The Fed’s new bond buying program is unlikely to do much, ifanything, to help the job market. The issue is not liquidity in thesystem. US corporations have $3.6 trillion sitting relatively idle.Private equity funds and private investors have plenty of cash toinvest. Individual balance sheets, while still a long way fromproperly balanced, are far better than they were in 2008. The issueis unprecedented uncertainty, fear, Obamacare burdens, and theregulatory threat that once you own an employee you may have a veryhard time getting rid of him, and the whole issue of tax reform andincreases and the fiscal cliff. Nothing the Fed does can alter thatfear. It is a set of policy issues on the fiscal and executiveside, and floods of even more cash is only setting us up for thepossibility of inflation and crowding out of private capitalraising in a few years when the Fed has to sell this portfolio.

While the Fed says it will hold rates at near zero until 2015,that seems a pretty risky projection. Nobody really knows what thenext three years will bring. Much depends on who is president andwho controls Congress. If Romney is elected with control ofCongress, then a lot of things will change. Federal spending willbe cut and hopefully there will be a complete reform of the taxcode. There is likely to be a view by investors and business thatthings will be much better and it is likely that the markets willrally and business might start to hire by late 2013 if they seepolicies implemented that deal with the issues of entitlements andtaxes. None of that is certain.

At some point, regardless of who is elected, the economy willimprove. That may not be until 2015 as the Fed predicts, but up itwill go. Then the Fed will need to sell its then $3 trillion assetsinto the market. That is one issue. The other is all of thisliquidity will cause inflation at some point. It is highly unlikelythat the Fed can carefully enough manage the sales of their bondholdings to get it just right. It will in some way disrupt thecapital markets. It will surely shift the interest payments fromstaying internal to the US, to external to foreign buyers of thebonds. Right now the Fed collects the interest and returns it toTreasury. When the bonds are sold then the interest is paid to thenew holders who are very likely many foreigners.