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Why Qe2 Doesn’t Matter
The first thing to understand about the credibility of this new “QE2” program is the Federal Reserve admits it doesn’t know if it will work. Think about that for a second. What does it say that the Fed would be willing to shoot hundreds of billions of dollars into the market without knowing if it will work? It says the Fed is desperate and things are worse then they appear. So, what exactly are we talking about with this new round of quantitative easing? Well, the Fed has announced it is going to use up to $600 billion to buy bonds. The bonds will be purchased from banks, which should add $600 billion to the amount they have to loan potential homeowners and businesses. This “bond bailout” will be done at a rate of roughly $75 billion a month. Ideally, this new funding will get banks lending again. Individuals will have money to start buying homes once again, a move that will fire up the decrepit real estate market. The money will also be loaned to businesses that can grow and hire new employees, a move that will slash the unemployment rates. If you believe this will happen, I have a certain bridge I would like to sell you. The problem with this round of quantitative easing is the focus. Bank and corporations are currently carrying huge cash balances on their books. They don’t need more money. What they need is something to motivate them to start using that money, to wit, the worst is over. The fact that corporate and bank insiders on the stock market are selling their shares at a rate of over 3,000 to 1, suggest the worst is yet to come. Given this, the money the Fed will kick out will just go onto the balance sheets and not be used. That is why QE2 doesn’t matter…except to the devaluation of the dollar. Article Directory: http://www.articledashboard.com Richard A. Chapo is with SanDiegoBusinessLawFirm.com - providing a host of legal services including California incorporation services for businesses. |
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