The last issue of Barron’s for 2012 included editorial page editor Thomas G. Donlan‘s assessment of one of the year’s most unfortunate developments.
To those of us who see history through an economic lens, 2012 may contain a great, though unfortunate, turning point. Monetization of the federal debt — the unlimited purchase of Treasury bonds by the central bank — became national policy.
What Ben Bernanke and the Open Market Committee of the Federal Reserve did in 2012 built upon the whole government’s mistakes of 2008, 2009, 2010, and 2011. But hedge-fund-type financing, quantitative easing, and Operation Twist could be excused as temporary responses to a financial emergency, like opening fire hydrants to douse a fire in a large building. In 2012, the expedient became permanent, like leaving all the hydrants open until the reservoirs are empty.
The Fed, in case you missed it, announced that it will not raise interest rates — currently indistinguishable from zero — until unemployment goes below 6.5% or inflation goes above 2.5%. With a policy like this, the U.S. may never again have a normal economy.
