Tuesday, October 19, 2010

Fed shows much more quantitative easing despite its failure so far

quantitative easing is a Federal Reserve strategy that chairman Ben Bernanke has employed before, and he wants to do it again in another effort to jump start the economy. Solely on the expectation that the Fed will invest in additional Treasuries to flood money to the system, the dollar is worth less, as are treasury yields, stocks are rising and the price of oil, gold, silver and commodities for instance corn have increased. Yet joblessness remains persistently high, the primary threat to economic recovery, based on Bernanke.

Deflation halted by QE2, claims Bernanke

When trying to work with joblessness troubles, quantitative easing is the only method to go considering interest rates are at nearly zero. Unemployment might turn into a debilitating cycle of deflation, according to Bernanke. He said this in a speech in Boston on Friday. According to CNNMoney.com, Bernanke thinks the Fed ought to stop trying to limit inflation. Inflation can be too low right now anyway. Pumping much more money to the economy is a great thing then, called quantitative easing. This will make the economy have more money. The Fed has increased the money supply by purchasing almost $2 trillion in assets since 2008, to little effect.

How the idea of QE2 has affected the economic system

The Fed has a meeting planned for November 2-3. This meeting is where the Fed will probably announce the QE2. The economic system has been changing a lot, accounts the Associated Press, even since Bernanke started hinting that an order for QE2 might take place then. Oil went up 10 percent in price. Americans are paying $400 million more a week for gas. An 11 percent boost in gold has occurred making it rise to $1,377.60. A 30 percent rise took place with corn futures. 4.19 percent is the average interest rate on a 30-year mortgage now. The 1950’s was the last time it was that low. There was a .55 percent fall in the average interest rate paid on a one-year certificate of deposit. The unemployment rate remained stuck near double digits.

Why we will not see WE2 for long

Bernanke explained that the QE2 had to help the economy when he had been in Boston. Of course, a rise in positions and decrease in joblessness along with increased spending and a better corporate revenue are what you’d expect from a weak dollar and low interest rate. Much more quantitative reasoning is not the answer, states Kevin Giddis of Morgan Keegan. It hasn’t worked yet, according to CNNMoney.com. “I do not think getting securities is going to pull the economy out of a ditch,” he said. “The industry isn’t purchasing it. We’ve made money available freely for a when now. The Fed has to start thinking way outside the box. This is not a war where conventional weapons can be used.”

Articles cited

CNN Money


Associated Press


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