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Quantitative Easing ??????
Old 11-05-2010, 10:52 AM   #1
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Quantitative Easing ??????

Good or bad, or just the usual smoke and mirrors brought to us by the friendly folks at the Fed ?

What say you ?
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Old 11-05-2010, 11:08 AM   #2
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Originally Posted by frayne View Post
Good or bad, or just the usual smoke and mirrors brought to us by the friendly folks at the Fed ?

What say you ?
Such a question is way above my pay grade.

qe2 - Google Search
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Old 11-05-2010, 11:24 AM   #3
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I would guess that it will have a small effect but won't make the economy roar back.

It does have an inflationary effect. And it does make the dollar go ever weaker. That's good if you are an exporter but not so good if you travel or buy anything from overseas.

The other effect it has is to piss off our trading partners. We have had all this rhetoric about not manipulating currencies and then we do it ourselves. Watch out below.

http://www.bbc.co.uk/news/business-11697483
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Old 11-05-2010, 06:01 PM   #4
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Originally Posted by frayne View Post
Good or bad, or just the usual smoke and mirrors brought to us by the friendly folks at the Fed ?

What say you ?
Mild positive effect. I'd expect this to hold shorter term interest rates (the 5 year and shorter flavors) down a little compared to where they might otherwise move, while adding a little inflation (to combat the deflation boogieman) and dropping the value of the dollar to help out exports. (Nobody buying at home, so for growth the economy is relying on exports.)

The Fed will probably start unwinding this in a year or so as the effects percolate into the economy, and barring the usual unknown unknowns , we'll see interest rates moving up then, inflation back to 2%, and capacity utilization finally moving up. Long term rates will probably move up first, as they tend to be more sensitive to possible inflation.

I don't see anything worth worrying about. We're unlikely to see any fiscal stimulus from the Powers That Be, and the Fed knows that, and is trying to do what it can using monetary methods. This is basically an increase in money supply, as another attempt to goose the velocity of money (Monitarist-speak for economic activity).
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Old 11-05-2010, 06:09 PM   #5
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The other effect it has is to piss off our trading partners. We have had all this rhetoric about not manipulating currencies and then we do it ourselves. Watch out below.

BBC News - China, Germany and South Africa criticise US stimulus
Yup. "Hey, guys, we can do that trick too!"

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Old 11-06-2010, 08:17 PM   #6
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The other effect it has is to piss off our trading partners. We have had all this rhetoric about not manipulating currencies and then we do it ourselves. Watch out below.

BBC News - China, Germany and South Africa criticise US stimulus
I do think there is a difference between monetary policy's indirect impact on exchange rates and direct currency intervention (e.g. China). The Economist, I think, has the right take on this . . .

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QE is unconventional monetary policy, but it is monetary policy nonetheless. When either conventional or unconventional monetary policy eases, certain things are supposed to happen: long-term yields fall, stocks rise, the exchange rate declines. All of which is happening now. If the Fed had just cut the Federal funds rate from 3.5% to 2.75% (roughly the equivalent of what its $600 billion in Treasury purchases should achieve), we should have expected exactly the same results, without the sturm und drang about currency wars.
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Old 11-06-2010, 08:31 PM   #7
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With respect to the original question, there seems to be two dominate views. There are those that think QE2 will have very little effect, and those that think it will be the end of the world. My observation is that those who think it will be the end of the world also thought the world would end because of QE1. In case you missed it, we're all still here even as QE1 approaches it's 2 year anniversary. What's more, inflation has continued to trend down during that time in direct contrast to warnings of impending runaway inflation. I don't have any reason to believe the alarmists will be any more accurate in this round of apocalyptic predictions than they were with the prior ones. So my vote goes to the "It will have little effect" crowd.

But at this early stage, I have to say "so far, so good" with respect to actual results. Initial market reactions has been strongly in the direction hoped for by the Fed. The markets may have overshot, giving the Fed more credit for being able to deliver money growth than it can actually deliver. Time will tell. But at least the initial reaction is supportive, and financial condition indicators have improved meaningfully which, if maintained, should aid the recovery.
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