As
@waltworks notes, feeling queasy about the Fed's asset purchases is a classic first world problem compared to the bread lines and mass unemployment of the past.
But as
@maizeman notes,
As long as central banks have predictable responses to given sets of economic stimuli businesses can plan and model for the future and make rational choices. Once central banks become unpredictable, businesses and investors waste a lot of time and energy trying to read tea leaves and put a lot of resources into trying to preparing for many different possible outcomes.
The money supply function of government is very much running on a script. We've learned that recessions can be mitigated or even avoided all-together through QE and low interest rates. In 2017-18, we learned that even a slight bump in interest rates or a modest reduction in the Fed's balance sheet could cause an outsized economic slowdown, so QE became a one-way street. The future has been established: rates must stay near zero and can go negative, and the Fed's balance sheet must expand forever. There would be severe political consequences for whomever went against this mantra and let a recession happen. No other path could possibly be chosen by rational leaders / voters.
A condition of full employment seems to be that lots of companies will have to operate with low-single-digit margins and high leverage, and to utilize business models that would be unprofitable if borrowing rates were more than a few percent. The goal of full employment, therefore, seems to require the engineering of a low-interest-rate regime permanently teetering on the edge of deflation. In such a world, businesses can continue with low-margin, marginally productive activities that employ a lot of people.
The US has been able to run massive government deficits and expand its money supply for decades because it controls the world's reserve currency, and essentially provides liquidity for the majority of the world's trade. If Brazil's or South Africa's or Singapore's economies grow over time, they need more and more USD to transact for things like commodities and debt instruments. The US's expanding supply of currency simply goes overseas and does not ignite inflationary pressures at home. Thus, people outside of the US tend to sell things to the US cheaply in order to obtain the dollars they need to purchase their own imports. This alone explains much of the US's prosperity. Dollars are our main export.
This external demand for USD is critical for absorbing government deficits and money supply expansion. If it ever reversed or another reserve currency took over, US inflation would rise dramatically, all those low-margin businesses would end, and the US quality of life would plummet to a level more in line with our material productivity. Fortunately for the US, most other contenders for reserve currency status are in shambles (the Euro system is collapsing and the renminbi is known to have a few devaluations ahead of it, plus China has tight currency controls so that it can maintain its mercantilist economic advantages).
Having the reserve currency gives the US the latitude to use QE to prevent or end recessions. It also helps that foreign investors scramble for dollars when recessions / instability occurs, conveniently bumping up demand at the same time QE occurs. One way of looking at it, is that the US would have experienced deflation for the last couple of decades had it not printed so many dollars. Thus QE is inevitable for both political and technical reasons.
The risk is twofold:
1) Asset bubbles form. Something like 70% of cities in the US are unaffordable for the median buyer. Stock market and junk bond risk premia are lower than ever in history. US government debt is so expensive it yields near zero. As bubbles inflate, they represent a misallocation of capital toward what is essentially gambling. When bubbles pop, they wipe out a significant amount of wealth and reduce consumption for years.
2) High costs restrict growth. Want to start a business in an area where a small storefront rents for $10k/mo? Want to buy a home in Manhattan? Want to earn an annualized 10% per year investing in stocks over the course of a decade? Want to start a factory when factory workers cost $125k/year each? At some point, the costs are so high they prevent startups from occurring and households from forming.
The known outcome of all this is Japanification: Low interest rates on the threshold of deflation. Low-margin, highly-leveraged oligopolies that are essentially the government's pets. A struggling middle class where young people don't form households or have kids, they just try to stay afloat. Reduced innovation, as the incumbent monopolists secure near-zero interest rates with which to fund themselves in perpetuity, thereby keeping competition away. National debts in excess of 200% of GDP. Dramatically reduced capabilities to do things like put people on the moon, fight wars, or address significant social needs.