What is QE2 and what is it for?

Like you, I’ve been reading a lot to try and figure out what the deal is with QE2, the second round of Fed Chairman Ben Bernanke’s $600B “quantitative easing.” There are a number of theories circulating now that attempt to explain what Bernanke is trying to accomplish and if it will work. Here are some of the most interesting links I’ve found.

According to the Dallas News, “The way it’s supposed to work is that the Fed buys securities in the open market, paying with a government “check.” (That’s how the money is created.) The sellers deposit those checks into their banks. The banks redeploy those deposits as loans to consumers and business. The money supply expands and, in turn, so does the economy.

“Or so the theory goes.”

QE2 ben bernanke, what can qe2 do, qe2 bank bailout, q32 inflation, qe2 hosuing crashOthers, like Michael Pento, senior economist at Euro Pacific Capital, says “Hello Weimar Germany,” and believes QE2 is a complete failure for the seven things it does not do:

- Lower U.S. corporate tax rates.
- Reduce regulations that are “crippling” U.S. firms.
- Make U.S. workers more competitive vs. foreigners.
- Improve the U.S. education system.
- Lead to a balanced budget.
- Doesn’t lower unemployment
- Doesn’t stop long-term interest rates from rising.

Others, like the Wall Street Journal with its recent business-class fear of inflation open letter to Ben Bernanke, beg discontinuance of QE2 for a number of reasons.

Tracy Holloway at Seeking Alpha believes QE2 is another backdoor bank bailout. Ellen Brown thinks QE2 is a way to fund the deficit without raising taxes, just to keep the government’s doors open for day-to-day business!

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Perhaps the darkest theory is the notion that QE2 is a way to recapitalize banks ahead of the coming second housing crash. The thinking here is that banks still have way too many toxic assets on the books. QE2 is the first step along the way of helping the banks to right off those bad loans and start fresh with new capitalization subsidized by the Fed.

Let us know what you think, or plausible ideas you’ve read.

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Comments

  1. says

    Hi There Halfwaytoconcord,
    Thanks for the above, For the Fed it is inflate or die. If the Fed dies, the economy suffers a period of adjustment as too big to fail financial predators take their losses and capitalism reorganizes with financial institutions that actually serve the nation and the markets. If the Fed continues to have its way and inflates the currency, everyone loses, as all savers and investors and real capitalists will see their wealth destroyed.

    The Fed is a modern day Babel. Babel and Babylon signify total confusion. Usury banking originated in Babylon, which symbolizes the futile attempt of the oligarchs to enslave mankind. Under the Fed the dollar has already lost 97 percent of its purchasing power. Under QE to infinity it will be destroyed.

    This Babel of financial insanity is destined to fall. Hidden in plain sight in the Bible is a prophecy that at an appointed time in the future, there will be a great awakening and world wide debtors revolt.

    The Vision of Habakkuk, written around 620 B.C., reveals that this great awakening of the debtors is the key event to the collapse of a secretive world-controlling system that has been plundering the wealth of nations throughout history.

    Habakkuk was instructed to write the vision in big letters on tablets, making it plain (easy to understand) so that all that read it can run with it, communicating the message to others:

    Write the Vision and make it plain
    upon tablets, that he may run that reads it.
    For the Vision is for an appointed time.
    And it is not a lie. Wait for it, because it
    Will surely come to pass, and not delay
    When the time is right.

    Here is the core of the prophecy announcing the great awakening:

    Woe to the proud, who has taken what is not his,
    Making himself rich with loans.
    Suddenly the debtors will awake, as a man out of sleep,
    And they will bite him back, in an instant.
    As he has ruined the nations, so the nations will ruin him.

    The prophecy further declares that when you first hear of it, that you will not believe it, but that it is not a lie. When this event does occur, it will be a wonderful providential blessing for all mankind.

    It is prophesied and it will happen.
    Great Job!

  2. MT says

    Perhaps the darkest theory is the notion that QE2 is a way to recapitalize banks ahead of the coming second housing crash.

    Why is this the darkest theory, in a way it helps explain the conundrums created by the other theories…MT

    • says

      Thanks. It’s the darkest because it’s what I think is happening. But, it may be the only way to get all the bad loans off the books so fed can recapitalize banks so they can actually make loans instead of waiting for the other shoe to fall.

  3. Richard S. Colman says

    Printing too much money causes inflation. This happened in Weimar, Germany, between 1918 and 1923. What cost one German mark in 1918 cost $1 trillion German marks in 1923. In Hungary, from mid-1945 to late 1946 (just after World War II), there was a currency called the pengo. What cost one pengo in mid-1945 cost one quintiiion pengos by late 1946. (One quintillion is the number “one” with 18 zeroes after it.) During the Hungarian inflation, prices doubled every 13 hours. In America, we have “quantitative easing,” a fancy term to describe the printing of more dollars. When the American government, specifically the Federal Reserve, prints more money and the money goes into circulation, more dollars are chasing existing goods. The results is that prices rise — perhaps dramatically. Quantitative easing should be banned. (In fact, the Federal Reserve should be banned.) If the Federal Reserve prints too much money, America will become the next Weimar, Germany, or the next post-World War II Hungary. Does anyone want to pay $100 (or $1000) for a hamburger?

    Richard S. Colman
    Orinda, CA
    Nov. 22, 2010