Wednesday, November 3, 2010

Bernanke: Why the Fed Is Doing QE2

Buy anything! Stocks, commodities, houses. Ben will make sure they will go up in price, as long as they are priced in the US dollar! (Just don't worry about the decline of the dollar.)

In the Op Ed for Thursday for Washington Post, Ben Shalom Bernanke writes:

The FOMC intends to buy an additional $600 billion of longer-term Treasury securities by mid-2011 and will continue to reinvest repayments of principal on its holdings of securities, as it has been doing since August.

This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

In other words, Ben promises that $600 billion (plus $300 billion from QELite) will boost the stock market, which in turn will give us a good enough illusion that things are going well.

I don't know whether I should laugh out loud or I cry.


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