Here’s a very good article on the limitation of QE that I found by Googling “Limitations of QE” written a year ago.  He’s a Brit, and there’s very little information on who he is or what his credentials are.  Having said that, his article made a lot of sense to me — it was good analysis.  Paraphrasing: QE can work in the short term to re-ignite an economy, but eventually it will cause hyper-inflation unless the government eventually reduces its structural deficit to be able to handle repatriating the bonds it’s been purchasing during a deflationary environment that we *would have* been experiencing without QE.  At the end of the article, he showed his bias by stating that the U.S. economy would implode, by his best estimate by 2020, and that our deficits are unfixable because they’re baked into our political system via the structural checks and balances that we have via our separation-of-powers-based government.  But since his article was written, via a clearly horrible process called sequestration and a whole lot of arguing over higher taxes, we have done a pretty good job of fixing our short term deficit problem, down to 2.1% of GDP, or one-fifth of what it was at the peak of the recession.  Unfortunately, the deficit will begin to rise again starting in 2016, due to aging baby boomers drawing their entitlements. (From a NY Time article.)  Net, net, the Brit is a doom-and-gloomer, that, so far, has once again been proven wrong in predicting the future.

To my Opining:  The biggest problem this country faces, one that threatens its very existence via a potentially imploding economy, is our debt and deficit.  By hook or crook, we found a short term buy-some-time solution.  What remains is a long term unsustainable taxes-too-low / too-many-entitlements problem.  As I’ve written before, I couldn’t care less which side you choose to err on to fix this problem, it just needs to be fixed.  And if it is, I think you’ll see a HUGE confidence boost in the economy.  Instead, we get supreme stupidity from both sides of the aisle.  And I will take a couple shots here:  The Republicans have not yet faced the reality that the country has become more liberal, and act like children every time they get a chance to bring up this subject.  (By tying Obamacare to the argument this time around, I think the Republicans made a huge tactical political mistake…they’re gonna lose this battle, and are in danger of putting Pelosi back in the Speakership in 2014).  But, I hear very little to nothing from Obama on this unless the House Republicans are throwing said temper tantrum.  Obama is clearly not leading on this subject, and because he is the President, HE owns this, as do the Democrats.

So what do I believe will happen?  I believe in the USA.  I believe in its institutions, and I believe that the system will eventually fix this problem and that QE combined with lowering our structural deficits will get us out of this mess.  Whether that means that the Republicans are booted out of the House in 2014 and the Democrats, in full power, finally face the reality that even with massive tax increases on the rich that the entitlement programs are unsustainable, that they’ll fix the problem?  I don’t know.  I just think it will get fixed…like Warren Buffet said the other day, “We’ll go to the very edge of complete idiocy, but we won’t go over it.”

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