a time when moretraditional policy tools had been exhausted. the fomc majority pushed aside concerns that providing targeted support to housing is more properly the province of fiscal policy, and voted to proceed. from the start of qe3 to its conclusion, the fed ’ s portfolio of agency securities and mbs expanded by about $ 850 billion. in the latest version of its normalization principles, released this september, the fomc indicated that it expects to reduce its holdings in future years primarily through attrition. what of the expansion of the federal reserve ’ s holdings of longer - term treasury securities under qe3? fed purchases of longer - term treasuries amount to nothing more than the transformation of long - term treasury obligations into short - term obligations of the federal reserve. essentially, long - term government obligations are transformed into short - term government obligations. the government benefits from lower interest costs in the near term, but its future net revenues become more sensitive to future interest - rate increases. government finance problems are reduced today, at a cost of potential future problems. the larger bank reserves become, the greater is the government ’ s future interest - rate exposure. chairman ben bernanke famously said that “ the problem with qe is that it works in practice, but it doesn ’ t work in theory ” – qe3 seemed to succeed in pushing interest rates lower out bis central bankers ’ speeches along the yield curve, energizing the bond market and lowering the hurdle rate for discounting cash flows and earnings of companies whose shares traded in stock markets. 1 this came, of course, at the expense of savers who kept their money in the most basic of short - term investments. but this was a cost that the committee felt was exceeded by the expected wealth effect. well before last week ’ s fomc meeting, it seemed to me that qe3 ’ s effectiveness had waned while its current and potential future costs were mounting. i was thus an enthusiastic supporter of killing the program. indeed, i would rather we had never had qe3 in the first place. to this day, i feel that the costs of accumulating another $ 1. 7 trillion of treasuries and mbs will be shown to exceed the benefits. and yet, as i have said on countless occasions, drawing on former dallas fed board chairman herb kelleher ’ s love for bourbon, once we had qe3 in place, i considered it unwise

to roll. wodehouse ’ s perspective i happen to share a common bond with indians : i have long been a reader of p. g. wodehouse. 4 in his book, big money, published in 1931, he has a wonderful passage in which a young lad nicknamed biscuit describes the woman he has fallen in love with : “ … when i think that a girl can be such a ripper and at the same time so dashed rich, it restores my faith in the providence which looks after good men. ” be it providence or the fed, the american business community is at present a “ ripper ” – it looks darned good – and is “ dashed rich ”. we are poised for a healthy, sustainable expansion. the men and women in this room see it in texas. i trust they will see it in the whole of the united states. and i trust they and others like them will use it to lead the world, including india, to expanded economic prosperity. thank you for having me here this evening. p. g. wodehouse is widely read and wildly popular in india. bis central bankers ’ speeches