It is clear today – five years after our last crisis of 2008 – that the Federal Reserve’s program of “Large Scale Asset Purchases” (LSAP) is a losing proposition.
It is undeniable that the Fed has conducted an all-out effort to restore normal economic conditions over the last five years; however, while monetary policy works with a lag, the LSAP shows no measurable benefit. This lapse of time is now far greater than even the longest of the lags measured in the extensive body of scholarly work regarding monetary policy.
As I said it multiple times already, Quantitative easing never helped Main Street or the average American. It only helped big banks, corporations and investors alike. Not only have the Fed not improved matters, they have actually made economic conditions worse with their experiments.
So what’s wrong with the Fed’s policies?
1. The Fed never had a clear policy rule or strategy for asset purchases. Without such a framework, investors do not know the conditions under which (asset buys) will occur or be unwound. This undercuts the efficacy of policy targeted at long-term asset values.