Many have asked whether Milton Friedman would have favored the type of massive quantitative easing which the Fed embarked on today. I have argued that he would not. In tomorrow’s Wall Street Journal, Allan Meltzer addresses the question and concludes even more forcefully: “I am certain he would not.” See also the piece in today’s Financial Times by Martin Feldstein with similar criticism of quantitative easing.
One issue which is not addressed by these pieces is the argument that the rise in the stock market since late August, when Ben Bernanke started the march toward QE2 at Jackson Hole, is evidence in support. I view the stock market behavior differently. The recent rally began in July, but was interrupted by the highly argumentative and downbeat FOMC meeting on August 10, which Bernanke clarified in Jackson Hole on August 27, and then the rally continued, bolstered by good earnings reports and strong growth abroad, not, in my view, by anticipations of quantitative easing.
But at times like these we need a little humor. This cartoon is from the collection of Hank Blaustein posted on Jim Grant’s Interest Rate Observer web page, where you can purchase this and other cartoons in a 4″ x 4″ reproduction, signed by the artist.