In his New York Times article "Give Jobs a Chance" Paul Krugman petitions the Fed to keep from tapering its bond purchases. America's central banks are in a tight spot. On September 18, 2013, the Federal Reserve was to have decided whether it would begin to reduce the eighty-five billion dollar per month bond purchasing program known as quantitative easing(QE) that it uses to support the economy(TheEconomist). .
Krugman states that if the Fed reduces bond purchases too soon, it could be extremely detrimental to the economy, but if this action were postponed and full employment were closer than had been anticipated, the reduction might cause only minor inflation. Krugman understands, as the market seems not to, that the current "recovery" could not survive without continuation of the massive monetary stimulus. Unfortunately, Krugman gives little attention to whether printing this cheap money can sustain the U.S. economy or whether markets only seem to be "propped up," leaving some to think the Fed must end QE or face a recession.
From Dr. Krugman's perspective, QE functions as a supplemental tool to help the economy recover. Surely this is the perspective of the Fed as well, and both fail to see the flaws in their stances. The program works by purchasing various assets mostly bonds, but also other securities, which raises asset prices, making the long-term yield low and driving up the price of other assets in a sort of cascade effect(Bianco). The Federal Reserve's large-scale purchases of Treasury securities may provide a moderate boost to economic growth and inflation, but it appears the U.S. markets are only up because of this stimulus, as if they were high on steroids. Of course, for the "stimulus-addicted junkies" on Wall Street, not tapering in September would only embolden them to believe that the next "hit" would come in October, and they would be right(Roberts).
