The Dallas Federal Reserve is always on the forefront of very honest and unbiased research.  They certainly did not disappoint with their assessment of “Ultra Easy Monetary Policy and the Law of Unintended Consequences”.  If the Dallas Fed holds any clout in the Fed circle, then they might persuade Bernanke to disappoint on Friday.

Their lead-in for the paper gets straight to the point:

“…ultra easy monetary policies can eventually threaten the health of financial institutions and the functioning of financial markets, threaten the “independence” of central banks, and can encourage imprudent behavior on the part of governments. None of these unintended consequences is desirable. Since monetary policy is not “a free lunch”, governments must therefore use much more vigorously the policy levers they still control to support strong, sustainable and balanced growth at the global level.”

They go on through each negative artifact in the real economy and conclude with a few daggers:

“They create malinvestments in the real economy, threaten the health of financial institutions and the functioning of financial markets, constrain the “independent “ pursuit of price stability by central banks, encourage governments to refrain from confronting sovereign debt problems in a timely way, and redistribute income and wealth in a highly regressive fashion. While each medium term effect on its own might be questioned, considered all together they support strongly the proposition that aggressive monetary easing in economic downturns is not “a free lunch”…What central banks have done is to buy time to allow governments to follow the policies that are more likely to lead to a resumption of “strong, sustainable and balanced” global growth. If governments do not use this time wisely, then the ongoing economic and financial crisis can only worsen as the unintended consequences of current monetary policies increasingly materialize.”

Definitely worth the read as long as you are not already in a state of depression…