Sunday, June 19, 2011

Is QE-5 a possibility? (huh?)

I know we are still debating if QE3 is a possibility or not. However, there is not much to debate. Let me state a few points.

First, we need stimulus from the government. We need that stimulus to start putting people to work. Ideally, the people should create infrastructure that will be needed in the coming century rather than re-work the old one. I believe there are two such opportunities - one is green and other blue. I refer to the green energy and potable water management issues. However, if we are not sure that these are issues worth pursuing, we can re-work the old infrastructure. Mend the highways, fix the sidewalks, mend the piping etc. The key is to get employment up.

Second, any stimulus that creates monetary easing without an impact on employment will go waste. Well, it won't go waste exactly. It will eventually inflate bubbles in commodities or some other asset classes accessible to the rich. However, it will not start the engines of the economy in any sustainable way. Popular opinion rightly calls it kicking the can down the road.

Third, the burden of any stimulus, right or wrong, however, remains on tax payer. Hence, we do not have a lot of room on this matter. The tax payers ability to pay remains the upper limit for such luxuries. With the number of tax-payers on the decline, because of age and unemployment both, this is a shrinking pool. The governments could, in theory, allow immigration and thus increase the number of tax payers but I doubt they would come if job situation is weak. The most potent immigration idea was recently highlighted by mayor Bloomberg - entrepreneurship or start-up visa and visas with higher education degrees.

In sum, so long as these wasteful QE continues, we will need more. QE3 is a given. The question is whether we will be asking for QE4, QE5 etc. I guess we will be; till such time as employment is the focus of the QE. Thereafter, we won't need any. Let us hope QE3 is the right kind of QE.




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