November 15, 2010

Conservative Economists Call on Bernanke to Abandon QE2

Open letter to Fed chairman to appear in newspapers this week

A who’s who of conservative economists and pundits launched a campaign this week to urge Fed chairman Ben Bernanke (left) to abandon plans to purchase $600 billion in assets as part of its new quantitative easing efforts, commonly known as QE2.

The group, calling itself GrowPac, plans to submit an open letter as part of an advertisement to run in The Wall Street Journal and The New York Timeslater this week.

According to the group, GrowPac.com is a political organization dedicated to renewing America’s commitment to smaller government, individual freedom, private sector growth and strong national security.

“The Fed should not be making itself even bigger through these new asset purchases,” said David Malpass, GrowPac’s chairman, in a statement, “It’s going to channel cheaper credit to Washington and foreign countries at a time when we desperately need smaller government so small businesses can create jobs.”  

“The Fed should wind down its asset purchases. Buying more government debt won’t create jobs or growth.  We need a growth policy based on smaller government, a strong and stable dollar and fair, honest regulations. The Fed's stimulus policy supports government over the private sector and big business over small,” Malpass added.

The text of the group letter, as well as its signatories, follows:

To: Chairman Ben Bernanke
Federal Reserve
Washington, DC
 
Dear Mr. Chairman:
 
We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued.  We do not believe such a plan is necessary or advisable under current circumstances.  The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
 
We subscribe to your statement in the Washington Post on November 4 that "the Federal Reserve cannot solve all the economy's problems on its own."  In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.
 
We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.
 
The Fed's purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.
 
Respectfully,
 
David Malpass, GrowPac

 

Other signatories:

Cliff Asness AQR Capital   
Michael J. Boskin Hoover Institution, Stanford University   
Richard X. Bove Rochdale Securities   
Charles W. Calomiris Columbia University Graduate School of Business   
Jim Chanos Kynikos Associates   
John F. Cogan Hoover Institution, Stanford University   
Niall Ferguson Harvard University Author, The Ascent of Money: A Financial History of the World
Nicole Gelinas Manhattan Institute & e21 Author, After the Fall: Saving Capitalism from Wall Street - and Washington
James Grant Grant's Interest Rate Observer   
Kevin A. Hassett American Enterprise Institute Former Senior Economist, Board of Governors of the Federal Reserve   
Roger Hertog The Hertog Foundation  
Gregory Hess Claremont McKenna College   
Douglas Holtz-Eakin Former Director, Congressional Budget Office   
Seth Klarman Baupost Group   
William Kristol Editor, The Weekly Standard   
Ronald I. McKinnon Stanford University   
Dan Senor Council on Foreign Relations Co-Author, Start-Up Nation: The Story of Israel's Economic Miracle   
Amity Shlaes Council on Foreign Relations Author, The Forgotten Man: A New History of the Great Depression   
Paul E. Singer Elliott Associates   
John B. Taylor Hoover Institution, Stanford University   
Peter J. Wallison American Enterprise Institute   
Geoffrey Wood  Cass Business School at City University London    

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