Fed Is Printing Again

Despite Past Failures, Fed Looks To Print More Money

Recovery: The media have busied themselves with touting the big economic rebound they see brewing in the U.S. We hope they're right. But if they are, why is the Federal Reserve getting ready to print even more money?

The media argument goes like this: After years of struggling, the economy is finally churning out jobs. Last month alone there were 200,000 new ones, with unemployment falling to 8.5% — its lowest since Obama entered office.

This comes as a variety of U.S. economic sectors begin to show signs of life. And as they report this, the mainstream media can barely conceal their glee at the idea that Republican candidates might have to run against President Obama during an economic boom.

Boom? Well, the Fed doesn't see it that way.

Alarmed at the economy's slow pace, the ongoing slump in housing and the threat of European debt defaults, the central bank is preparing a third round of "quantitative easing" — the monetary equivalent of a defibrillator paddle placed on the economy's chest.

This is rather strange, given that the previous two attempts — QE1 and QE2— did little to help the economy. Indeed, those efforts may have so distorted markets and interest rates that they held back the recovery.

But say this for the Fed: It didn't sit on its hands. In those first two QE efforts, it bought $2 trillion of government-backed mortgage securities and federal bonds.

The Fed's idea behind this was to hold down interest rates and boost housing — a necessary prelude to reviving the entire economy. Only problem is, it didn't work.

Even with interest rates today below 4%, housing experts expect prices to continue to soften in 2012, and see mortgage lending falling to its lowest level since the '90s. Mortgage defaults are up, and housing's share of the economy has already dropped nearly 20% since 2005 to about 15% of GDP, according to industry data.

Worse, just-released minutes from 2006 Fed meetings show...