“Green economy” doesn’t exist in America :), and even if high energy costs make it feasable, it will benefit Chinese companies and create almost zero employment in the US.

Either FED is crazy, or they are pumping inflation in China to break the yuan peg, targeting political unrest there. This is very very dangerous game…

Btw, Wall Street transactions go towards “Services” in GDP, but apparently that doesn’t translate into positive news to the average person. Neither are postive the GDP “services” in the ever rising healthcare costs…The average American just affords neither or less of these services, but statisticly they are increasing share in GDP, since their cost is rising with double digit % annually…And please people don’t just focus on “unemployment”, it means nothing. You may have low unemployment and decreasing income, which was America for the last couple years.

My point is that FED initiated money pumping, and there is no meaningful fiscal policy. All these printed money will just pour into capital and commodity markets, when the US economy is structurally consumer based. With effectively regressive income taxes, it will correspond to even higher deficits – hence the effect will be stagflation.

While true to some extent, it is the “material goods” that will be most impacted by the higher material costs. At this point our domestic economy is heavily slanted towards services. Inflation will result in reduced wealth (as goods will cost more) and reduced demand for goods (as people will not be able to afford as much), but I’m not sure that translates into another wave of domestic unemployment.

Rather, I would expect unit imports to decrease. The dollar value of imports might actually INCREASE, but simply because each unit costs more.

Rising costs (at least for material goods).
+ Flat wages
= Hard times

If so, that is even scarier than what Bernanke is doing. Bernanke is either a genius or the dumbest guy on the planet. Either way, until the verdict is in, I’ll bet we see no change in employment, job growth or any other economic indicators that might point to better times.

Hunker down folks, it looks like it is going to be a very rough ride…

Mr. Hoenig has it right; this whole QE II business is ill-advised and will backfire, badly, at some point.

If any finger-pointing is required, best to aim at the White House, where fiscal policy – if indeed there is ANY fiscal policy at all in the Obama administration – resembles a massive train wreck.

Simplistic I know, but physical infrastructure will still exist long after a bond bubble has burst, and there are plenty of unemployed construction workers available.

Is this just too, well, Keynsian for anyone in the US to contemplate? Or is it too focussed on blue collar builders rather than wall street?

We are coming off thirty years of almost non-stop economic boom, and as a result have a large bill to pay. By the time all is said and done, both margins and earnings will be compressed for all market participants. Corporations will see lower profits (and heavily leveraged businesses will fail). Individuals will see lower wages. Unemployment? It will be with us until the wages fall to the point that hiring American labor/business is cheaper than importing.

I don’t like that assessment any better than you do, I just don’t see any way out of it. Whether you call it a “depression” or a “business cycle” or a “correction”, it is likely to be brutal.

Now these are some serious deflationary pressures. That’s a hard “answer” for an economy that is already carrying a very high level of credit. Either you end up with a massive round of defaults/foreclosures (if the banks can ever find the original notes they supposedly put in safe-keeping) or you generate inflation to devalue the debt. The wealth destruction for savers/retirees occurs either way, but inflation is less disruptive than the collapse of the entire financial system.

Thus the Fed has to find a way to produce inflation despite an economy that is screaming for deflation. They might prefer a more modest rate of inflation (perhaps 3% to 5%), but at this point they’ll take whatever they can get. And if they keep trying hard enough, EVENTUALLY they should be able to succeed.

Call it irresponsible? Indeed it is.

If things get out of hand, the Fed can reverse course and raise rates.

Increased fiscal spending would be better, but our political system is too broken for that to happen. QE2 is the best available alternative.