of domestic production of goods and services for export and to serve as a substitute for imports. Fords and Florida vacations rather than BMWs and trips to Europe. California wines sold in France rather then French wines sold here (OK - that example is a stretch). Domestic energy production in all forms rather than energy imports.

This implies that either the global economy must grow rapidly to serve as the engine of growth or the dollar must be devalued to create new jobs in spite of less consumption.

I see two distinct advantages for Q. E. in this respect. First it prevents asset value depreciation from further exacerbating the already severe bank solvency and household wealth crises, and secondly, it lowers the value of the dollar thereby forcing other nations to stimulate their domestic economies rather than rely on the deficit spending operations of the United States.

Seriously, can anyone come up with any other way for the Fed to stabilize the economy and achieve the combined objectives of price stability and full employment?