Bernanke may have hidden agenda in printing money

When US Federal Reserve chairman Bill Bernanke announced his latest exercise in money printing last Thursday, he said he would keep the presses running until the US job market begins to improve.

The idea is that by buying US$40 billion in mortgage-backed securities each month, the Fed will flood the US financial system with fresh liquidity and push down mortgage rates, encouraging businesses to invest and home buyers to return to the market.

If that's the Fed's real objective, it's unlikely to succeed. Mortgage rates are already at a record low, and with benchmark interest rates at zero, they are hardly going to go much lower.

What's more, two previous rounds of quantitative easing, plus the Fed's ongoing "Operation Twist" programme of securities purchases, have had little impact on jobless levels.

It's true that the headline rate of unemployment has fallen from almost 10 per cent two years ago to just over 8 per cent. But the decline is misleading. People only count as unemployed if they are actively looking for work. In the past couple of years, many have given up the search, dropping out of the official unemployment statistics. As a result, the labour force participation rate has fallen and the number of jobless Americans has continued to rise.

There's little reason to believe that the latest round of quantitative easing - dubbed QE3 - will be any more effective.