Wednesday, June 03, 2009

Quantitative Easing Explained

QE from the Financial Times

This gives a decent explanation of quantitative easing. The Federal Reserve has a vested interest in seeing QE work. If it doesn't work, they will simply lose billions of dollars. In fact, they already have unrealized losses on many of their "asset" purchases. To ensure their survival, the Fed simply has to continue printing money until inflation expectations exceed deflation expectations. To this extent, they are doing a decent job. Unfortunately, this will not help the unemployment situation very much and will lead to another credit bubble that will have to be deflated. If asset prices start falling even a little bit, count on the Fed pumping much more liquidity into the monetary system and inflating the crap out of the currency.

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