“If at first you don’t succeed, try, try again. Then quit. There’s no point in being a damn fool about it.”
-W.C. Fields

Fields could have meant this advice for Federal Reserve Chairman Ben Bernanke, who has spent close to $1.8 trillion on two rounds of “quantitative easing,” QE 1 and QE 2, and achieved only mediocre results.

“Quantitative” refers to the creation of money. “Easing” refers to adding reserves that enable banks to conduct their daily business transactions.

Despite the half-hearted payback of our first two quantitative-easing programs, Bernanke could implement QE 3 in July in an attempt to:

Double the consumer price index to around 2 percent.

Decrease unemployment to approximately 5 percent.

Reduce long-term unemployment. Six million people out of our 13 million unemployed have been out of work for more than six months.

Bolster our weak housing market.

Increase living standards.

QE1, started in March 2009, was for $1.25 trillion. It was mostly “spent” on buying mortgage-backed securities to help our devastated housing market.

QE2, started in November 2010, was for $600 billion. It primarily involved buying U.S. Treasury securities. The primary goal was to lower long-term interest rates and raise housing prices.

QE 3 might entail outsized expenditures to overcome significant challenges domestically and globally, such as the devastation in Japan and the political turmoil in the Middle East.

Let’s look at how a QE expansion of bank reserves might bolster the economy.

Greater reserves would encourage banks to make additional loans. Business recipients of loan proceeds can make new investments in plants and equipment and can hire more workers. Higher employment would enhance demand, because workers have more money to spend. An ancillary benefit of QE would be an increase in security prices and home prices, the so-called “wealth effect” of increased spending by people who feel better off financially.

On the other hand, let’s look at the QE risk factors and possible downside. Fed Chairman Bernanke said in October 2010 that “unconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used, so we know he’s aware of the risks.

QE is an imprecise monetary tool. Its impact cannot be measured nor predicted

QE 3 could stimulate the same type of super inflation that afflicted Germany after World War I.

QE 3 could induce a preference for hard assets such as gold and real estate.

QE 3 could be a dud if our banks imitate the Japanese banking practices of the 2000s, when they sat on their additional reserves rather than make more loans.

Bernanke defends QE 1 and QE 2, saying they:

Contributed to the reduction in systemic risks following the bankruptcy of Lehman Brothers

Helped curtail a downward economic spiral emanating from 2007 US recession.

Promoted a stock market rally in the second half of 2010

A majority of Americans now oppose using fiscal tools such as deficit spending to alleviate our high unemployment. The public might be more receptive, however, to compensating businesses for hiring and retraining new employees. They also might approve of providing incentives for companies repatriating overseas money to boost domestic plant expansions.

Bernanke is no fool. He understands that it would be preferable for the U.S. economy to gather its own momentum rather than be dependent upon an on-going “accommodative monetary policy.”

We probably will find out around July 4 whether he is willing to roll the dice a third time to keep the economy on track. Let us hope that this monetary equivalent of fireworks will brighten up our economy.

If QE 3 is a dud, Bernanke should follow Fields’ advice and quit.

Originally published in the Sarasota Herald-Tribune