It comes as no great surprise that Rick Santelli isn’t a big fan of the latest round of quantitative easing. The CNBC analyst tells Pimco chief Mohammed el-Arian that the QE3 will hammer retirement plans and the most responsible savers, and won’t solve the problem that the Fed wants to address — joblessness. Santelli has a lengthy rant about government policies that push greater central control and its interlocking effect on the Fed’s inflationary policies, but mostly he tells el-Arian that it’s not going to work:
Earlier, el-Arian admitted that the QE3 now looks like a Fed vehicle to explicitly introduce inflation as a last-ditch effort to generate some growth even as it degrades assets. Calling it a “reverse Volcker,” the Pimco chief offered some support for the program, but noted that the Fed was now in experimental territory, and that future generations would have to clean up the mess:
The Federal Reserve and Chairman Ben Bernanke not only are willing to tolerate inflation but actually are trying to create it, with a “mess” left behind for their successors to clean up, Pimco’s Mohamed El-Erian told CNBC.
The reason, the Pimco CEO said, is that the risks outweigh the rewards as the central bank tries to stimulate an economy that still is foundering three years after the financial crisis recession ostensibly ended. …
But critics charge that the balance sheet expansion, which will go well past $3 trillion, is causing inflation. Former Fed governor Kevin Warsh told CNBC last week that the Fed will have a difficult time finding an exit from the years of QE programs, a point on which El-Erian agreed.
“This is true for all central banks — the (European Central Bank), the Fed, the Bank of Japan, the Bank of England. We are so deep into unfamiliar territory, so deep into experimental mode, that we don’t know what the consequences will be,” he said. “Whoever comes afterward will have to clean up the mess.”
Former Morgan Stanley executive Stanley Roach told CNBC today that future generations would not only have to clean up the mess, they’d still have to solve the problem — because QE3 will work just as well as the first two voyages on paper printing did:
The U.S. Federal Reserve’s latest round of quantitative easing is not going to bring down unemployment nor put more money into the consumer’s hand, according to Stephen Roach, senior fellow at Yale University.
Roach, the former non-executive chairman of Morgan Stanley Asia, told CNBC on Friday that it was going to be “exceedingly difficult” for the new policy measures to bring the jobless rate down.
“I hobnob with all these macro theorists at Yale, they don’t see any evidence of a linkage between liquidity injections in the mortgage-backed securities industry and the labor market distress in the U.S.,” Roach told CNBC Asia’s “Squawk Box”.
CNBC noted the bet placed by the Minnesota Fed’s Narayana Kocherlakota, who had previously opposed another round of quantitative easing, but missed part of the deal:
The Minneapolis Fed President Narayana Kocherlakota added this week that the central bank should vow to keep rates near zero until the jobless rate falls below 5.5 percent.
Actually, Kocherlakota said it should continue until unemployment dropped to 5.5% or inflation hit 2.25%. QE3 may well drive that inflation number up long before we get past the mid-7s on unemployment, let alone start increasing the civilian population percentage rate from its 31-year low. Far from being an endorsement of Ben Bernanke’s QE3, it looks more like a short leash.