In a recent Time magazine interview, Janet Yellen, incoming Chair Woman of the Federal Reserve, defended QE as being not just for rich people.
“You know, a lot of people say, this is just helping rich people. But it’s not true. Our policy is aimed at holding down long-term interest rates, which supports the recovery by encouraging spending. And part of it comes through higher house and stock prices, which causes people with homes and stocks to spend more, which causes jobs to be created throughout the economy and income to go up throughout the economy.”
Ms. Yellen outlined all that is wrong with QE and the Keynesian approach to central planning of an economy. We will focus on just one of the flaws of such approach here. The converse of Ms. Yellen’s statement is also true. When QE ends and home and stock prices drop we will have less spending which will weaken the recovery.
Thus, “Live by QE, die by QE.”