- QE4?!

Early risers like me know that CNBC's show Worldwide Exchange tends to be better than the shows they've designed for their American audience. But I heard something today which gave me a start.

One guest (I didn't get his name) suggested that the inevitable plan for QE4 will be to forgive the 1.4 Trillion in debt that the Treasury has issued and the Fed owns. This would be a disaster because it would make permanent the excess capital that the Fed has pumped into the system, and eliminate the option of removing it later. I don't think that would help anything. Even if it's done as a last ditch effort to preserve fiscal solvency, I think the result will be a collapse of the dollar and an implosion of the US economy.

This idea is apparently predicated on the idea that Fed Chairman Ben Bernanke is doing something horrible to the US economy by increasing liquidity. I disagree. I think the effects may be pernicious, but Bernanke is only doing what he's allowed to do to try to keep the ship of state from sinking entirely. And without action from him, I believe that's exactly what would happen.

He's not fixing the leaks - it's not his job to fix the leaks. That's congress's job. It's his job to keep the water level low, and he's doing it. As a result, we have not fallen into a deflation death spiral which would feature charming things like 25% unemployment and a cessation of all economic growth.

Either Bernanke does what he does, or we implode. But his efforts are temporary. In order to right this ship we need to change things - specifically our tax code and government spending. We need to quit pumping vast capital and resources into activities which generate zero (or negative) economic growth. Once we do that, I'm convinced Bernanke will step back and raise rates again.

I'm convinced that this form of QE is not on the table. There's no upside in it, and if I know it, Ben Bernanke knows it.