QE Forever?

by Ed Ylagan, Mawer Investment Management

This past week I have been battling a cold which has, as many of you can imagine, turned my daily routine into a bit of a grind. Despite the fits of coughing, sneezing, and lack of sleep, I have generally been of the opinion that one is best served by allowing their body to recover from a cold on its own accord. That being said, this particular cold packed enough punch to break my resolve and I have since undertaken some “easing” measures to hasten my recovery.

The first round of my treatment program was the deployment of lozenges to combat my irritated throat. Although tasty and mildly soothing, I soon realized that throat lozenges were pitifully inadequate to deal with the problem. As such, I launched round two and turned to Lemon Neo Citran coupled with early bedtimes. After a brief period of temporary relief, I am unhappy to report that this combination also proved unsuccessful. As I enter the third round of my coughing and sneezing easing armed with a particularly potent brand of cough syrup, I can’t help but observe parallels between my own treatment tactics and the Quantitative Easing (QE) measures of the U.S. Federal Reserve.

Last week Ben Bernanke, the Chairman of the Federal Reserve, announced that the U.S. Central Bank would engage in a third round of QE in order to hasten the recovery of the U.S. Economy. In particular, Mr. Bernanke alluded to the persistent high unemployment rate as a “grave concern”. Now, the good news is the Federal Reserve recognizes that the pain caused by high unemployment is intolerable and thus, requires treatment. The bad news is that the QE measures taken by the Federal Reserve may be likened to my throat lozenges, Neo Citran, and cough syrup in that although each initiative offered temporary relief, all may prove to be disappointingly ineffective in the long-run. And worse, there could be unintended consequences.

Ed Ylagan

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