The Great Debate©: Does QE Prevent Recession or Cause It?

 Brad Delong, professor of economics at U.C. Berkeley, chair of the Political Economy of Industrial Societies major, and a research associate of the National Bureau of Economic Research and James Grant, editor of Grant’s Interest Rate Observer, face off on the effects of QE (quantitative easing).  The venue is a video (below) produced by the Wall Street Journal.

DeLong maintains that QE is essential to support the economy while solvency issues are being resolved and is the way to avoid a serious deflationary depression.  Grant argues that the liquidity produced by QE, combined with ZIRP (zero interest rate policy), has the result of destroying the the financial integrity of the saver while producing further asset bubbles.  He says that the collapse of the new bubbles will create a new recession. 

This video goes right down to the bare knuckles fight in the debate between the austerity and stimulus camps.  There has been discussion, analysis and opinion on this topic for months at Global Economic Intersection, the three most recent articles listed below.  The discussion can be followed further by reading the related articles listed in each of these three excellent posts.

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QE3 Options  by Edward Harrison

Money and Trading 101  by Stephanie Kelton

Savings Rate Disparities  by Michael Pettis

Is Adam Smith Partly an Economist, or Wholly a Moral Philosopher?  by Brad DeLong