LUETKEMEYER: Following Japan on disastrous quantitative easing policy

Time to reverse course before it’s too late

Question of the Day

Should Congress make English the official language of the U.S.?

View results

This week, Ben S. Bernanke announced that the Federal Reserve would continue its misguided quest to ease our financial woes with purchases of $85 billion per month in mortgage-backed securities and Treasuries. This follows years of quantitative easing that has loosened our grip on sound monetary policy and created what many believe to be an artificial recovery.

What few in the Federal Reserve are discussing — but what everyone else seems to understand — is that continued quantitative easing comes with very real risks, including a dramatic increase in inflation rates, asset bubbles and long-term economic stagnation. Additionally, given the low rate of success that similar plans have had in other countries, it seems the Fed’s current program will pose significant dangers to the U.S. economy in the long run.

While many in Washington continue to focus on the economic crisis facing Europe, it is equally important to look west and examine the eerie similarities between Japan’s monetary policy and our own.

Since 2000, the Bank of Japan has progressively increased the intensity of its quantitative easing programs in response to stagnant growth and failures in its banking system. Today, the nation has few successes to share with the world. Japan, whose stock market peaked more than 20 years ago, has recently faced two major economic crises. In the last two decades, Japan’s average annual growth has been a sluggish 0.7 percent, with the country’s national debt soaring to nearly 200 percent of national output. This is despite the fact that the Bank of Japan has held short-term interest rates near zero since 1999 and has attempted to stimulate the economy by buying government bonds and growing its quantitative easing program. Between 1995 and 2008, years that included significant expansion of the country’s quantitative easing policies, the Japanese economy averaged only 1.1 percent annual growth. This month, Bank of Japan again expanded its asset-purchase program, attempting to solve its ongoing economic stagnation that has no end in sight.

If this sounds familiar, it is because our very own economy is on track to meet a similar fate if the government’s imprudent policies of overspending and quantitative easing are not reversed. Since 2008, the Fed has embraced quantitative easing with the goal of depressing interest rates and promoting job growth, neither of which have produced the results the American people deserve. During QE2, the economy grew at a rate of 2 percent, the slowest growth since the start of the recovery. Additionally, critics argue that quantitative easing by the Fed has pushed up commodities prices worldwide and weakened the dollar. While the intentions of the Fed’s policy experiment may be to promote economic and job growth, the results have been lackluster at best, with a real unemployment rate above 14 percent. Like in Japan, no amount of monetary stimulus by our central bank can replace sound fiscal policy and structural reforms. If the United States does not pay attention to the warning signs displayed by countries like Japan, our economic recovery could be stalled for years to come.

While Japan and the United States are not identical, our economies function in a profoundly similar manner, and it seems that we are on a frighteningly similar path. It is time for our central bank to take serious note of the pitfalls of this seemingly endless program. It is time to seriously consider the successes and failures of other nations because we cannot afford a decade of expensive and fruitless economic policy.

Rep. Blaine Luetkemeyer, a Missouri Republican, is a member of the House Financial Services Committee.

Comments
blog comments powered by Disqus
TWT Video Picks
You Might Also Like
  • Maureen McDonnell looks on as her husband, former Virginia Gov. Bob McDonnell, made a statement on Tuesday after the couple was indicted on corruption charges. (associated press)

    PRUDEN: Where have the big-time grifters gone?

  • This photo taken Jan. 9, 2014,  shows New Jersey Gov. Chris Christie gesturing as he answers a question during a news conference  at the Statehouse in Trenton.  Christie will propose extending the public school calendar and lengthening the school day in a speech he hopes will help him rebound from an apparent political payback scheme orchestrated by key aides. The early front-runner for the 2016 Republican presidential nomination will make a case Tuesday Jan. 14, 2014, that children who spend more time in school graduate better prepared academically, according to excerpts of his State of the State address obtained by The Associated Press. (AP Photo/Mel Evans)

    BRUCE: Bombastic arrogance or humble determination? Chris Christie’s choice

  • ** FILE ** Secretary of State Hillary Rodham testifies on Capitol Hill in Washington, Wednesday, Jan. 23, 2013, before the Senate Foreign Relations Committee hearing on the deadly September attack on the U.S. diplomatic mission in Benghazi, Libya, that killed Ambassador J. Chris Stevens and three other Americans. (AP Photo/Pablo Martinez Monsivais, File)

    PRUDEN: The question to haunt the West

  • Get Breaking Alerts