Dirty, Easy Money

Article excerpt

Byline: Niall Ferguson

While the GOP met in Tampa, titans of finance flew to Wyoming.

Which mattered more to you last week: the Republican National Convention in Tampa, or the Federal Reserve's annual economic-policy symposium in Jackson Hole, Wyo.?

If you're just managing to get by, then it was the former. In his barnstorming speech, Paul Ryan nailed it again: "The issue is not the economy that Barack Obama inherited ... but this economy that we are living. College graduates should not have to live out their 20s in their childhood bedrooms, staring up at fading Obama posters and wondering when they can move out and get going with life."

Direct hit.

But if you're one of the fortunate few who manages anything above $100 million in financial assets, it was Jackson Hole you were watching, for any sign of fresh monetary stimulus from Fed Chairman Ben Bernanke.

Everyone knows about the fiscal cliff of spending cuts and tax hikes that the United States is going to hit at the end of this year, barring some miraculous bipartisan agreement. But could there also be a monetary cliff?

The Fed has thrown a lot at our ailing economy. It has slashed interest rates to near zero--and promised to keep them there until 2014. In the wake of the Lehman Brothers bankruptcy, it bought all kinds of toxic assets to avert a chain reaction of bank failures. "Quantitative Easing 1" was followed by QE2 (purchases of Treasury securities), resulting in a cumulative threefold increase in the monetary base. Bernanke's most recent gambit was "Operation Twist" (exchanging short-term for long-term Treasuries).

If the Fed's mandate were to juice the stock market, Ben Bernanke would get an A. Since the last Jackson Hole meeting a year ago, the S&P 500 is up nearly 22 percent. But since the Fed's mandate is to achieve price stability and full employment, the grade is B- at best. True, inflation is--officially at least--around 2 percent. But unemployment is stuck at 8.3 percent. If I'd bought assets worth nearly $2 trillion, I'd be a tad disappointed by that.

The Fed is in a hole--a Jackson Hole. Some members of the Fed's Open Market Committee want to keep digging by providing the "additional monetary accommodation" that traders have been craving for months. They point to the latest Fed Beige Book, which reveals an economy that is still limping. …