My Mortgage Blog

There's something that I'll probably never understand. Let me try to explain what I can about this mystery.

You will recall that the Federal Reserve reacted to dicey economic problems by erecting a quantitative easing program. In its third version, which ceased to exist in October of last year, the Fed was printing bushel baskets full of money, which were then spent on the purchase of mortgage-backed bonds.

The Fed created a big, unfailing market for those bonds in the process, and a surfeit of buyers for bonds meant the prices on those bonds remained quite low. Thus, the Fed supported low interest rates and, in the process, gave the real estate market a helping hand.

Now, when it first announced this program, a lot of people were deeply concerned about what it might do to the rate of inflation. After all, when we've talked worriedly in the past about inflation, one of the most damning phrases thrown out at the Fed was that it might be "Printing money."

"Money for nothing and your chicks for free" was, effectively a formula for rising inflation. We're talking about money that has no real anchor in the actual economy. Now, as--and if--that money were to be paid back to the Fed (and much has) that would constitute a classic inflationary event ostensibly. The Fed would truly receive money for nothing, which it could spend on most anything.

One of the things we quickly realize here is that the world economy--indeed, the national economy--is far from an airtight system. The Fed--and Congress--can mess with the numbers if it can argue it is helping the smooth fiscal running of our nation. (Anyone who disputes this is invited to read our Constitution but we'll save that discussion for another day.)

 Okay. Cutting to the chase here, at last, what we find is that the economic world expressed great angst when the Fed started to hint that it was about to deconstruct Quantitative Easing Part 3. Solemn articles were written that promised rising inflation and debilitating hikes to interest rates--hikes that could slow or even stop the growth of our economy.

None of this happened, as you doubtless know. In fact, the Fed slowed the QE program to a sliding stop and--what the?--interest rates actually fell.

Now, I find myself wondering as I approach sleep each night: Did the Fed do the right thing? Was its QE3 program a success? Did it stop the program in just the right way at just the right time?

If so--or if not--why didn't anyone write about it? Where are the op-ed pieces praising the QE3 for helping the economy avoid a decline?

I'm still looking for one--though that doesn't mean they don't exist. I just received an essay, written by David Stockman, arguing that we're right now beginning to suffer from the profligate printing of money in the recent past.

Personally, I'm not satisfied with that knee-jerk analysis. But I wish someone would deliver us a clear argument about whether the Fed succeeded with its unnerving save-the-economy programs, and exactly how that worked. I'm feeling like someone who's been watching the Super Bowl, and the game was abandoned because of technical problems, and I'm still wondering: Who, if anyone, won the game?